Cannabis in Latam: The next five years

In brief

-Despite regulatory delays and the covid challenge, major socioeconomic trends continue to propel the cannabis industry.

-The Latin American market remains untapped. 

-Local firms, particularly in Colombia, Ecuador, Peru and Uruguay, should update their business models to take advantage of regional opportunities. 

-If users and firms can work together to regulate adult use, the regional market could grow exponentially.

Trends and macro drivers

By and large, the Latin American public favors cannabis regulation. After decades of prohibitionist policies, numerous voters increasingly support cannabis legalization. In addition, as populations age and the therapeutic benefits of CBD, THC and other cannabinoids become better known, senior citizens also favor policy reform. The covid pandemic also fostered cannabis use. 

Policy makers, inspired by Uruguay, also recognize the benefits of cannabis policy reform. As noted by the Mexican legislature: cannabis regulation can bring security, health and economic dividends. Because of this, numerous countries took action to set the foundations of medicinal markets. Although some access restrictions remain, Colombia, Ecuador and Peru offer patients access to cannabis tinctures. Moreover, Argentina, Chile, Panama and Costa Rica are currently exploring regulatory pathways to open their medicinal markets. This trend will continue as the public demands increased access to quality products. 

Untapped markets

With more than 600 million people and a potential customer base of roughly 15-20 million users (combining patients and adult users), the region’s illicit market is currently worth $12 billion USD (2020). Please read the last sentence one more time. In other words, every year Latin American consumers purchase cannabis flower or cannabis products from unregulated producers for twelve billion dollars. Consequently, if policy makers in the region were to allow adults to purchase cannabis following the model implemented by Uruguay’s IRCCA, local cannabis sales could provide substantial revenue. For context, in 2020 Colombia exports goods and services comprising $32 billion USD (World Bank Data). 

Inspired by the size of the region’s cannabis market, both local and North American firms focused their attention on finding pathways to reach Latin consumers. For example, despite some regulatory hurdles and logistical setbacks, the patient base for generic formulations is finally growing in Colombia and Peru. A similar process occurred in the cosmetics and wellness sector. Numerous topical products encompassing a broad range of uses and prices, finally became available on shelves and online marketplaces. Consumers, in turn, are experimenting with novel products and delivery methods. Since brand creation and consumer research has just begun, new entrepreneurs can easily find a niche for their products. 

Next steps

In the next few years young cannabis firms should be ready to adapt to changing markets and regulations. The international market for raw materials, particularly derivatives and flower became increasingly saturated in recent months. Moreover, the growing European market remains guarded by complex entry barriers, particularly the EU-GMP standard. As a consequence, pure agronomical companies focused on exporting raw materials have some lost value. 

In the future, Latin American cannabis firms must update their business models, strengthen marketing capabilities and explore multiple markets. Like in every young industry, unrealistic expectations and misinformation are too frequent. Therefore, business plans should be contrasted with empirical evidence and sound analysis. In order to succeed, entrepreneurs and investors must be willing to test their assumptions and adjust course when needed. Lastly, the industry can grow exponentially if regulators were to take bold action and legalize adult use. The model of IRCCA provides solid evidence describing how and why regulating adult use serves the public interest. Yet, if the users and firms don’t not push for reform, the policy process could be delayed for years.