David, Goliath and the government
The creation of Cannabis Salud – a public company that promises to destigmatize and boost cannabis research and development – marks a step change for the industry.
By: Mat Youkee
The regional government of Antioquia – the department in which Medellín is located – has earned a reputation for being one of the more dynamic entities in the Colombian public sphere. Over the last two decades Medellín has emerged from the darkest days of the drug wars to make huge improvements in health and education and to become a popular tourist destination. In 2013, it was named the world’s most innovative city by the Urban Land Institute based, in part, on its impressive transport system that links the metro to cable cars and escalators to the poorer hillside districts. Now the Antioquia government wants to become a player in the medicinal marijuana sector.
In late February, Antioquia governor Luis Pérez Gutiérrez announced the creation of Cannabis Salud, a joint venture between the IDEA – the regional development bank – and the University of Antioquia. “We are going to produce cannabis of high genetic quality,” he told the regional assembly. “We are going to produce medicines, sell them and buy cannabis oil from producers to reprocess and make other types of medicines.”
The entrance of a public company into the market adds a new level of complexity to an industry that, just a couple of years into its existence, is facing an existential crisis. Since the beginning of the year, tensions have increased between the half-a-dozen major players and the hundreds of small producers who have acquired or are in the process of acquiring licenses. Now state-owned companies offer another vision of how the industry could grow.
“We want to be the regional leader in growing, commercializing and financing cannabis projects in Antioquia.”
- César Betancur, University of Antioquia
“We want to be the regional leader in growing, commercializing and financing cannabis projects in Antioquia,” says César Betancur, a professor of financial engineering at the University of Antioquia, consulting on the project. There are many reasons to welcome the creation of Cannabis Salud. Open public support for the industry is important in a region that is the stronghold of the ruling Centro Democratico party that was behind the recent crackdown on micro- trafficking and possession of drugs. “There’s still a cultural stigma towards marijuana in Antioquia. The governor’s support and the establishment of the company will help draw a distinction between the medical industry and trafficking,” says Betancur. With skin in the game, the government would be more amenable to the industry in general.
According to local regulations, licensed cannabis companies have to acquire 10% of their production from registered small and medium-sized cannabis producers. The registered small producers are currently located in three regions: Cundinamarca, Valle del Cauca and Cauca. None of the registered small producers hold fabrication licenses, but they do hold cultivation and seed licenses granted by the Ministry of Justice as follows: - CBD cultivation: 40% - THC cultivation: 50% - Seeds: 10%
R&D BOOST: In addition to changing outdated perceptions, Cannabis Salud could also have an important role in boosting human resources and domestic research and development in the cannabis space. In the second semester of the year the University of Antioquia will introduce a diploma in cannabis cultivation, providing a new generation of growers for the local industry. University backed research programs are also far more likely to receive funding from ColSciencias, the government agency supporting scientific research.
Finally, the new project could open avenues for domestic investment in the industry and provide financing channels for the region’s smaller producers. Since it launched on the Colombian Stock Exchange (BVC) in 2007, the national oil company, Ecopetrol, has been a firm favorite with local investors. A future listing of Cannabis Salud on the BVC is a possibility, according to Betancur. “We want to make the industry more official, a key goal is for Colombians to be able to buy locally listed cannabis stocks,” he says. “IDEA would reinvest its profits into Antioquia and provide consultancy and financing to smaller growers.”
The project faces significant challenges, however. The University of Antioquia is struggling to find teachers with the necessary expertise to teach the cannabis cultivation course, according to Adrián Restrepo, who teaches politics at the institution. “The new company has the potential to provide funds for the university and boost research, but it is starting very late,” he says. “It’s two steps behind in an industry where you need to be four steps ahead to succeed.”
It seems highly probable that local governments in other prime cannabis regions could soon follow suit. Regional authorities may be slow to react to new opportunities, but they are eager to sniff out new money-making ventures and recent domestic media coverage has focused on anticipated outsized profits for investors, inflating expectations. Tolima department could be next. It is home to Khiron Life Sciences’s cultivation sites, has organized regional cannabis events and is introducing university courses in the plant.
State-owned actors could add a new level of complexity to the market. Ecopetrol was allowed to grow into a dominant player in the oil sector before it was exposed to direct competition and even now preferential treatment of the firm at high-levels of government is assumed. Will “national interest” allow state-owned cannabis firms to jump to the head of the line for licenses, which currently take over a year to acquire? Will IDEA make good on its plans to fund small players, or will it greedily hoover- up land and licenses?
START-UP SQUEEZE: Colombia’s small start-ups are already feeling the squeeze. In addition to the extended licensing delays, those with their licenses in place also complain that financing offers from abroad often come in the form of all-share deals. “I don’t need shares, I need cash to build out my greenhouses and fabrication plant,” says one owner of a project in Antioquia. While the big firms have deployed capital to get ahead of the curve and register their seeds, delays at ICA, the government body in charge of seed registry, mean that smaller producers are stuck, with their funds dwindling.
“I don’t need shares, I need cash to build out my greenhouses and fabrication plant.”
- Antioquia project owner
With government institutions unable to cope with the rush for licenses, it seems inevitable that reform will come, sooner rather than later. CCI hears that government ministries are hiring heavily to deal with the backlog but it seems likely that the government of President Ivan Duque will tighten up on the industry. New barriers to entry can be expected, although the exact form is open to speculation. Licenses could become more expensive, more stringently scrutinized or tied permanently to specific land titles. Financial and technical prerequisites could be increased.
That would mean a move towards a more consolidated market, with perhaps five or six big players, and would chime with the government’s desire for a highly-specialized medicinal marijuana industry. But it would also contradict many of its previous promises to develop an industry that spreads its benefits widely in Colombia’s neglected regions.
“From a medical perspective, a move towards a consolidated industry where the big players have the infrastructure, scientists and funds to ensure top quality products, is positive,” says Paola Cubillos a Medellín-based doctor and medical cannabis advocate. “From a justice point of view, it’s not good to see a few people becoming millionaires while small growers struggle to sell their crops and Colombians can be arrested for possessing a small quantity of weed.”
While local cannabis association Asocolcanna has been an important voice to lobby the government for the benefit of the industry, the priorities of the large and small players look likely to diverge further. CCI hears that plans are afoot for the creation of a new association focused on smaller producers. Colombian cannabis politics, fast moving and increasingly complex and at times stressful to write about. If only there was a natural plant based remedy for that stress...