In the not-too-distant future, world cannabis production might be dominated by just a handful of countries.
Hundreds of millions of dollars have already been invested in markets such as Colombia, where investors are betting the worldwide trend towards legalization will lead to cannabis becoming just like any other commodity: grown in places with the lowest
costs then exported elsewhere.
“That is exactly the future I’m anticipating,” said Peter Verburg, co-founder and former president of LaSanta Botanicals, a company based in Calgary with operations outside of Bogota. “It was why I went to Colombia in the first
place so early on. In a free market, there is no rhyme or reason as to why you should be growing at a cost of two dollars per gram in Canada when you can produce it at a tiny fraction of that, something just as good or even better. In Colombia.”
Peter is far from the only entrepreneur with that mindset. More than US$400-million has been invested in the Colombian cannabis industry since the country legalized medical cannabis in 2016, according to MJ Biz data. The money has continued to flow despite
Colombia still, as of late 2019, not having a functioning domestic cannabis market.
“In a free market, there is no rhyme or reason as to why you should be growing at a cost of two dollars per gram in Canada when you can produce it at a tiny fraction of that, something just as good or even better. In Colombia.”
“If this all becomes the chiquita of cannabis, which I think it has the potential to be, there is a reason for that outcome to exist,” said Kyle Detwiler, CEO of a New York-based company that owns several million square feet of greenhouse
space in Colombia called Cleaver Leaves. “In 10 years, is that a concept Cleaver Leaves has wrapped its business model around? I think the answer there is an affirmative, yes.”
International law remains among the largest barriers to that vision becoming a reality. The United Nations has been resisting calls for years to update its treaties that prohibit member states from legalizing cannabis and according to Vince Sliwoski, two especially powerful U.N. members are committed to keeping up that resistance.
China, for instance, is intensely anti-marijuana, as is Russia,” said Mr. Sliwoski, a professor of cannabis policy at Lewis & Clark Law School in Portland, Oregon “They are both Security Council members in the United Nations that
are always going to be opposed to marijuana legalization.”
Yet, both China and Russia “are massive exporters of hemp all over the world,” he said.
Starting with the hemp trade, Mr. Sliwoski said, will lay the groundwork for the already-starting medical cannabis trade. Trading recreational cannabis under a similar regime, however, is something he believes remains “years, if not decades”
While countries “tend to just do things in abrogation of treaty requirements and international law requirements all the time,” Mr. Sliwoski said, referring to Canada recently flouting its own treaty obligations by legalizing recreational cannabis
in 2018, “it would take a lot of countries agreeing, colluding really, to subvert what everyone else understands to be the clear world order” for recreational cannabis to start trading as a global commodity without a change in international
Despite that barrier, there are clear signs of progress towards establishing a global pot trade. In February, a company called New Leaf Data Services launched a service called Cannabis Benchmarks, which provides cannabis spot pricing data that is ultimately
intended to enable the creation of tradable financial instruments.
Mr. Detwiler is also among those who believe Chinese and Russian resistance is overblown. As an example, he notes the U.N. quota for the amount of medical cannabis Colombia will be allowed to export this year is 56,000kg - up from just 1,200kg in 2019
- and that the increase occurred without Chinese or Russian objection.
“I don’t see the Chinese or the Russians on Bay Street and I don’t think they’ll go to war over [cannabis legalization],” Mr. Detwiler said. “I also don’t think the Green Party in Germany is going to care about
what is going on at the U.N. If they want to legalize cannabis for recreational purposes, they will do so just as Canada did.”
If laws do eventually allow for a global cannabis trade to be established, many argue consumers will continue to prefer locally-grown dried cannabis flower to mass-produced products from abroad. That may very well be true, but the dried flower share of
the overall cannabis market is widely expected to become smaller and smaller as the industry evolves.
In Colorado, smokeable flower represented 69 per cent of all legal cannabis sales in early 2014, according to BDS Analytics data, but by the second quarter of 2018 that figure fell to just 43 per cent of total sales. National projections are even more
dramatic, with dried flower market share across the United States expected to fall from 50 per cent in 2017 to 36 per cent by 2022.
Concentrates such as vapes, tinctures and oils are expected to steal more and more market share from dried flower. That trend is a key part of the argument behind cannabis becoming a global commodity since extracts can be produced from virtually any cannabis
plant regardless of its potency, consistency or overall quality.
In other words, even if consumers continue to prefer locally-grown smokable cannabis flower indefinitely, that preference is unlikely to apply to the majority of cannabis products sold. For concentrates, location of cultivation is far more likely to be
dictated by cost alone since the end consumer would be none the wiser.
The only real question is how long the transition to a global pot commodity trade will take.
“Colombia, Portugal, China and other places, just like every other industry where only some countries handle most of the supply, cannabis will end up that way,” said Mr. Detwiler. “But is it two years away? Four years away? 10 years
away? I’m not sure exactly, but I am sure we are on the right side of history.”
This is not an offer to sell or a recommendation to trade in any securities. This information is provided as of the date hereof. This document contains data obtained from third parties that Canopy Rivers has not independently verified. This document also contains forward-looking information within the meaning of Canadian securities law, which is based on certain assumptions. While management believes these assumptions are reasonable based on information available as of the current date, they may prove to be incorrect. Many assumptions are based on factors outside of Canopy Rivers’ control and actual results may differ materially from current expectations. Forward-looking information involves risks, including, but not limited to, the risk factors set out in Canopy Rivers’ most recent Management’s Discussion and Analysis and Annual Information Form. You should not place undue reliance on forward-looking information. Except as required by applicable law, Canopy Rivers assumes no obligation to update or revise any forward-looking information to reflect new events or circumstances.
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