A Colombian hempire

Colombian companies might be missing an opportunity by ignoring hemp in favor of pharmaceutical-grade cannabis.
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Colombian companies might be missing an opportunity by ignoring hemp in favor of pharmaceutical-grade cannabis.

The Colombian cannabis M&A (mergers & acquisitions) market kicked back into life in October after a few slow months, with the purchase of local firm Pideka by California-based Ikänik Farms. The price is difficult to value as Pideka owners received shares in the private US company – but Ikänik did pledge up to US$6.7 million to fund the completion of the Casa Flores project in Tocancipá, outside of Bogotá. 

That capex size will make a lot of Colombia’s license holders balk. According to a study by government research institution, Fedesarrollo, of the more than 4,000 licenses in process, 3,741 pertain to small and medium-sized producers. They can’t all expect to receive multi-million dollar investments and it seems hard to imagine that they could compete in a medicinal marijuana market with those firms that do. Could a switch towards industrial hemp be the solution?

“Pharmaceutical grade cannabis has to comply with GMP certifications, high-tech greenhouses and skilled labor. A hectare of THC or CBD could cost over US$1 million,” Camilo Estrada Hernández, president of Asocañamo, the local hemp association told CCI. “Hemp, on the other hand, is grown outdoors and requires investments of around COP$20-30 million per hectare (US$6,000 to US$9,000) making it a much better potential crop for small producers.” According to New Frontier Data, hemp has over 25,000 identified uses – more than any other crop – and an estimated 2020 market size of US$5.7 billion. Could Colombia become an important player? 

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FIBER OPTICS: The crux of the matter will be the country’s ability to produce hemp fibers and hemp extract, oil with low THC and CBD content, at a globally competitive price. In December 2018 the US congress passed the Farm Bill, which removed hemp from the list of controlled substances and opened up the way for huge investments in the crop from major agribusinesses. In 2018, Canada planted 31,500 hectares of hemp – down from 50,000 hectares in 2017 – whilst China is estimated to cultivate over 100,000 hectares each year. Indian firms are also entering the market aggressively. 

“China and India are the two dominant players in the natural fibers market,” Rohit Sharma, president of the Indian Industrial Hemp Association told CCI following his September visit to Colombia. “With 1.4 billion people, India is the largest import market for hemp, requiring 100,000 tons of fiber annually. We’ve been looking at projects in Canada and Mongolia and we would buy all of Colombia’s industrial hemp if we felt the right regulations and cost structures were in place.” 

He also notes, however, that so far the Colombian industry has been so focused on CBD and THC rich crops, that important regulations remain in a “gray zone” and that the economies-of-scale are not in place. “We’d like to buy a minimum of one to three tonnes of hemp extract per month, at a price of US$0.05 to US$0.10 per gram. It’s simply not possible to do that with a single supplier in Colombia.”   

U.S. Industrial Hemp Market Size

SEED CHALLENGE: Companies rushed to register their CBD and THC rich cannabis strains with the ICA before the end of 2018 deadline, but not one industrial hemp strain was amongst them. Not only do industrial hemp genetics need to fall below the 0.3% THC threshold, but the fibers need to be strong and long (between one foot and one meter). “When we asked the government if we could export seeds to Colombia, the answer was no,” says Sharma. 

“But without the right seeds, how are we going to get the biomass?” With no locally-registered seeds and major import barriers, hope comes from an unexpected corner of the globe. 

Bulgaria is one of a handful of countries with a phytosanitary agreement with Colombia allowing for the import and export of seeds. In October, local firm Cañamo Industrial de Colombia signed an import certificate to receive 105 kg of hemp seed from the Balkan nation, the first of its kind. The company will begin testing and breeding the strains before the end of the year. 

“From the beginning, we wanted to produce a variety of raw materials that could replace industrial products,” the company’s CEO Natalia Nuñez Heredia, told CCI. “Colombia has an excellent opportunity to sell to global markets, but first we need technical studies of the products, that show the resistance of the fibers and other properties. It’s certain that the plant we grow from this imported seed won’t have the same properties as it has in Europe.”

If you are thinking about investing in Colombian cannabis, get expert advice from the CCI team.

HEMPIRICAL EVIDENCE: According to Estrada Hernández, more research is needed to assess the plant’s potential in Colombia but his organization has signed agreements with the University of Antioquia in this regard. “We need to make agronomic evaluation studies in various regions of the country to adapt the genetics we need, because high CBD strains often lack the necessary fibers,” he says. Testing will also have to take place across a range of different agricultural regions. “We believe that the Caribbean coast and the Llanos – the country’s eastern plains – have the most potential for industrial hemp because they are flat, but we shouldn’t discount the Andean region, which could be very useful for seed production.” 

Major investments – in land acquisition, mechanized equipment and processing facilities – will not take place until such research has taken place and a steady supply is guaranteed. “We could invest in processing facilities for hemp, near port infrastructure but unless we know the quality of the product and its cost, we simply can’t run the numbers,” says Sharma. “If you invest in a major processing unit, it has to run for 24 hours a day, switching it off means you have to start the week-long cycle again. If you don’t have the material, it’s challenging.” 

LOCAL MARKET: Hemp could also become a cheap and attractive raw material for local industry, from textiles to animal feed to biomass for heating. A hectare of hemp can produce double the fiber of a same-sized plot of cotton and requires far less fertilizers and pesticides during cultivation. Colombian companies are already starting to take notice, including Empaques de Colombia, a local packaging company that uses fique – a raw material from the aloe plant – in its coffee packaging. “Many packaging companies are looking to replace fique because there is a shortage and cultivating it is a long process,” says Estrada Hernández. “The paper industry is also looking to replace the cellulose that it currently extracts from trees as a way of respecting the environment. They’re waiting for hemp’s properties to be backed up by research from a university.” 

MUCH TO BE DONE: Estrada Hernández believes that Colombia’s climate could be key to the country’s hemp advantage, with four annual harvests allowing it to compete with the single annual harvests made by large North American grows. What’s lacking is access to capital and greater direct support from the government. Unless that happens, Colombia could lose out to countries with a more aggressive hemp expansion plan.   

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