Canadian weed growers are setting up shop in Colombia

MEDELLIN, COLOMBIA - Razor-wire fences fitted with fiber-optic sensors, a series of security gates, and countless cameras surround a sprawling cannabis growing facility outside of Medellin, Colombia. The head of security says the company has even been testing auto-piloted drones to track intruders.

Nestled in the valleys where Pablo Escobar made his start, this is no backyard weed grow-op. It’s the headquarters of PharmaCielo, one of several Canadian-owned companies seeking to dominate the newly regulated medical cannabis industry in Colombia. Of the 14 companies that have so far been granted government licenses to cultivate psychoactive cannabis in Colombia, at least three are Canadian owned, and others have signed partnership agreements with major Canadian players such as MYM Nutraceuticals, according to company statements. Investors from Israel and the United States are also getting involved — but so far, Canadian money represents the biggest stake in the fledgling industry.

That’s thanks to a plan by the Canadian government to legalize recreational marijuana, which passed it’s final legal hurdle last week. In the interim, the move has spurred Canadian firms to be among the first in the world to raise significant investment for pot. According to Bloomberg, weed companies listing on Canadian stock exchanges have a combined value of $32-billion. And for the past two years, Canadian cannabis companies have been looking abroad to seek a piece of the potentially huge profits made from exporting cannabis as other countries move towards legalization.

Estimates on the prospective value of the global cannabis market range, with Florida-based market research firm Brightfield Group pegging it at $31.4 billion by 2021, and Arcview Market Research suggesting $57-billion by 2027. What makes this market especially enticing is that many of the countries with legalization in the works, such as Mexico and Chile, have no immediate plans to develop domestic industries. Other countries with medical cannabis markets, such as Germany, are experiencing chronic shortages while domestic producers struggle to get off the ground due to strict regulations. That means demand will be met initially by imports.

For Canadian investors, this emphasis on setting up foreign grow operations stems in part from the fact that Canada isn’t a great place to cultivate cannabis. Cold winters, short daylight hours and high wages make growing high-grade medical cannabis in Canada an expensive business.

Enter places like Colombia, where the climate is favourable to pot cultivation, and production costs are low — according to Ryan Douglas, a cannabis consultant to Colombian growers, the cost of production in Colombia could be as much as 10 times lower than in Canada. According to experts, it’s only a matter of time before cannabis-related products eclipse big exports like bananas and coffee. Others insist that until issues of criminality and corruption are overcome, that kind of growth is a long way off.

Federico Cock-Correa, the Colombian CEO of PharmaCielo, is a veteran of the country’s cut-flower industry. Around five years ago he figured that cannabis would make a valuable addition to the country’s legal agricultural exports, and began lobbying the government to make such an industry possible. In 2016, Colombia’s government passed legislation that regulates the import, export, and cultivation of medical cannabis.

The first company to obtain the necessary licenses to cultivate, process and export cannabis, PharmaCielo have invested some $24 million into a cultivation and processing facility an hour outside of Medellin. They hope to have 5 hectares in full cultivation by the end of the year, and have contracts that will allow them to expand on to another 120 hectares of nearby flower farms in the coming years.

The farm sits in what is today a beautiful, prosperous valley a short drive from the nearby airport. But just two decades ago this region of Colombia was most famous as the centre of operations for Pablo Escobar’s Medellin cartel, once the largest drug-trafficking organisation in the world. At the height of the violence between Colombian drug cartels in the early 90s, the annual murder rate in Medellin alone topped 6,000. Despite billions of dollars from the US to combat Colombia’s drug traffickers, a recent DEA report states that 2016 saw the highest levels of coca production ever recorded in Colombia.

In this turbulent context, Cock-Correa views the new medical cannabis industry as a way forward for the country. “I think this is a big opportunity for Colombia — to ask the world to recognize that we were the ones that suffered the most, and we are the ones that deserve to supply the world with this kind of product.”

David Gordon, one of PharmaCielo’s Canadian directors, also sees advantages in the country’s infamy. “There is a reason Colombia is famous around the world for what has been produced on the black market. It’s because it’s quality, and that’s a big part of what Colombia brings to the table.”

Colombian officials hope that by fostering a large, legal industry for medical cannabis, they can create jobs and draw people away from the country’s illicit narcotics industries. According to Andres Lopez, director of the Colombian National Narcotics Fund, the new laws have “opened the doors so that people, especially rural people and Indigenous communities, who began in the illicit industry, can conserve their seeds and their land, obtain a licence and penetrate the legal market.”

Though most of the Canadian start-ups are focussed on high-tech facilities near major international transport hubs like Medellin and Bogota, a number are also partnering with communities in rural provinces such as Cauca, that have a long history of cultivating cannabis for the illegal market.

Jhon Tamayo is one of 63 farmers in Cauca who have banded together to form Cooperativa Caucannabis. He says “a lack of jobs is what has created the current problems in this region, with violent groups, and with narcotrafficking. But through the cooperative in union with Pharmacielo, we’re going to have this great opportunity to change the region and all have access to better salaries, better resources.” Cooperative Caucannabis have signed a deal with Pharmacielo whereby they will receive training and investment into a new facility, in exchange for exclusive supply of medical-grade cannabis.

The last decade or so has seen big security gains in Colombia — murder rates have halved since 2002; the country’s 50-year civil war with FARC officially came to an end in 2016. Despite these improvements, newcomers to the industry are not naive about the possibilities of bumping up against criminality. Before signing up as Chief Compliance Officer for Khiron Life Sciences, another Canadian start-up, Matt Murphy says that his only prior experience with Colombians was arresting them on drug trafficking offences in his old job as an agent with the US Drug Enforcement Agency (DEA).

“I would be disingenuous if I were to say to you, well, organized crime, the cartels are just interested in illegal crops—coke or heroin or whatever—and because we’re legal we don’t have these problems,” Murphy told VICE News. “[Cannabis is] a very high value item, and human nature being what it is, we have to be diligent and concerned about security.”

Matt Karnes, an investment analyst at Greenwave advisors, echoes Murphy’s caution. “I would say political risk is significant, and just the safeguarding of the assets. Due to the crime element, you will need heightened security in Colombia.”

Under the strict new rules for the legal cannabis industry in Colombia, producers will only be allowed to sell refined cannabis products such as oils and tinctures, as opposed to raw cannabis flower.

Oils are logistically easier to export than raw flower. They can be packaged neatly and discreetly into a box, have a more-or-less infinite shelf-life, and can be turned into anything from vape cartridges to weed-infused gummy bears. Douglas predicts that the first major market for Colombian cannabis oils will actually be Canada itself. Oils and edibles are legal in Canada for medical purposes, but will not be allowed at first when recreational use is legal. “Even if the product doesn’t end up being sold in Canada, there’s a high likelihood that these companies are going to import their oil in bulk from Colombia into Canada, refine it or mix it, and export from Canada to other countries.”

While Cock-Correa is focussing initially on the Colombian market, he also envisions producing part of the export-product in Colombia, with Canada producing “added value formulations, and packing to sell direct as a co-branded product or a Canadian product.”

Though officials in Colombia are keen on the investment and expertise pouring into the country from Canada, not everything has been smooth for the newcomers. Khiron had their processing license temporarily suspended last November due to a lawsuit filed by PharmaCielo against them.

The suit claimed that confidential information related to medical cannabis had been leaked to Alvaro Torres, the CEO of Khiron. According to both companies the matter has since been settled amicably (with the help of a transfer of 100,000 shares from Khiron to Pharmacielo).

Legal showdowns aside, producers here seem optimistic about the road ahead. Cock-Correa believes it won’t be long before Colombian exports of cannabis oils are more valuable than the country’s coffee, banana, and cut flower exports combined. Some experts, on the other hand, are skeptical.

Bethany Gomez, a market analyst at Brightfield Group, says, “there is a lot of excitement about the idea of Colombia as the bread basket of cannabis. That all sounds really good on paper, but there’s going to be significant challenges in growing large-scale cannabis in an area where institutional corruption remains. I haven’t seen much talk about how that’s being addressed, but it’s certainly something that will have to be overcome at some point.”