Latin America’s Cannabis Belt Is Going Legit
WHY YOU SHOULD CARE
This emerging cannabis belt in the tropics could be the best place to grow and make medicinal marijuana.
Small, single-engine airplanes have flown illicit drugs for years from the fertile ridges of the Andes or the coastal plains of Mexico’s Sinaloa to buyers who distribute them all over the world. Then drug traffickers launder the proceeds from mafias in Moscow and Hong Kong all the way back to safety in Latin American real estate.
Now, a new batch of Latin American deals is in the works. This time, the drug is a highly tested yellowish oil. It ships on cargo flights from international airports without worrying about authorities. That’s because the export of this once vilified Latin American product — cannabis — is on a path to becoming legal for medical use across the region. And a growing group of Latin American startups is now plotting to out-compete Canadian greenhouses on cost and wrestle market share away from North America in the marijuana industry.
Since 2017, dozens of cannabis companies have registered with licenses and facilities in Colombia to manufacture a range of products. Clever Leaves gained regulatory approval in March to launch commercial cultivation of cannabis for medicinal purposes. It expects to produce 2,500 liters of extract this year. Another start-up, Khiron, which launched in 2016, manufactures skin care products with CBD oil under the brand name Kuida. In Mexico, pharmaceutical company Mino Labs is working on health and wellness products with Colombia’s PharmaCielo. And Chilean firm Daya is already growing flower buds.
There’s no question the global cannabis market is going to flip upside down.
Andres Fajardo, CEO and co-founder, Clever Leaves
These startups are expanding across country borders, in a region that in recent years has changed its attitudes toward cannabis. Uruguay paved the way with cannabis legalization in 2013, and other countries in Latin America, like Peru and Chile, are matching Colombia’s increasingly flexible commercial regulations with their own. Kuida, for instance, is applying to enter the Mexican and Peruvian markets.
But their ambitions aren’t regional — they’re global. Khiron plans to start distributing Kuida in the U.S. market by the middle of this year. It wants to sell 120,000 units of skin products in the U.S., Colombia, Mexico and Peru. And Cleaver Leaves is eyeing Europe for its next move.
“There’s no question the global cannabis market is going to flip upside down. It’s not a question of if,” says Andres Fajardo, CEO and co-founder of Clever Leaves. “It’s a question of when.”
Part of what’s helping these companies launch attempts at redrawing the global cannabis market is a set of advantages over their peers in North America: 12 hours of sunlight year-round, low-cost greenhouses and electricity, and cheap land, says Fajardo.
Holding that edge could prove critical at a time when the world’s medicinal cannabis market is expected to reach $146 billion by 2025, according to Grand View Research. The current size of this market is estimated at $40 billion. The U.K. and Canada dominate cannabis production. By contrast, Latin America has long been battered by violence linked to drug-trafficking. Its cannabis market — legal and illegal — is estimated at $9.8 billion. The region’s commodity-based economies have suffered the whims of zigzagging global prices. For Chile, it’s copper. For Colombia, it’s coffee.
This is what’s on the minds of the entrepreneurs behind these startups that aren’t only trying to capture the value of a once illicit plant, but are trying to add value too.
In Bogotá’s Chicó district, the posh offices of Khiron buzz with professionals. Head of the company’s skin care business Elsa Navarro yanks her tight red scarf and presents a line of skin care products packaged in stylish bottles with subtle references to the cannabis leaf. There’s a $22 cream for those soft, fragile patches under the eyes and a skin rub for nighttime. There’s even a spray designed for relaxation.
To break the stigma? Colombian model, journalist and TV presenter Catalina Aristizabal — who is also a health-obsessed mother of two — is Kuida’s brand ambassador. The firm is advised by the wily former president of Mexico, Vicente Fox. At first, Khiron told Navarro she would be hired to oversee sales for a Colombian cannabis company. “Then that changed to a Latin America–focused company. Now we’re global,” she says with a nervy edge in her voice and a nod to the company’s rapid expansion. Early in January, she joined members of their legal team in pouring through tomes of European import regulations. “It was like 10 of us,” she remembers. “Italy? OK, it looks like we can export there. What about Belgium? Nope. Probably not.”
Black markets where cocaine and heroin change hands continue to plague societies around the world. That’s part of the reason why leaders and lawmakers in California, Denver and British Columbia started to rethink the uses of cannabis for treating pain, epilepsy, anxiety and other uses years ago, with legalization for medical cannabis starting in the early 2000s.
It echoed to the south. In 2016, a Colombian senator named Juan Manuel Galán Pachón pushed for a law that would legalize medicinal cannabis. Then President Juan Manuel Santos backed it, and a string of former Latin American presidents (César Gaviria of Colombia, Fernando Henrique Cardoso of Brazil and Ernesto Zedillo of Mexico) joined the chorus and lobbied for the world to decriminalize and regulate drugs.
“We not only have the right; we have the responsibility to leverage something that’s been painful for the country and turn it into something positive,” says Fajardo, whose team of organic chemists is cooking up pharmaceutical prototypes in a laboratory an hour outside of Bogotá.
Some veteran political observers fear that the high point of cannabis legalization may have already passed. Former health minister to the Santos government Alejandro Gaviria Uribe tells OZY he thinks that 2016 was the year in which the world broke away politically from a liberal rethink on drugs that had begun. “There was a moment of optimism when people were perceiving a change of rethinking drugs,” he says from his study in Bogotá. “After that, [U.S. President] Trump and [Brazilian President] Bolsonaro came to power … the conservatives are having their time again. And this could have an impact on the cannabis industry.”
He’s also worried about the market for a product like Kuida. “Producers of cannabis oil haven’t really pinpointed their market. … Where is that big market?” asks the former minister. Another concern is whether Latin American companies will be able to successfully eke out a true, value-added pharmaceutical product. Gaviria wonders if the future of cannabis will end up looking more like a feature of the commodities market, where barrels of varying grades of THC and CBD trade like crude oil or soybeans.
Ask a budding Latin American cannabis company about their profit numbers, and there literally are none. No major company so far has reported first-quarter results. And it’s not like competition from North American producers just dried up. Actually, the big Canadian pot producers, such as Aurora and Canopy Growth, have already planted roots here to challenge the native Latin American cannabis entrepreneurs.
Still, these Latin American companies are receiving the ultimate vote of confidence — from investors in the very countries whose firms they want to compete against. Clever Leaves and Khiron are both mainly backed by investors in Canada and the U.S. These investors recognize that the crop that gave Latin America a bad name could now reshape its identity — while bringing them and the region new wealth.