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The Cannabis Markets In Latin America: A Snapshot By Expert Analysts

October 30, 2020 8:46 am
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Regulatory, economic and pandemic-related hurdles have held up Latin America’s success as a global exporter of cannabis.

In an enticing live panel, Cantor Fitzgerald Analyst Pablo Zuanic interviewed experts from the region in order to get a clear understanding of the current state of affairs.

“The trend is positive in the continent,” said Alfredo Pascual, Cannabis Analyst at MJ Business Daily. “But it’s just starting.”

Domestic Markets Are Off to a Slow Start

“I would start by saying that there is no developed market in Latin America as what you can see in the US or Canada,” said Pascual.

While many countries in Latin America have passed some kind of cannabis legislation, that hasn’t yet translated into active markets in the region. This is especially true for five of the six countries that make up 80% of the region’s GDP: Argentina, Brazil, Chile, Mexico and Peru. 

Colombia is the only example from that group where a domestic market is gaining momentum.

Brazil is the most significant market in the region, but merely for the size of its population, Pascual says. Most patients accessing cannabis in the Amazonian country today do it through a compassionate use act, with less than 20 thousand patients in the program, a very low number compared to the country’s 211 million inhabitants.

Mexico and Argentina could become major domestic markets, and both have passed positive legislation since  2017. However, laws were never implemented and very few patients today are accessing medical cannabis in those countries. 

Mexico is patiently waiting for its market to become regulated. Mexican companies expect Dec. 15 to be the final deadline where the Senate finally passes a long-awaited federal adult-use law.

Pascual thinks that the event could be pushed forward, since it has been delayed twice already in 2020.

In all markets except for Colombia, there’s rarely any patient access to THC-rich products, with CBD being the main ingredient in preparations.

Uruguay is currently the only country in the region with an adult-use program, which is small given the country’s population of just 3.5 million. In the first three years of the program, only 4 metric tons of cannabis were sold, producing about $5 million in sales.

“It’s an interesting fact that Latin America also imports quite a lot of its products,” says Pascual. 

Most patients who have access to cannabis in the region do it through individual import permissions given by compassionate use access measures. Some choose to import from neighbouring countries, but imports from other markets like the U.S. and Canada are also common.

Peru is becoming the leading importer in the region, given that domestic production has not yet been regulated.

Export Potential

“Exports From Latin America are already happening,” said Pascual, in reference to recent deals led by Uruguay and Colombia.

However, these exports have been limited. Colombia, for instance, has allowed exports of cannabis flower for research purposes only.

Uruguay has exported over $7 million in cannabis flower, with Portugal as a main recipient. Hemp-flower sold as a recreational tobacco substitute has also been exported to Switzerland.

Pascual said that many companies and policy makers are not fond of the idea of exporting flower, as opposed to value-added products like oils and concentrates. The comment echoes one of the most recurring debates in the region, where actors from a more conservative side advocate for an extractive model based on the export of raw materials, while oppositors defend long-term industrialization plans.

Although value-added products can leave more margins and will generate more jobs, flower exports are a faster path towards revenue generation. Adding to that, Pascual points out that flower is commonly consumed by patients as a finished product, thus an important component of the international markets.

In Germany, for instance, dried flower accounts for at least half of the reimbursed market within the statutory health insurance system, and even more considering the entire market.

Juan Diego Alvarez, VP of Regulatory Affairs at Khiron, agrees with this point, as long as companies can have a guarantee that the exported flower will be used as a final product, and not processed further.

North American countries present a valuable opportunity in terms of export potential, for their proximity with the region and their market size.

Given federal restrictions, the U.S. can only import CBD products or pharmaceutical-grade THC products approved by the FDA. However, the current commoditization of CBD occurring in the country could turn out disadvantageous for Latin American exporters. 

Canada has not shown a significant interest in importing cannabis due to its own oversupply.

Europe is growing as a possible candidate, but Pascual recommends companies to be cautious about inflated market expectations from the old continent. Germany, he says, is not becoming a major importer any time soon.

Israel, who has recently passed Germany as the largest importer of cannabis in the world, could be a possible destination for exports, but might eventually reject imports due to a rise in domestic production.

Finally, Khiron’s Alvarez commented that in order to thrive in the international markets, regulation is crucial for ensuring a high-quality production. This can also be provided by the use of data systems that can help understand consumer needs and develop better products.

Colombia Vs. Uruguay

Colombia and Uruguay have the most advanced regulatory frameworks for cannabis production in the region, Alvarez says. “I would say that Colombia is the most advanced market in terms of production and permits,” he added.

His company is based in Colombia, a that country stands out for having a large diversity of license holders (over 1,000) and a large domestic market.

A recent recognition from the federal government puts cannabis as a strategic commodity, advancing regulatory processes with unprecedented speed.

As for the domestic market for THC products in Colombia, Alvarez said that “it’s a reality, and it’s a growing market.”

Pascual, who has Uruguayan roots, thinks there’s a tie between the two countries in terms of regional leadership.

“They both have different advantages and disadvantages,” he said. “In the case of Uruguay, it’s possible to export flower." This has generated substantial revenue for Uruguayan companies, while their Colombian counterparts have struggled to build income from operations of the sort.

In terms of a domestic market, Colombia’s regulatory framework is more advanced, Pascual added.

Lead image by Ilona Szentivanyi. Copyright: Benzinga.

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Cannabis Markets

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