World perceptions of cannabis and its uses are changing at a momentous pace. This change appears to be concentrated in Latin America, as movements towards decriminalization sweep through parliaments in a number of pro-industry countries.
As a flow-on effect, the change surfacing in this agricultural industry is revealing highly profitable opportunities for business. As these opportunities are realized in first-mover countries and businesses, other governments race to harness the potential of this emerging industry.
We explore the evolving cannabis industry in Latin America and the timeline of legalization among key cannabis producers in the region.
Table of Contents
Latin America – Cannabis law reforms in the US and Canada
After decades of prohibition and criminalization policies, mainly led by the United States government since the 60s, changes around decriminalization that were applied in the domestic sphere had important consequences for the rest of the continent.
The legalization of medicinal cannabis (and some cases, recreational cannabis as well) in 28 states proves that the era of regulation is now a reality for some, and imminent for others. In the same vein, Canada also recently changed its laws on cannabis. It is now regulated for both medical and recreational use in the North American giant.
What’s driving reform?
The promise of economic growth
According to Energias Market Research – a provider of in-depth market analysis – the cannabis industry is on the rise with an expected global growth rate of 19.1% from 2018 to 2024. In numbers, the industry’s value will significantly increase, from US$8.28 billion in 2017 to US$28.07 billion in 2024. That means increased revenue and growth for companies and states that regulate the industry.
Research is still exploring the benefits and effects of cannabis use. To continue with research and development (R&D), some countries have decriminalized cannabis for medical and scientific purposes. Governments looking to take ‘baby steps’ in the decriminalization process appear quicker to approve the plant for research purposes only.
A recent survey published by the Washington Post shows that over half of American adults have tried cannabis at least once in their lives, and around 22% – nearly 55 million – have used the plant up to two times in the last year. The survey also shows that majority of Americans agree that using marijuana is socially acceptable.
Latin America in the global cannabis boom
Several Latin American countries hurrying to legalize the plant are jostling for positions as leading suppliers of the world’s cannabis market, based on competitive advantages they possess over other countries.
Uruguay’s pioneering legalization of cannabis in 2013 sparked a wave for more liberal policies and laws across Latin America. Since then, others have followed in Uruguay’s footsteps, or are preparing to become the next Latin American country to decriminalize. This includes Mexico, Colombia, Argentina, Peru, Paraguay, and Chile. All of them have introduced regulation towards the decriminalization of medical cannabis, hemp or cannabidiol (CBD) products.
With a population in Latin America of around 620 million people, the cannabis market is emerging as the next platform for global expansion for foreign investors. This investor appeal is based on three fundamental pillars:
- access to (low cost) quality land with ideal climate
- lower costs for production and labour
- strategic location (close to major consumer countries).
As a result, the region expects to be leading the medical cannabis sector in the upcoming years.
Opportunities for the region
Latin America is one of the biggest trade regions in the world. In 2017, the region attracted foreign investment capital totalling over US$161.7 billion. Agriculture, a highly successful sector across Latin America, is blessed favourable growing environment, generating low costs of production and making it a popular choice for investors.
Opportunity lies in producing cannabis and cannabis products. The same conditions that support a strong agricultural sector are similarly advantageous to the cannabis industry. The low cost of land and labour, low level of investment required, and the nearly year-round growing season makes cultivators eager to open up business in Latin America. Reduced overheads for growing cannabis leads to higher margins on exports and sales of cannabis.
Cannabis’ newness in Latin America also opens the doors for businesses offering cosmetic, food and beverage products – to name a few industries the versatile plant can move into.
Collectively, the Latin American cannabis market has a projected value of US$12.7 billion by 2028. US$8.5 billion of this is expected to come from medicinal cannabis. As governments and pro-legalization groups lobby for looser regulations on cannabis, the market will continue growing. Further booms in global demand are expected as more countries make accommodations for increased consumption and sale of cannabis products.
Emerging regional leaders in cannabis production
The five leading Latin American economies for cannabis legalization mentioned above are setting unprecedented examples for others to follow. Their progressive approach to cannabis production and processing has put them on a trajectory for global success.
Uruguay sparked the decriminalization trend
Being the first ‘experiment’ in the region, Uruguay is taking advantage of its pioneer status in cannabis production. After 6 years of legalizing cannabis in the country, monetary gains are emerging in Uruguay’s cannabis market. As an ‘old hand’ at cannabis regulation, market observers are keeping a close eye on the country, noting its advantages in export capability and connections to large trade blocs like MERCOSUR.
Silverpeak Life Science Uruguay Inc is one of the largest companies in the country’s medical marijuana industry. The company is currently making noise about investing around US$35 million this year into the emerging market to build a large extraction lab in 2020, which would effectively quadruple production.
Uruguay, surprisingly, has yet to see other significant investments like those that promise to boost the cannabis industry in the US and Canada. This could again be due to Uruguay’s status as one of the first-ever countries to brave the legalization process. Another theory is that the country’s outreach to potential investors has not extended to big buyers in North American markets.
Investment levels might pick up the pace as major cannabis producers and investors start to saturate Latin America’s cannabis hotspots. With government drivers and solid legal framework, Uruguay could become the first country to reach US$1 billion in annual exports of medical cannabis products in the next 5 years.
Colombia a high performer
After the government’s official formalization of its medicinal cannabis industry in 2017, the country is quickly pushing ahead of the pack to become a leading regional and global cannabis supplier.
With increasing support from its society after years of fighting illegal drug trade, the Colombian government is moving forward with ambitions to develop Colombia’s cannabis market into a global-scale competitor. The country intends to provide 40.5 tons of medicinal cannabis each year from 2019.
With the former president signing a bill to give cultivators the go-ahead, Colombia already accounts for roughly 44% of licenses issued globally.
Considering the medicinal cannabis industry is now worth around USD$31 billion, the industry is in its infancy and has the potential to cover a lot of ground before other actors enter the market with the same competitive advantages. Since struggling oil prices have lowered export revenues in recent times, this is a very significant opportunity for Colombia to diversify its economy and reduce dependence on natural resources.
The Colombia government has created a legal framework to operate in the industry of medicinal cannabis, allowing individuals and companies to sell and distribute cannabis seeds, cultivate cannabis plants (psychoactive or non-psychoactive), manufacture cannabis derivatives and export cannabis-based products to foreign markets. The government established four types of licenses for the legal manufacture of cannabis. As the Colombian government supports its claim for an open-market economy, there are no restrictions on foreigners entering this sector as long as they meet legislative requirements.
Peru building a legal framework
The cannabis market in Peru has great potential. In November 2017, the Peruvian government started the process of legalization of the use of medicinal cannabis through a bill. However, the government didn’t fully approve the legislation until a year and half later, in February 2019.
On 23 February 2019, the government approved the regulation of Law No. 30681 that permits medicinal and therapeutic uses of cannabis and derivatives. The law regulates the plant’s use and encourages research around its alleged benefits. Peru now provides a strict framework for products intended solely for medicinal and therapeutic purposes.
Currently, the Ministry of Health and the Ministry of Agriculture are in charge of distributing permits. The Peruvian cannabis market offers the following permits to operate in the medicinal cannabis industry:
- Wholesale import or commercialization
- Retail commercialization
Peru’s movement towards legalization and growing international connections with interested buyers make it another potential hub for cannabis production. Though not as dominant an agricultural performer as some of its neighbours, Peru’s agricultural exports are increasing due to this connectivity. There’s great potential for cannabis products to jump on the back of well-established export channels from Peru.
Mexico: anti-cannabis laws ‘unenforceable’
After many years of fighting a war against drugs, Mexico has had a change of heart. It’s now driving a rapid change process of decriminalization and regulation of the cannabis industry. Mexico’s Supreme Court recently deemed its current laws against cannabis unenforceable as a result of a number of small cases regarding possession and use of cannabis. This unparalleled ruling led to internal pressure for Mexico’s policymakers to legalize cannabis in a short space of time.
In keeping with the Supreme Court ruling, Olga Sanchez Cordero, Mexico’s Interior Minister, proposed a bill to reform current cannabis laws. The bill suggests allowing possession of 20 cannabis plants maximum per person for personal consumption only.
As a strong advocate for legalization, Cordero also raised points to note for policymakers in terms of strengthening regulation and industry-monitoring to keep users safe. If the proposed bill passes, people will be able to use cannabis recreationally in public places, and produce up to 480 grams for personal use per year.
Ecuador tests the waters
The Ecuadorian government is set to pass legislation allowing for controlled production of cannabis by the end of 2019. Current laws in Ecuador permit personal consumption of cannabis and possession of up to 10 grams. Despite this, the sale of cannabis is still illegal.
The medical cannabis industry has experienced delays in its legalization due to disagreements in government. Legislation formalizing the medical cannabis industry in Ecuador has been floating around since 2016. Because of cannabis’ novelty to the medical sector, research is still uncovering potential benefits and effects. This leaves decision-makers with the tough job of drawing their own conclusions about whether or not the suggested benefits identified thus far are worth total decriminalization.
If passed, Ecuador’s scope for cannabis production may still appear meek in comparison to progressive legislation such as that of Uruguay. However, Ecuador still stands to benefit from a booming medicinal cannabis market.
With greater public support, and other examples to follow, Ecuador could see reforms coming into effect by the end of 2019. These reforms impact the Organic Health Code (COS), which would need changing in order to consider cannabis’ effectiveness against certain health issues based on current evidence. The change in classification would eliminate the black market for medicinal cannabis, reducing risk for people seeking quality products.
On offer for government consideration is the potential to establish five-year licenses for cannabis production and manufacture. Ecuador’s Ministry of Health would take charge of licensing responsibilities, and operational oversight responsibility will be distributed across other government departments.
The proposed licenses would permit production of cannabis and seed strains with no more than 1% of tetrahydrocannabinol (THC) content. The National Assembly is set to have one final debate on the re-classification of cannabis in the COS.
Ecuador therefore has the opportunity for a strong entrance into the regional race to dominate the cannabis market and secure international supply chains.
Outlook for Latin America
Other countries in Latin America moving forward in similar directions are Chile, Argentina and Paraguay, with laws that decriminalize the use of medicinal cannabis, hemp or CBD (cannabidiol) products. The legalization of cannabis in Latin America is a smart business move for all with the capacity to regulate it. Not only does it provide job opportunities and another revenue stream for the country, but it also opens up the doors for trade and investment opportunities from countries experiencing shortages of cannabis products.
With stable legal frameworks supporting cannabis production processes, Latin America is expected to become a dominant supplying region of cannabis extracts and derivatives to the global market in the coming years.
How to engage with this trend
If you’re looking to enter the cannabis market in Latin America, reach out to the local experts at Biz Latin Hub. Our team expects a bright future ahead for the region’s medicinal cannabis industry. The industry is open for those international investors on the lookout for new opportunities, and now is the right time to get started.
Reach our team of experts today via email here at Biz Latin Hub for personalized support on your journey.
Learn more about our team and expert authors.
The information provided here within should not be construed as formal guidance or advice. Please consult a professional for your specific situation. Information provided is for informative purposes only and may not capture all pertinent laws, standards, and best practices. The regulatory landscape is continually evolving; information mentioned may be outdated and/or could undergo changes. The interpretations presented are not official. Some sections are based on the interpretations or views of relevant authorities, but we cannot ensure that these perspectives will be supported in all professional settings.