In a global ranking for CBD potential and cannabis market 'readiness', Latin America ranks second. We spoke to experts about how big a role Latino countries could play in an industry predicted to be worth US$2.5 billion by 2026.
In a global ranking for CBD potential and cannabis market 'readiness', Latin America ranks second. We spoke to experts about how big a role Latino countries could play in an industry predicted to be worth US$2.5 billion by 2026.
First of all, when we talk about cannabis in food, what exactly are we talking about?
“It can be a confusing area,” said Euromonitor analyst Zora Milenkovic.
Cannabis is the plant genus name which is recognized to have three species: Cannabis sativa, Cannabis indica, and Cannabis ruderalis.
These contain both cannabidiol (CBD) and tetrahydrocannabinol (THC) in varying degrees.
THC is the main psychoactive active substance that makes marijuana users feel ‘high’ while CBD is a phytocannabinoid said to have calming, anti-inflammatory effects. Someone who drinks a CBD-infused soda will not feel high afterwards.
Hemp is grown on an industrial scale and has many uses, from animal feed to biofuel, clothing to car parts. Hemp seeds are high in healthy omega-3 fats and protein, and are a popular health food ingredient. They contain extremely low levels of CBD and are free from THC.
In the US, the Hemp Farming Act, passed as part of the 2018 Farm Bill, removed oversight of industrial hemp by the Drug Enforcement Administration (DEA). Despite this, the Food and Drug Administration has repeatedly stated that CBD is not legal as an ingredient in food, beverages, and supplements.
While the CBD content in hemp seed oil is low, you can obtain meaningful levels of CBD from hemp buds and flowers, and it is possible to see food, beverage and supplement products labeled as "full spectrum hemp extracts", without specifically calling out the CBD content.
In Canada, meanwhile, recreational and medicinal cannabis is legal and edibles are expected to be fully legal in October this year. But CBD is not a legal Natural Health Product, or NHP, which currently excludes its use in dietary supplement-type products.
Euromonitor analyst Zora Milenkovic explained the sudden interest in this emerging sector.
Much of the conversation around CBD centers on the consumer trends underpinning it, such as mindful consumption, health and wellness and the decline of tobacco and alcohol.
While these trends are a driving factor, including in Latin America, there is also a much more prosaic fact. "Money talks," she said.
Determining the value of the global CBD market and its projected growth is difficult because estimates depend on predicting which countries will legalize production.
However, according to Transparency Market Research, the global CBD hemp oil market will grow from US$950 million in 2017 to US$2.5 billion by 2026.
For governments around the world, cannabis and its derivatives are taxable products that can create jobs and make up for the decline in tobacco tax revenue.
“It’s a very nascent industry and everyone wants to be first out of gate, not just to cultivate but also to refine, process and create added-value products using the CBD and THC extracts.
"[The extracts] are higher value and have higher margins than the flower and ‘smokable’ stuff. This is a whole new value chain that can be monetized, and governments don’t want to miss out.”
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Many countries are in the process of regulating to open up the market, and Latin America is no different.
Euromonitor has compiled a ‘readiness’ index for the global cannabis market, taking into account factors such as political will, consumer perception, use as an ingredient, regulatory environment and company activity.
Unsurprisingly, North America ranks highest – both the US and Canada have a score in the nineties – and Latin America is next on the list. It scores 63, putting it ahead of Europe, which has 55.
Within the Latin America region, Euromonitor places Uruguay highest, followed by Colombia, Mexico, Jamaica and Argentina.
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Uruguay was the first country in the world to legalize cannabis for both medical and recreational adult use in 2017, and is generally seen as the most ‘advanced’ country in Latin America for CBD and cannabis. The legislation was signed into law in 2013.
Uruguay wants to position itself as the regional hub in growing, refining and processing medical cannabis for export.
On Euromonitor’s ‘readiness index’, it is number one.
However, Milenkovic warned that the country’s “convoluted, government-controlled system” and the “slightly complicated, slow process” for getting legal permits risk blunting its competitive edge.
“It takes time to sort out the legal situation, get the permits for cultivation and then begin refining, processing and exporting CBD,” she said, and Uruguay needs to “maintain momentum” if it is to keep up with its own ambitions.
Around 200,000 hectares of land were devoted to global hemp production in 2017, and Uruguay held only 3,000 hectares, she said.
“Latin America started ahead of the game and Uruguay was certainly ahead of the game but it seems to be slowly falling behind. The only reason is that everything else is moving so fast," said Milenkovic.
“The Latin American potential could disappear in puff of smoke – pardon the pun – while lawmakers seem to be possibly dragging their feet,” she added.
Uruguay does have one advantage that could give it a competitive edge, however.
“Their hemp can legally be grown with a THC content of up to 1%. [THC is usually sourced from cultivars that have been bred to contain high amounts. Hemp generally contains only a trace amount of THC - around 0.3%,] - although this is not always the case.] That could be a benefit for Uruguay.”
In any case, Uruguay's regulatory situation has not dampened interest from foreign investors.
Canadian company Aurora Cannabis, for instance, bought company ICC Labs in November last year, a Uruguayan company that owned 70% of the domestic market share.
Aurora said the acquisition “immediately” transformed it into a LATAM market leader by giving it access to the region’s some 650 million consumers.
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Number two on Euromonitor’s list is Colombia, which legalized medical cannabis and cultivation in 2015.
“The demand for derivatives and medicines for patients, both national and foreign, justifies the supply of cannabis and its respective cultivation,” said the country’s Ministry of Justice.
Thanks to its favorable climate and cheap labor force, Colombia has become something of a global production hub. At least seven Canadian companies grow cannabis in Colombia and, together, they have invested around US$100 million in the market there.
The Bogota-headquartered Cannabis Entrepreneurs Network (RedCannabicos) is a non-profit organization working to support and grow the Latin American cannabis market.
A legalized cannabis market will consolidate peace in the region, it says.
RedCannabicos has also developed a front-of-pack quality seal for Colombian cannabis suppliers (main image). In order to use the seal, suppliers must have a laboratory certificate that proves the product is free from pesticides, additives, microbes, mold, heavy metals, and that production is carbon neutral.
The seal features members of Colombia’s indigenous communities.
“Within the anti-drug war in Colombia, peasants and indigenous people have been one of the weakest links, […] victims of armed conflict and violence,” it says. “It is our duty to safeguard their identity and culture and now, under the new context of legality, our commitment is to include them and learn from their valuable techniques of sustainable and ancestral agriculture.”
According to Milenkovic, much is made of the ‘happy ending’ that legality could bring to Colombia’s troubled history and its war on drugs.
However, she warned that a black market could easily exist alongside a legal one if producers undercut government prices or produce a slightly different product.
© RedCannabicos
In Mexico, manufacturers that obtain pre-market authorization can legally sell CBD products with a content of less than 1% THC.
This means Mexican consumers can find CBD products on the shelves, such as food supplements, cosmetics and beverages.
US manufacturer Rocky Mountain High Brands, for instance, partnered with Mexican company CBD Life to sell three such drinks: Rocket High, California Lemonade and California Black Tea.
Mexican policymakers also proposed a bill at the end of 2018 to approve medical and recreational cannabis.
“[These] plans […] for full cannabis legalization would change the market,” said Pablo Cano Trilla, head of legal analysis at CBD-Intel, a market research and regulatory analysis company specialized in the CBD sector.
As in Colombia, legalizing cannabis is seen by some as a way to bring Mexico’s spiraling narco-violence under control.
Vicente Fox Quesada, the 55th President of Mexico and former CEO of Coca-Cola Latin America, sits on the board of directors of Khiron Life Sciences, a Canadian cannabis company with plantations in Latin America.
Upon taking up his position, Fox Quesada said: “This represents a great opportunity to accomplish our dream of reducing violence in Mexico due to the underground and illegal crime activities related to Cannabis.
“[We want to] move [towards] a new legal industry creating jobs and income for families, taxes to governments and wealth creation.”
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In 2015, Jamaica passed a law reducing possession of small amounts of cannabis to a petty offence and allowing the cultivation of up to five plants.
Rastafarians may also use cannabis for religious purposes.
In 2017, government agency, the Cannabis Licensing Authority (CLA), issued the first two permits to Epican and Everyting Oily to grow medical cannabis.
The CLA has in the past denied local media reports that it also issues permits for recreational use.
“The Authority would like to reiterate the fact that all licences granted are for medicinal purposes only and not for recreational,” it said last year, adding that it monitors the activities of license-holders in the interests of ensuring a fully compliant industry.
“The Authority is committed to its duty in keeping a watchful eye and taking decisive action when deemed necessary,” said its chair, Hyacinth Lightbourne.
Government attitudes to cannabis in the Caribbean vary widely.
Cuba, for instance, takes a zero tolerance policy even for possession of small amounts.
David Jessop, consultant at trade and investment consultancy, the Caribbean Council, would like to see a pan-Caribbean policy for cannabis.
“It is time for a regional policy that accepts limited possession and a regional medical marijuana industry,’ he wrote in an opinion piece, after Cuban courts handed prison sentences of between 15 and 30 years to 11 individuals for drug trafficking between Jamaica and Cuba.
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Argentina legalized CBD and cannabis for medicinal and scientific research purposes in March 2017.
However, according to Pablo Cano Trilla. there is a significant black market for cannabis products due to a lack of enforcement.
“The law is ambiguous and as a result there are different interpretations of what exactly is permitted under the regulations in various regional jurisdictions,” he said.
The state is also getting in on the game.
In November last year, for instance, the government of Jujuy, a province in the northwest, announced plans to develop the world’s biggest legal cannabis farm (14,000 hectares) through a joint venture between Cannabis Avatãra State Society - a company that it owns - and US firm Green Leaf Farms.
“This joint venture has obtained permits to grow, extract, manufacture and export cannabis-based products to other countries where these products are legal,” said a statement by the provincial government.
Meanwhile, in the western province of San Juan, better known for its wine and olive oil, Canada’s Wayland Group recently bought land to grow medical marijuana.
Adrian Bartnicki is the manager of BCBD, a vertically-integrated Uruguayan cannabis supplier, which also makes CBD-infused yerba mate.
He sees Argentina as something of a sleeping giant in terms of consumer demand for BCBD's products.
“The biggest market is Argentina, but the regulatory situation is not ready yet,” Bartnicki told us. “We are working together with local authorities to unlock the situation.”
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“Brazil remains severely limited and what is currently allowed in the country is medical only,” Nate Erskine, analyst at CBD-Intel, told FoodNavigator-LATAM.
Domestic production is “almost non-existent” - although this may be changing.
In November 2017, the Brazilian Association of Cannabis Hope Support (Abrace Esperança) got legal authorization to produce CBD oil for medical purposes. Although Abrace Esperança is a small farm in north-east Brazil with only around 20 employees, it is the first Brazilian entity licensed to produce and sell CBD.
“[This] could be seen as a significant step,” said Marija Obradovic, international senior legal analyst at CBD-Intel.
However, Obradovic echoed Erskine's cautionary comments. “The market in Brazil remains severely limited, with CBD treated the same as medical cannabis, and little prospect for liberalization seen under the current government. Currently there are only around 4,600 consumers legally allowed to import and use CBD.”
Despite the restrictions, CBD-Intel has tracked at least 20 subsidiaries of major cannabis companies that have some form of operation in the country, which it sees as evidence of “some level of optimism” amongst the international sector.
US company Knox Medical has made it known it wants to invest US$20m in a factory in Brazil for CBD products for export.
“There is currently a bill to regulate medical cannabis further in the country – though, as mentioned, the prospects of further liberalization of the market are questionable at this time,” added Obradovic.
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Chile initially decriminalized home-grown cannabis back in 2005 and in 2015, the government approved an application from non-profit health organization Fundacion Daya for cannabis cultivation for medical purposes.
However, selling the plant or its derivatives such as the buds, CBD extracts or oils is illegal.
Nevertheless, consumer acceptance is high and the country has one of the highest consumption rates in the region, Milenkovic said.
According to a study published in 2017 in the International Journal of Drug Policy, Chileans and Uruguayans were most likely to support drug policy reform.
Chile is also one of the biggest raw hemp producers in the LATAM region, and has several joint ventures with international players.
Canadian company Canopy Growth, for instance, operates in Chile through Spectrum Cannabis Chile. “The Chilean market, like many around the world, is emerging in response to patient needs [...] and Chile [is] renowned for its R&D and research ecosystems,” it said.
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