A blossoming ecosystem

Colombian cannabis is entering a new phase – as attendees at the recent Expo Cannabiz can testify. It is time to put those theoretical plans into action.

By: Mat Youkee

“When I began the legalization process, I never thought I would be standing here amongst so many leading industry players who are helping to turn our country’s historical relationship with cannabis around, it’s been an extraordinary success.” With these words Juan Manuel Galán, the Colombian senator who kick-started the country’s legalization process opened his presentation at the Expo Cannabiz conference held in Cartagena in early May.

German greenhouses, Dutch automation systems, US bio-tracking software, Swedish climate screens; this was the event where global interest in the Colombian cannabis space was most evident. But the business niches of the companies were as relevant as their countries of origin. For the past two years the industry in Colombia has been defined by the race to acquire licenses and attract the interest of international investors. Now it’s time for hands to get dirty, as companies look to build efficient, scalable and compliant cultivation projects. Some may have underestimated the costs involved.

To understand the shift in focus, look no further than the boutique consultancy industry. While dozens of advisory firms have sprung up in the last 18 months offering to help entrepreneurs apply for licenses and develop (essentially theoretical) business plans for their projects, the most attractive market segment at present targets license holders needing outside expertise to make those projects concrete.

Now there are hundreds of companies with cultivation licenses, but many of them have neglected the technical aspects, says Juan Pablo Ramírez, General Manager of Arq & Tic, an engineering and architecture solutions consultancy based in Bogotá. “Maybe many of the first participants thought they would have sold their authorized company, but instead, they are building projects at a technical level that they did not expect to build themselves and they are now coming to understand the real costs.” The model of Arq & Tic is to provide integral solutions in design, construction, greenhouses, security and advice, from the hand of local suppliers to execute complete turnkey projects, for a fixed fee.

Medicinal cannabis for export is subject to standards imposed by the importing nation and many firms with deep pockets have stumped up for expensive imported greenhouses to avoid any future regulatory headaches.

GREENHOUSES: The success and professionalism of Colombia’s flowers- for-export industry and the expertise and service ecosystem it supports is often cited as a key advantage for the cannabis segment. There are numerous national suppliers of greenhouses, and greenhouse cultivation offers an alternative strategy to produce more controlled crops – at a cost of around COP$330 million (USD$100,000) to grow one hectare, according to Ramírez. Small change for many international investors but a potential hurdle for smaller producers.

The medicinal cannabis industry is subject to far stricter regulations than the flower industry, however. Traditional wooden frame greenhouses are at risk of attracting mold but even metal-frame, high quality local greenhouses could be problematic, given that Colombia has no quality standards regulations governing the structures. Medicinal cannabis for export is subject to standards imposed by the importing nation and many firms with deep pockets have stumped up for expensive imported greenhouses from Europe or Israel to avoid any future regulatory headaches.

Ventilation is another important aspect of greenhouse design, not just to keep growing conditions stable but to prevent cross contamination from sources both inside and outside the structure. “Many of the projects in the Bogotá and Cundinamarca region use mechanical ventilation for their projects, but in other regions air conditioning is required to control temperatures and humidity,” says José Antonio García, director of Keyproy, a project engineering firm. “Air conditioning costs are significant in the overall budget. Projects need to be designed to be GMP compliant from the beginning. It’s understandable that clients want their projects up and running quickly and cheaply, but this takes time and capital.”

“It’s understandable that clients want their projects up and running quickly and cheaply, but this takes time and capital.”

- José Antonio García, Keyproy

SECURITY: Another business area well represented by Colombian firms is security services. The government has provided detailed guidelines for security protocol which include a strong perimeter fence, a single entrance for vehicles, staff and visitors, 24-hour CCTV surveillance around the perimeter of the project and identification mechanisms for all persons entering the facility. While the peace deal with the FARC, the largest guerrilla group, was signed in 2016, there still remains a significant presence of organized criminal gangs in the country, many with existing networks to traffic black market marijuana. The threat of theft is real but fortunately, given the country’s history of developing natural resources projects in remote areas there are many experienced local companies offering fingerprint recognition and security camera services. Garciá estimates the cost of building a metal perimeter fence at COP$140,000- 170,000 (USD$43-52) per square meter whilst installation of CCTV could cost around COP$1.4 million (USD$430) per meter of perimeter, even though costs may vary according to regulatory requirements.

FABRICATION: When it comes to fabrication plant design, licensed producers face key decisions from day one. The positioning of key processing units – including testing, storage and cleaning facilities – on the floor plan is crucial to ensure traceability and to protect against contamination. Solvent residues and the presence of pesticides are obvious factors to guard against but even apparently minor factors, such as the distance between restrooms, also need to be taken into account to meet certification standards.

García provides benchmark figures for the construction costs of different areas: non-classified areas without contamination risk can cost from COP$700,000-1 million (USD$215-310) per square meter. Areas destined for quality control procedures vary from COP$2.5-3.5 million (USD$770-1,075) per square meter whilst clean rooms can fluctuate from COP$3.5-5 million (USD$1,000-1,500) per square meter.

Then of course, there is the cost of acquiring and importing extraction equipment. In recent months the options available to Colombian companies has expanded significantly with numerous international technology firms establishing distribution deals with local firms. A good CO2 extraction unit – one of the most common extraction technologies – can cost up to USD$1 million. Alternatives are gaining ground. German firm Hielscher recently entered the Colombian market with ultrasonic extraction equipment for the medicinal cannabis industry. According to commercial representative Nicolás Susatama, the go-to option for local companies is a 1,500 Watt unit capable of processing 5 kg of dry flower every 20 minutes at a price range of COP$100- 130 million (USD$30,000-40,000). Other smaller testing equipment with the capacity to process 500mg of dry flower every ten minutes, using water rather than ethanol as a solvent, is also available for companies in the first stages of testing procedures for COP$30-40 million (USD$9,000-12,000).

HERE TO SERVE: The presence of many international and local service providers at Expo Cannabiz, demonstrates the growing awareness of the potential of the Colombian cannabis segment. Andthe establishment of a strong and diverse auxiliary services ecosystem provides growers with new choices for developing their projects. However, to CCI’s mind there still remains a degree of confusion surrounding compliance. If medicinal cannabis labs in Canada and Europe will only accept product sourced from the companies with the highest standards and GMP certifications at every stage of the process, only Colombian companies with the financial muscle will benefit.

As former director of the National Narcotics Fund, Andres Lopéz tells us this month (see Q&A) there are many companies with licenses but only a few with the financial might to reach commercial production. Visiting the stands in Cartagena, many license holders will have found solutions to their technical challenges. Others will have become aware of the scale of the financial challenges that await.