Legal weed to blaze across Latin American market

09 October 2018 Consultancy.lat

Cannabis market intelligence and strategy consulting firm Prohibition Partners estimates the legal marijuana market will grow to $12.7 billion over the next decade.

The cannabis industry is growing at an exponential pace across the Americas, driven by demand in North American markets. With 31 states in the US have either legalized recreational or medical marijuana and Canada set to federally legalize cannabis on October 17th, North American’s are turning towards Latin America to supply growing demand.

Prohibition Partners have recently released the LATAM Cannabis Report, the first of its kind which includes the most extensive and credible review of the Latin American cannabis market to date. The report examines the legislation, regulation, market size and commercial opportunities in 11 countries, including Argentina, Colombia, Brazil, Mexico and regional leaders Uruguay.

“Over the past 24 months, the Latin American cannabis industry has emerged from the shadows to command the attention of the international cannabis community. While their noisy Northern neighbours have attracted much of the mainstream media attention, Latin America can boast the first country in the world, Uruguay, to officially legalise both medical and recreational cannabis,” said Stephen Murphy, Co-Founder & Managing Director Prohibition Partners.

Legal Status in Key Latin American Markets

“Since then-president, Jose Mujica, signed Law 19.172 into effect in December 2013, over ten countries in the region have legalised medical cannabis, with three further decriminalising the use of personal amounts,” he continues. Of all the countries identified in the report, only Panama – with close regulatory ties to the United States – remains opposed to marijuana in all three categories.

Legalization across the region comes in three key forms including medical, recreational and industrial. Following in the steps of Uruguay are both Jamaica and Colombia, who at present are the only other fully regulated markets in the region. However according to Prohibition Partners, the industry is being held back from its growth potential and is waiting for one of two global shifts.

“Medical cannabis and recreational cannabis will be universally legal in the region when cannabis is rescheduled by the United Nations or when cannabis becomes legal at the federal level in the US. The economies of Latin America and the Caribbean remain dependent on the US systems,” the report points out.

Key Statistics for the Latin American Cannabis Industry

“There is sufficient local support to make cannabis fully legal but, currently, no political will to do so. However, the economic and medical potential of the industry cannot be ignored by any forward-thinking government and we expect both medical and recreational cannabis to become legal in the next 5-10 years,” estimates the consulting firm.

The opening up of the Latin American market provides significant benefits for governments and early business entries. The report suggests that Latin America can become a leading cultivation center for global cannabis as the facility construction and operation costs can be reduced by as much as 80% in comparison to North America or Europe due to low labour costs and an ideal climate for cultivation.

11 key weed markets

The majority of this expected value according to Prohibition Partners will be within the medical marijuana industry. The report identifies that it if all 11 key markets fully legalize and regulate cannabis by 2028, the industry could be worth up to $8.5 billion for the region. A further $4.2 billion is expected to be added to the total market value based on the conservative estimate that 5.4% of the region’s population are cannabis users.

Commercial Opportunities for Colombian Cannabis Industry

However it is likely that the largest industry growth will be in the cultivation and export of cannabis products. Fast moving countries like Colombia – who introduced the first regulatory export licences in Latin America – are positioning themselves at the forefront of the international commercial cannabis industry. Colombia and Uruguay have also established free trade agreements with both Canada and the EU on the international trade regulations of cannabis.

As the Latin American market is burgeoning for medical cannabis, the fast movers are likely to become industry leaders. Whilst the market is dependent on powerful American countries’ regulation, signs point towards the region following suit after rules relax in the Northern Hemisphere. The trend will also create greater trade ties throughout the Americas with a particular focus on Canadian firms and investors venturing south.

Meanwhile, a recent Deloitte report notes that the Canadian legal marijuana market is set to grow to $4.34 billion in 2019.

Increasing connectivity looms as a threat to consumer trust in Latin America

11 September 2018 Consultancy.lat

In a consumer trust survey covering six key sectors and conducted by Llorente y Cuenca in nine Latin American markets, the food & drinks sector has come out on top ahead of pharmaceuticals and retail, with consumers in the north of the continent generally more trusting than those in the south. Connectivity, however, may be having an impact.

Taking in the views of nearly 4,000 consumers across Brazil, Chile, Colombia, Ecuador, Mexico, Panama, Peru and the Dominican Republic, and exploring the consumer trust relationship with the key sectors of food & drink, automotive, pharmaceutical, financial services, retail and telecommunications, the survey by communication and public affairs consultancy Llorente y Cuenca has found that food & drinks businesses are on average the most trusted in Latin America.

Overall, the pharmaceutical and retail sectors were considered the equal second-most trustworthy (with a tally of 7.2 out of ten) following the food & drinks sector (7.5), while the telecommunications (6.8) and financial services (6.6) sectors received the lowest trust ratings in the region. The automotive sector meanwhile earned a trust grade of 7.1, which along with retail was above average when compared to other regions.

Average consumer trust per sector in Latin America

The results, however, highlighted some distinct divides between the countries surveyed per sector, with the more northern consumers in Mexico, Panama and the Dominican Republic expressing overall greater faith in big business than their more cynical southern counterparts in Argentina, Peru and Chile – the latter of which registered the lowest levels of trust across the region despite being considered the best location for business.

Chilean consumers, for example, assessed the food & drinks sector as a 6.6 for trustworthiness, compared to a 7.9 rating in Mexico, while consumers in Panama felt that financial service providers were worth a 7.3 on the trust scale against a 5.7 score in Argentina although this may not be surprising given the contribution of financial services to Panama’s GDP and the dire state of an Argentinian economy riddled by foreign debt and fiscal mismanagement, which continues to hamper the country’s overall business climate.

Consumer trust in Latin America by country

Still, despite the variances, consumers in Latin America are on the whole more trusting than those in Spain (the home market of Llorente y Cuenca), and by a fair margin – with the corresponding survey in Spain producing an average result of 5.8 and none of the sectors earning a score higher than 6.3, compared to the consolidated score of 7.1 across sectors in Latin America and a lowest score of 6.6 (although financial services wasn’t assessed in the Spanish survey).

In contemplating the differences between regions, the consulting firm forwards the idea that the internet may be playing a part; “when contact intensity (connectivity, e-commerce, transactions) is greater, there are more ‘moments of truth’ when more frustrating and also more satisfactory situations are or may be generated.” While the Latin American region as a whole has reached an internet penetration rate of 61 percent, some sources give the figure in Spain as having pushed above 90 percent, with the country one of absolute world leaders for mobile connectivity.

Interestingly, Chile, which is the least trusting of those surveyed, also leads Latin America for internet connectivity – last year ranked 25th worldwide in an index compiled by Chinese telecommunications giant Huawei. Chilean consumers also consistently ranked higher across each sector in the Llorente y Cuenca survey for the value they placed on communications (transparency) in assessing business trustworthiness, privileging this criterion as a ratio above business practices (integrity) and product/service (credibility) as compared to other countries.

According to Llorente y Cuenca, the growing online engagement trends in Latin America are granting consumers more power in their relations with businesses, and presenting greater potential for the erosion of trust; “Inevitably, the increased connectivity and boom of social networks have converted the relationship between brands and consumers into a glass box, which requires a more direct, transparent approach. The challenge of meeting expectations in an era of Fake News is not to be infallible, but to be honest when one makes a mistake.”