Two recent developments in Mexico and Colombia signal forward motion in the growing acceptance of cannabis in Latin America. But while the plant may grow like a weed, the pace of legislative change across the region remains glacial.
In June, Mexico’s Supreme Court decriminalized adult recreational use and possession of cannabis. Nearly three years earlier, the court had declared the country’s pot prohibition unconstitutional, and it finally took matters into its own hands when the Congress of Latin America’s second-largest economy failed to enact appropriate legislation.
The following month in July, Colombia boosted the “budding industry” by removing the ban on exporting dried cannabis flowers for medicinal use. The 59-page decree provides, among other many other things, incentives to the pharmaceutical industry, and it establishes a regulatory framework for industrial hemp.
Nothing about cannabis in Latin America is simple, and these recent changes tend to raise more questions than they answer, particularly in Mexico. What’s clear, however, is that Latin America’s legal cannabis industry, already valued at $9.75 billion, has massive growth potential and offers significant economic opportunity in a region that lost 26 million jobs during 2020.
Massive market potential
Whoever coined the idiom “money doesn’t grow on trees” never considered the regional and global appetites for cannabis. Consider these recent statistics:
- Headset, a cannabis industry analyst firm, projects that sales of all legal cannabis in the U.S. will top $28 billion by next year and grow by 50% in just four years to $42 billion by 2026.
- Statista projects the value of the legal recreational cannabis market in Latin America will hit nearly $300 million by 2024.
- Brazil’s cannabis market, Latin America’s largest, held an estimated value of $2.3 billion in 2019.
- Statista predicts that in Mexico, the legal medicinal market alone will grow from $3.5 million in 2021 to more than $50 million by 2024.
Any way you slice the numbers, cannabis equals big money. So much that you might expect a Latin American stampede to get a piece of that looming lucre. In California, the largest cannabis market in the U.S., the combined sales of the medical and recreational weed industry totaled $4 billion with $800 million in total state tax revenue realized in 2020. And yet, despite the enormous potential, it’s been a slow roll to legal medical cannabis — never mind recreational.
The “long arm of the U.S. law” impacts LatAm
During August, LABS interviewed major cannabis players, policymakers and lawyers to better understand the complex landscape and diverse regulations that need to be navigated across various Latin American countries before that massive market potential can be tapped during the 2020s.
Before we delve further into the cannabis business in Latin America, we must consider the plant’s fractured legal status in the United States. Why? Because, unlike the popular expression “What happens in Vegas stays in Vegas,” when it comes to cannabis, what happens in the U.S reaches far beyond its borders.
Currently, medical cannabis is legal in 37 U.S. states, while recreational cannabis is legal in only 18 states and in Washington, D.C., the nation’s capitol. However, despite a Senate-proposed reform bill to legalize the plant, cannabis remains illegal at the federal level where it’s classified as a Schedule I drug under the Controlled Substances Act alongside “ecstasy,” heroin, LSD and Peyote — and there’s the rub.
The very long arm of U.S. federal law affects the ability of sovereign nations — in Latin America and around the world — to conduct legal cannabis business within their own borders. We’ll dig deeper into this issue in a moment.
In 2013, Uruguay became the world’s first country to legalize recreational cannabis. Eight years later, it remains the only Latin American nation to do so. However, Argentina, Brazil, Chile, Colombia and, most recently, Mexico have decriminalized recreational cannabis to varying degrees.
While most countries in Latin America have legalized medical cannabis, complex rules that regulate the form cannabis takes, as well as how and where patients can access it, vary greatly in each country. This site provides a good regional overview of countries where cannabis is legal and/or decriminalized.
Uruguay pioneered legal cannabis, but has faced regulatory hoops
Let’s travel back to Uruguay, where the country began selling recreational cannabis in 2017 — almost four years after passing its landmark legislation. The government took that time to craft the rules surrounding cannabis, which is highly regulated and sold only through registered pharmacies.
Esteban Riviera, the first pharmacist to sell recreational cannabis, quickly became the first to stop selling it. Why? U.S. federal finance laws and the Controlled Substances Act of 1970. Banks in Uruguay — and in many other countries around the world — rely on U.S. banking partners to conduct international transactions.
The U.S. banks — wary of the hefty penalties for violating the Controlled Substances Act — pressured their Uruguayan bank partners. They, in turn, pressured their customers to stop the legal sale of cannabis or risk losing their bank accounts.
Fast-forward to 2021 and, according to Diego Olivera, nothing has changed. Olivera, a drug policy director at Centro de Informaciones y Estudios Sociales (CIESU), served as the Secretary-General of Uruguay’s National Drug Board from 2016 to 2020.
“While the Controlled Substances Act remains unchanged, especially with regard to marijuana, U.S. federal banks will require their contracted foreign bank partners to enforce the ban. And that is the case of all our banks that depend on those contracts to access dollars and international transactions,” said Olivera.
Today, out of the 1,000 government pharmacies in Uruguay, a country of 3.5 million people, only 17 of them sell recreational cannabis. And all of those transactions are conducted on a cash-only basis.
Bruno Bertolotti, of legal counsel at Ferrere, a Uruguayan law firm, told LABS that medical cannabis payments are processed in a different manner. “Pharmacies selling only medical cannabis accept cash, debit or credit cards,” said Bertolotti. “They process customer payments just like any other pharmaceutical product.”
Is the difference between cannabis and hemp, which the U.S. legalized in 2018 — behind this disparity?
Uruguay’s recreational cannabis contains a maximum of 9% THC, the plant’s psychoactive compound. And, although the regulation may change in a few months, all medical cannabis products are derived from hemp which, according to both Bertolotti and Olivera, must contain less than 1% THC.
Again, nothing about the cannabis industry is straightforward.
“Although Uruguayan pharmacies accept non-cash payments for medical cannabis products, they are still susceptible to banking risk,” said Bertolotti. “Even sales from medical-cannabis manufacturers to distributors or pharmacies may eventually be challenged by the banks.”
The SAFE Banking Act could change the game
Back in the United States — and slowly winding its way through the legislative process — the SAFE Banking Act would create a path for banks to do business with legitimate cannabis companies without fear of federal prosecution. The bill was approved last month by the U.S. House of Representatives. Its tenuous fate now depends on whether or not the U. S. Senate can muster enough support to pass the measure, which is due to be considered for ratification later this year.
The SAFE Banking Act could be a global game-changer should it become law. Its passage would open up banking services for legal cannabis operations in Latin America and other countries conducting business within their own borders. That’s an important distinction because exporting cannabis opens an international can of worms. We’ll return to the complex realities of exporting cannabis in a moment.
Next stop: Mexico, world’s largest cannabis market some day?
In 2017, Mexico legalized medical cannabis with the stipulation that the plant’s THC level must be less than 1%, which means formulating pharmaceutical medications with CBD oil derived from hemp rather than marijuana. It took four more years but, in January 2021, the country’s health ministry finally published the rules regulating its use.
HempMeds, a U.S. and Latin America-based division of Medical Marijuana, Inc., specializes in producing CBD oil and products derived from hemp for medicinal use in global markets, including Mexico.
“Medical cannabis in Mexico is very different than in the United States,” said Raul Elizalde, HempMeds’ CEO. “Just one example is that in U.S. states where it’s legal, you have dispensaries and options to buy botanical products like dried flower. In Mexico, medical cannabis is available only in drug form.”
This article, published in 2020, provides a comprehensive overview of the rules for medical cannabis in Mexico.
The bigger story concerns the country’s Supreme Court decriminalizing possession and adult recreational use of cannabis. The court’s declaration means that adults over the age of 18 can now grow, possess and consume cannabis with certain restrictions.
This action has the potential to make Mexico, which is already the top destination in Latin America for international tourists, the largest legal cannabis market in the world.
However, the court’s decision did not establish any ground rules for a business market where people can buy or sell products like, for example, seeds for home cultivation. That requires action from Mexico’s Congress.
A legal limbo lies ahead for Mexico’s cannabis industry
“It’s a nightmare,” said David Berezowsky, a cannabis lawyer with Mexico City-based Foley and Lardner. “Everybody’s waiting for the next ordinary session of the Mexican Congress to pass this cannabis law. The problem is that the Senate and the House of Representatives have completely opposite ideas for framing the legislation.”
The House of Representatives, Berezowsky said, rejected the Senate’s plan to establish one government agency to manage cannabis regulations and permits for all aspects such as importing and verification of seeds, cultivation, harvest, manufacturing, production and investigations.
Instead, the House wants permits and control for the cannabis industry split across four different government agencies: the Ministry of Finance, the Tax Administration Service, the Ministry of Agricultural and COFEPRIS, the Mexican health authority.
“Sure, let’s spread all the permits throughout all the authorities we have and make it a mess,” said Berezowsky. “It may not go through, but the Senate is still under a lot of pressure from the representatives.”
What’s the benefit behind such a bureaucratic, multi-agency approach? Money. Berezowsky compared the current administration to the Mexican government during the 1970s when corruption was considered “business as usual.”
The Mexican Congress must still hammer out the legislation, and any changes approved by the House of Representatives must pass the Senate. Once the two sides agree, the bill heads to the country’s president for approval.
When the Mexican government finally creates and publishes the legal framework for a recreational cannabis market, businesses will also have to contend with pressure from U.S. banks. According to Elizalde, that pressure doesn’t come into play for medical cannabis business because those drugs use cannabinoids derived from hemp, which is legal in both the U.S. and Mexico.
“Once we start having recreational dispensaries in Mexico, which are federally illegal in the United States, banking will become an issue here,” said HempMeds’ Elizalde.
Here’s another example of Mexico’s cannabis complexity:
Although it’s legal to formulate drugs with CBD, HempMeds imports its raw materials, e.g., hemp, from the U.S. Cultivating hemp in Mexico is against the law and will remain in legal limbo until the government creates the regulatory framework for recreational cannabis.
Colombia: a new dried cannabis flower decree
Colombia’s July decree not only legalizes the export of dried cannabis flower for medical and scientific use, but it also unlocks significant economic opportunity. The legal framework now lets companies develop of a range of products including food, beverages, cosmetics, industrial hemp and magisterial preparations — medicines prepared by a pharmacist for a patient’s specific prescription.
This change comes as welcome news to Luis Merchan, the CEO of Flora Growth, a global cannabis company headquartered in Canada with physical operations in Colombia and the U.S. A public company listed on both the NASDAQ and the New York Stock Exchange, Flora Growth encompasses outdoor cultivation and extraction, a GMP-certified pharmaceutical lab, the manufacture of skincare products and dietary supplements, food and beverages and hemp-based textiles.
Prior to the decree, companies could sell cannabis derivatives only in the form of crude oils or crystals.
“We, and other companies like mine, injected CBD oil into topical products for exporting, but that was the extent of the possibility for revenue generation,” said Merchan. “Companies invested hundreds of millions of dollars to build their infrastructure in Colombia, with very limited to no revenues generated from export sales.”
News of the decree heavily emphasized dried-flower exports, a fact that Merchan attributed to the value of both psychoactive and non-psychoactive flower, which he said accounts for more than 50% of the worldwide cannabis market.
“However, this change opens up many more revenue opportunities,” said Merchan. “Colombian cannabis companies can now enter industrial markets such as food, paper, plastics, textiles and many others.”
Colombia’s history of drug trafficking, and vestigial stigma surrounding cannabis, has played a role in the country’s slow acceptance of the industry. However, change is also shifting on that front.
Yes, the decree is expansive, but just the ability to export dried cannabis flower changes the game according to Andres Fajardo, president of Clever Leaves. A multi-national company with operations in the U.S., Colombia and Portugal, Clever Leaves is a licensed producer of pharmaceutical-grade cannabinoids and listed on the NASDAQ and the New York Stock Exchange.
Prior to the decree taking effect, Clever Leaves exported dried cannabis flower exclusively through its facility in Portugal. Now, it can also export different cannabis strains from Colombia.
“The opportunity for Colombian companies to export dry flower is a significant industry-wide accomplishment,” said Fajardo. “Dried flower accounts for more than half of the medical cannabis market, and the decree significantly enhances our ability to reach a larger addressable market with a broader genetic portfolio.”
Brazil’s potential to displace China as “king of the hemp”
Brazil, Latin America’s biggest economy, legalized medicinal cannabis in 2015 and, according to Statista, the market value will exceed $229 million by 2028. That giant potential has both experienced and budding entrepreneurs building cannabis-based startups despite the country’s complex regulations.
Fernando Domingues, the co-founder of B2B telemedicine platform Conexa Saúde, joined a bevy of investors to launch Cannect. It’s a virtual medical cannabis marketplace designed to make prescribing and accessing medical cannabis easier for both doctors and patients.
Brazilian-owned Heluz cultivates medical cannabis in Uruguay and exports cannabis oil to Brazil. Except for a court-ordered mandate for just one company, hemp cultivation remains illegal in Brazil, and the country does not allow imports of dried flower. A regulatory change in 2019 legalized the import, sale and manufacturing of medicinal cannabis products.
Widespread legalization of domestic hemp and cannabis cultivation could see Brazil displace China as the world’s largest producer-exporter of hemp for medicinal and industrial use. That would be a significant boost to the country’s huge agricultural sector, which was worth nearly $119 billion or 4.4% of the country’s GDP in 2019.
Last June, a special commission in the lower house of the National Congress of Brazil passed PL 399/2015 to legalize domestic cannabis cultivation for medicinal, veterinary, scientific and industrial uses. The Federal Senate will vote on it and, if the measure passes, it must then be signed into law by President Jair Bolsonaro.
Cross-border cannabis trade complexity
Understanding and adhering to the complex cannabis regulations within your country is one thing. Crossing borders to export medical cannabis internationally requires navigating each individual country’s regulations, as well as international drug treaties.
Every country that allows medicinal cannabis to be imported or exported has its own set of regulations, and within the U.S., those rules differ from state-to-state. As Colombian companies begin to export dried flower, Clever Leave’s Farjardo noted they can sell only to countries that accept cannabis for medical use in that form.
“Not all countries where we operate permit dried flower,” said Farjado. “Israel and Australia allow both extracts and flower whereas Brazil, for example, allows only extracts.”
The process of international cannabis commerce begins with the importing and exporting nations issuing and obtaining the requisite permits — and the exporting country must adhere to the importing nation’s cannabis laws. Everything must then be approved by the International Narcotics Control Board (INCB). Part of the United Nations, this board monitors governmental compliance with international drug-control treaties.
It’s a daunting level of bureaucracy that cannabis companies must undertake lest they violate the 1961 Single Convention on Narcotics, an international treaty that prohibits the production and supply of drugs and narcotics.
In 2020, the United Nations removed cannabis from Schedule IV of the 1961 Single Convention in recognition of the plant’s medicinal value. However, cannabis remains on Schedule I, the most restrictive of the treaty’s four drug schedules.
Here’s the kicker. The Single Convention doesn’t just apply across borders. It affects a sovereign nation’s right to self-legislate. When Canada legalized recreational cannabis in 2018, the head of the INCB at the time, Viroj Sumyai, said doing so contravened the 1961 Single Convention.
If, as the world’s biggest cannabis market, the United States were to legalize recreational use, it would cause a domino effect.
Change may be glacial, but it is in the air. Current INCB president, Cornelis P. de Joncheere acknowledged last year that 2021 may be the time to reassess the fitness of conventions that were written nearly 60 years ago.
As more countries around the world move toward legal recreational use, Mexico is about to become the largest legal cannabis market in the world. According to David Berezowsky, “experts see it as the gateway to Latin America.”
The key to unlocking that gate — and to realizing the full potential of the global cannabis market — is removing cannabis from Schedule I of the 1961 Single Convention on Narcotics.