Colombia is no stranger to the mass-scale production of “illicit drugs” for the purpose of sale, transportation and distribution abroad. Its magical mountainous climate, at the equator, straddling the northern tip of the South American continent, offers some of the world’s best natural conditions for the production of photosynthetic organisms, from coffee and roses, to coca and cannabis.
Thus, it comes as little surprise that Colombia has recently legalized, and is developing the legislation to regulate, cannabis production.
“When the industry starts to move toward commoditization over the next decade,” says Paul Henderson, of Salinas, CA-based Grupo Flor, “Colombia is the only place that makes sense.” Grupo Flor is preparing to plant its first crop a couple of hours outside the Colombian city of Cali.
Why Colombia Poses a Threat to Cannabis Stocks
Colombia allows the production of medical cannabis oil and extracts, both the psychoactive form as well as the nonintoxicating cannabidiol (CBD) used in CBD products.
Growing (in) Pesos
Just as many of our consumer goods in the West are built in low-cost mega-factories in Asia, the cultivation of cannabis in Colombia carries fraction of the cost compared to the in United States. In Colombia – where the only foreign currency that can be legally wired into the country, is United States Dollars (USD) – land, wages, and licenses all cost less. The Colombian Peso (COP) has depreciated precipitously against the dollar over the last year, strengthening the purchasing power of USD in Colombia.
To any Colombian looking over the last half decade, ten thousand pesos is still ten thousand pesos; but to someone from the U.S., in dollar terms, today ten thousand pesos is only $2.91, compared to $4.54 just four years ago.
Just as we’ve seen in the State of Washington, I foresee a substantial first-mover advantage, to those groups able to assemble the best teams, attract sufficient capital, and get involved quickly.
Tilray had a production cost per gram of cannabis of $5.67 USD for 2018 ($7.54 CAD) (excluding sales of accessories and food products). In Colombia, one would expect a production cost per gram of $0.10 to $0.50 USD.
The major risk, is that trade barriers continue to come up, and international export markets are closed (or made more expensive by tariffs) to Colombia.
Nevertheless, the potential from industrial hemp and CBD alone – the non-psychoactive, yet versatile and in-demand components of cannabis – remains tantalizing to any investor or company with a global vision for cannabis and the desire to participate in its unfolding.