November 18th, 2020
Hector Gomes
The importance of this region of the world to the global cannabis industry was the driving force behind our release this November of our Latin America and Caribbean Report – Second Edition, followed by our new office in Latin America’s financial center, São Paulo.
Backed up by local sources in various countries, certain trends caught our attention when working on the brand new 2020 LAC report, some of them signaling an industry that is still growing and taking the right steps but is also facing challenges, both global, such as COVID-19, and local, such as regulatory mazes.
Considering the diversity of the region, particularly in terms of developments in the cannabis and hemp industry, some of these trends are more relevant to certain markets, but they signal what can be expected for the countries joining this industry more recently, such as Ecuador, Peru, and Argentina (the new Decree 883/2020).
One of the interesting findings in our report is the growth of intra-Latin American relations in the industry, particularly with companies from Colombia and Uruguay, who are expanding their presence to neighbouring countries such as Brazil and Peru. This is significant for a region that has traditionally held the role of exporter of raw materials in international trade, often overlooking the possibilities that lie not across the ocean but next door.
Another notable trend has been a move from vertical integration to specialisation. Companies understand that participating in the entire process, from seed to sale, can be challenging and resource-intensive. Therefore, specialised companies have been emerging, which also signals a potential important M&A market in the next few years.
The importance of sustainability has been growing for the last few years and particularly in recent months, with data showing attention from Latin American consumers has been increasing in terms of the product’s environmental impact. Refraining from a sustainable approach to business can lead to a loss of business opportunities, as demonstrated by the outcome of the recent EU-MERCOSUR deal.
Any visitor to Latin America would soon notice how its population makes use of the possibilities that smartphones offer. This factor has been the root cause of a surge in telemedicine in 2020, boosted by COVID-19, with online check-ups amounting to approximately 3 million as of September 2020. Technology is also present in the new partnerships between local companies and last-mile delivery companies, very popular in LatAm, to deliver cannabis-based products. This is particularly interesting in the most urbanised region in the world where ~85% of the population live within cities.
Of note, with regard to both local and international companies, is the rapid growth of the local patient base, particularly in Brazil, where patients have been increasing rapidly in 2020. The first half of the current year closed with almost 9,000 patients, more than the combined amount in 2018 and 2019. This figure does not include those patients who access the product via associations, which would bring the number to over 40,000. In Colombia, recent months have witnessed new clinics in Bogota expanding their presence from a virtually non-existent market.
A trend across the whole region, which does not seem to have evolved much in the last few years, is the citizens’ lack of knowledge about cannabis-based products and their benefits. It is commonplace to find companies saying that the market still hardly recognises the word ‘CBD’ as a differentiator, while stigma still persists in many layers of society, hardening the creation of demand from consumers. This is present across the region, reinforced in some countries by the lack of advertising possibilities.
Hemp is definitely something we will be hearing a lot of in the next few years from Latin America. With the emergence of regional organisations, studies that demonstrate vast areas of land are suitable for its cultivation, the opening up of legal frameworks, together with the environmental benefits of the plant, many companies are starting to look to industrial hemp, which represents lower barriers to access and promising market opportunities in a region with strong agricultural capabilities. Signs are even more positive because of the Chinese-LatAm 1,752% increase in trade since 2002, with China currently the world’s top hemp producer.
Last but not least, a sense of respect towards and history of the cannabis plant in LAC has been a trend observed in all countries, from companies to grassroots organisations. The feeling is that, due to the region’s centuries-old relationship with this plant, there is a special relationship with cannabis that goes beyond competitive production costs—which can be up to 80% cheaper when compared to developed countries—and translates into a rich genetic diversity already being leveraged by Colombia with record seed exportations in 2020.
The LAC region and the world are eagerly awaiting the outcome of the current political debates on PL399/2020 in Brazil for cultivation and the Mexican debate on the recreational market, as these two economies represent about 350 million people and makeup almost 60% of the Latin American economy.
We are confident that, following the trend of this year, 2021 will be a year of evolution and consolidation of the industry in Latin America.
For more in-depth information, market data and strategic support, contact the Prohibition Partners consultancy team at info@prohibitionpartners.com or download one of our industry-leading reports.
