Welcome, Ecuador!

After months of waiting and working hand in hand with the competent authorities, on Monday October 19th the week opened with excellent news: the Ministry of Agriculture of Ecuador issued the regulations that govern the medical and industrial cannabis sector in the country. Although it may seem a little late in comparison with its neighbor Colombia, Ecuador has maintained a strategic vision in the drafting of the regulation in order to formulate competitive advantages. Could Ecuador become a serious competition for the players of the region?

The licenses

Firstly, the Ecuadorian government issued seven licenses, covering activities from seed to the production and commercialization of cannabis derivatives, as follows:
1. License for the import and commercialization of non-psychoactive cannabis or hemp
2. License for the sowing and production of non-psychoactive cannabis or hemp seeds
3. License for non-psychoactive cannabis or hemp cultivation
4. License for industrial hemp cultivation
5. Licensing of non-psychoactive cannabis or hemp processing and production of derivatives
6. Plant Breeding and/or Germplasm Bank and Research License
7. License for the acquisition of derivatives, biomass or non-psychoactive cannabis flower or hemp for export

Unlike other jurisdictions, Ecuador has unified the licenses in the same regulatory body, the Ministry of Agriculture, which will allow a more efficient management for the licensees. Additionally, the licensing scheme has been designed in such a way that those applicants interested in the cultivation and processing business model will only need to apply for licenses 3, 4 and 5, since these allow for the exercise of activities related to seeds and the commercialization of derivatives and biomass.

A flourishing sector

One of the most important competitive advantages embodied in the new regulation is the possibility of exporting dried flowers, a battle that Colombians have not yet been able to win with the local government. By establishing a regulation only for non-psychoactive cannabis, following the standard of psychoactivity of less than 1% THC, the government has eliminated potential contingencies of detour to illicit markets.

In this way, dried flower export is a perfectly designed operation that allows entrepreneurs to reach attractive markets that have focused on providing mainly dried flower for patients, such as Germany, without the risks and regulatory complexities that psychoactive cannabis represents.

In addition, the export of dried flower allows licensees to concentrate on one aspect of the production chain and thus encourage specialization in the industry. A licensee can, for example, concentrate on obtaining international growing certifications, exporting its dried flower to Europe and there producing derivatives to the required EU-GMP pharmaceutical standard without incurring the additional cost of building a laboratory of its own.

Lesson learned

Coming second or third in a nascent industry has its advantages, and one of the main ones is to limit the learning curve that the first ones have already gone through. In the case of Ecuador, the government learned a key lesson from this sector: the importance of due diligence and regulatory compliance. In order to develop a sector with sustainable growth and have control over the natural and legal persons involved, the regulations establish certain key legal requirements for obtaining licenses.

First, licenses may only be issued to legal entities, public entities, cooperatives, associations or communes, not to individuals. Thus, following principles of economic and business development, the government seeks to achieve greater development by licensees who can receive investment in a regulated manner and generate employment by having greater economic capacity.

Finally, the regulation requires applicants to submit criminal records certificates of legal representatives, directors, partners, members and shareholders with a participation greater than 6% of the capital stock, even for foreign individuals or corporations. While this may result in a greater burden on licensees and future investors, this provision provides greater legal certainty to a nascent industry that is crying out for the legitimacy it deserves.

Are you interested in obtaining licenses or learning more about the industry? Contact us! One of our advisors will gladly answer your questions. info@613partners.com