Dried flower exports from Colombia? Prospects for 2021

Since late 2019, numerous representatives of the cannabis industry pointed out that exporting dry cannabis flower represents a major commercial opportunity for Colombia. As of April 2021, the government of president Ivan Duque, has considered the requests of industry leaders but has not made any decisions. Apparently, the economic emergency caused by the coronavirus and recent regulatory developments in other countries prompted the executive branch to reconsider its position regarding cannabis flower exports. Here 613partners summarizes the advantages and disadvantages of this initiative, the advances of other south american countries and suggests some alternatives to strengthen the Colombian cannabis industry.

Dried flower, packaged and properly characterized, constitutes 74% of the Canadian market for cannabis-based products and more than 60% of the world’s market. As noted by entrepreneurs in the sector, Colombia has advantages for producing quality flower at low cost (tens of cents, $USD /gram). Cannabis flower has important advantages over other products, most importantly, it is easy to produce, monitor and consume. In addition, numerous Colombian companies currently have significant inventories and large production capacity. Consequently, regulating the production and distribution of dry flower seems like a good choice. 

For their part, the two companies that oppose the initiative claim that flower exports will weaken the industry in the long term. Using the example of the coffee industry, these companies argue that exporting “raw material” will prevent the industry from creating a long term competitive advantage. Interestingly, these two companies are focused on different segments of the value chain (bulk extracts and medicinal products respectively), because of this, critics argue that these companies are using their leverage to prevent competitors from advancing. In response, industry associations, including Asocolcanna and Asocannacol, as well as the majority of firms, overwhelmingly support flower exports.

In a series of open letters, industry representatives communicated to the government that exporting dried flower will allow cannabis companies to access a growing market in Europe and Latam and generate revenue in the short term. Subsequently, the Colombian industry should continue to move up along the value chain and develop cosmetic, medicinal and mass consumer products. Undoubtedly, a positive scenario for this industry.

The Colombian government, in turn, seems concerned about the possibility of overlap between the grey and the regulated market and seeks to prevent illegal actors from joining the industry. Considering the extensive regulatory requirements and the carefully controlled financial flows, this scenario seems unlikely. Yet, no senior political leader of the Duque administration has taken a position regarding the best ways to regulate the industry in the future.

While in Colombia regulatory debates drag on, in the region the Cannabis industry keeps on advancing. In Uruguay, between 2019 and 2020, coordinated efforts between the state and the private sector made it possible to export cannabis flower worth approximately nine million $USD to the European market and serve 54,000 users in local dispensaries. Ecuador and Paraguay also recognized the potential of this industry and developed a versatile regulatory framework that allows the export of cannabidiol (CBD) flower with minimal restrictions. Therefore, the Colombian industry should prepare for fierce competition from its neighbors. Sadly, Ecuador is rapidly becoming a more interesting destination for foreign investors.

To recover its momentum the Colombian industry requires a strategy that reflects the interests of all the actors. At a minimum, the strategy should include the following elements. First, actively promote the creation of a Colombian market for cosmetics, generic formulations and medicines. Given that all mature cannabis markets began as small local markets, Colombia could emulate some of the strategy of Uruguay or Canada.

Second, it is a priority to simplify administrative processes at the Fondo Nacional de Estupefacientes (National Narcotics Fund) and Invima (National Institute for Drug Surveillance). Quota applications for THC production, lab inspections and licencing processes at Invima remain extremely time consuming. Since 2019, industry representatives have been seeking solutions to these obstacles with poor results.

Third, there is a need to facilitate access to financial services. Although, the recent declaration of Cannabis as a project of strategic interest (PINE) will likely facilitate access to financial services with the government’s Banco Agrario.

Fourth, the cannabis industry must build a strong relationship with the current administration. Since taking office, the government of Ivan Duque has passively ignored the industry while quietly allowing a handful of companies to move forward. Critics claim that important decisions are mostly made on a “friend by friend basis”. Most recently, in a somewhat unfortunate appearance, a former president close to the Duque administration spoke publicly against the regulation of adult use while promoting one company that has ties to the current administration.

Sadly, the shortsightedness of the Colombian government worries cannabis firms, and investors, as well as public health advocates and policy experts. As demonstrated in numerous jurisdictions, regulating the cannabis industry will bring substantial economic, health and security dividends. Moreover, as observed in the United States in the past elections, the large majority of the public supports cannabis regulation regardless of political ideology, age and partisanship. This is also the case in Colombia. Therefore, to strengthen the industry in the next two years it will be crucial to secure the support of political leaders of the next administration.