by Simons Chase
There is a palpable buzz at the offices of Clever Leaves in Bogota, but it’s not the kind of buzz that is normally associated with the cannabis industry.
Rather, it is a hyper-focus on goal-setting and execution among a brigade of entrepreneurs who together are connecting the dots between Colombia and the largest emerging consumer opportunity in a generation: legal (medical) cannabis.
I first came to Colombia in 1997 during a tenuous time for the country. I was working for a U.S. bank that was preparing to finance the first Marriott (and the first major hotel brand in Colombia). What distracted my bank’s credit committee most were the aggressive challenges of domestic and foreign origin that had clouded the economic picture for decades. Yet the streets were vibrant and alive with the lucent boom of vegetation, like they are today, and a walk along any wide avenue in central Bogota invited conversation with passersby even if your Spanish is precarious. Bogota’s streets do not impel obedience or conformity. The city center’s design predates automobile culture and has the feeling of benign provincialism that was no doubt patterned and imprinted by its early roots as a settlement dating back to 1538 when a European explorer, after terrific exertions in the wilds of South America, established an outpost with a spirit of colonialism.
That visit revealed to me another facet of Colombia’s many hidden depths – a country I learned is capable of punching way above its weight. The CEOs behind the local institutional investors in the Marriott deal were veritable captains of industry, whose companies dominated key South American industries. I also learned how Colombia’s leadership talent and workforce supported a country that had never defaulted on its external debt obligations despite massive challenges that would have swept any other South American country towards a feverish rush into a socialist economic decline and an inflationary death spiral. The promise of economic mobility, thankfully, never diminished in the minds of most Colombians.
The vital anchor that sustained Colombia’s integrity during that troubling era was superb human talent and a fierce belief in capitalism – energized by a policy of global integration. On this recent visit to Bogota I was impressed – but not surprised – to find the same dynamics at work that I had found so many years ago.
Amid the construction cranes that presently adorn the Bogota cityscape, there are today a wide variety of factors contributing to Colombia’s growing economy including a healthy tech sector, traditional energy and commodities industries, and tourism. Likewise, it was with amazing foresight ten years ago that the Colombian government decided to commercialize its country-level domain extension, .CO, thereby enabling its transformation into a massive global brand, with the added benefit of creating millions of dollars of revenue out of thin air.
“Colombia has several advantages including geography, the best business regulation and the highest standards for drug conventions in the pharmaceutical industry,” says Andres Fajardo, CEO of Cleaver Leaves, in an interview at the company’s offices in Bogota.
Cleaver Leaves is Colombia’s most promising start-up in the cannabis industry. The company was founded in 2016 after Mr. Fajardo met his partner, Gustavo Escobar. The two were working together in the healthcare sector and developed a vision about how Colombia could emerge as a key player in the nascent medical cannabis sector that is presently sweeping the globe. At the time of their meeting, the now massive wave of deregulation and greater social acceptance of cannabis were just getting started.
The change in sentiment about cannabis is in part due to emerging medical research that points to cannabis’ potential to treat a variety of medical maladies including rare forms of epilepsy, nausea and vomiting caused by chemotherapy (palliative effects), and loss of appetite in AIDS patients, among other things. The U.S. government’s policy of designating cannabis as a Schedule 1 drug in the 1970’s foreclosed any potential for the natural plant to be studied in a structured medical environment and instead relegated it to a status as a socially-unacceptable substance exploited by “stoners” and misfits.
When the Controlled Substances Act first became law in 1970, U.S. Assistant Secretary of Health, Roger Egeberg, recommended that cannabis be placed on Schedule 1 temporarily until the National Commission on Marijuana and Drug Abuse (the Shafer Commission) reported its findings on the plant. The Commission’s 1972 report recommended decriminalizing cannabis, though that recommendation was never acted upon because the politics of President Richard Nixon intervened. Instead, Nixon saw an opportunity to use the issue to target war protesters and minority groups.
The Shafer Commission concluded, “Marihuana’s [sic] relative potential for harm to the vast majority of individual users and its actual impact on society does not justify a social policy designed to seek out and firmly punish those who use it.” Yet the Schedule 1 designation permanently placed cannabis on par with heroin and cocaine.
In the last decade or so, more than 183,000 Americans have died from overdoses related to prescription opioids made legal through the policies of the U.S. federal government. 40 Americans die every day from opioid prescription drug overdoses, according to the U.S. Centers for Disease Control (CDC). Over the same period, there have been virtually no deaths attributable to cannabis despite its widespread use (legal and illegal). In fact, cannabis is now being considered as a potential solution to the prescription opioid disaster.
Propelled by economic and social forces that have accumulated for decades, medical cannabis is moving from outcast to medical miracle. Parallel to this global shift in sentiment is Colombia’s own local transition from the darker side of the illegal drug trade, embodied by the life and ultimate demise of drug kingpin Pablo Escobar, to a supplier of regulated, pharmaceutical-grade cannabinoids exporting to rich, first-world customers in Canada and Europe. That is a powerful arc and one that Clever Leaves is already leveraging.
Mr. Fajardo explains how Clever Leaves has several firsts under its belt. The company was first to obtain a medical cannabis license in 2016. And earlier this month, it became the first Colombian company authorized to export medical cannabis (oils not leaves) to Canada. This is significant because Canada is the largest legal cannabis market in the world and has been involved in regulating legal medical cannabis since 2001. Last year, Canada legalized recreational cannabis. The Colombian National Narcotics Fund (El Fondo Nacional de Estupefacientes or the “FNE”) also granted the approvals necessary to export the material from Colombia to Canada.
The Canadian supply agreement is just the beginning of what Mr. Fajardo says will propel the company and the country into, “a global leader in the cannabis value chain.” The Canada opportunity is a simple supply agreement whereas the company is evolving a strategy to distribute through international channel partnerships that will expose consumers to the company’s own pharmaceutical brands. While the company has no plans to sell products locally in Colombia, Mr. Fajardo says E.U. certification is in process.
Navigating the legal, regulatory and financial hurdles for getting a medical cannabis business off the ground is no small feat. In terms of production, the company operates its own GACP-certified crop fields and its own GMP-certified extraction and pharmaceutical production plant. The fully-integrated operation is backed by a long-term investment from Northern Swan, a N.Y.-based private equity shop owned by some of Mr. Fajardo’s classmates from Harvard Business School. It is apparent that Mr. Fajardo’s training as an engineer and his consulting experience with Booz & Co. are vital experiences to draw from in scaling Clever Leaves operation.
In terms of demand, the most important factor to consider today is that there are far more jurisdictions around the world that have legalized medical cannabis than have legalized recreational cannabis. In the U.S., 33 states have legalized cannabis for medical use compared to 10 states that have legalized its recreational use. There are about 31 countries around the world that have legalized cannabis for either recreational or medical use, though the majority are limited to medical use only.
The idea that you have to light up a joint to get cannabis’s medicinal qualities is a myth that is slowly fading away. The three main methods of consumption of medical cannabis are ingestion (edibles), inhalation and (topical) application. The primary mode of interaction in the body occurs through the human endocannabinoid system that binds with the plant’s natural cannabinoids in predictable and beneficial ways – often will few or no side-effects. Consumers are no doubt adopting a more accepting attitude toward cannabis as they learn about the alternative methods of consumption and the natural way it works.
The reasons for faster medical cannabis legalization as compared to recreational are easy to understand. The cannabis plant has more than 750 compounds, most of which have not been evaluated scientifically. The two that are most well-known are THC, cannabis’ primary psychoactive component, and CBD, the non-psychoactive component. These chemical compounds can be separated, and it is the CBD cannabinoid component that Clever Leaves is building upon. Without the psychoactive component, medical CBD faces far fewer regulatory hurdles to overcome – plus it is a rich area of research for new compounds and novel applications.
There are few greenfield markets out there that have the size and potential growth rate of the cannabis industry. The future key players, brands and chemical compounds are today in the formative stages of development, jockeying on the cusp of what will be multiple multi-billion dollar opportunities. According to Coherent Market Insights, the global medical cannabis market was valued at US$3.5 billion in 2017 and is expected to growth at a CAGR of 24.4% at least until 2025. And the total legal cannabis market is growing even faster, at a CAGR of 35%, with a projected value of US$ 146.4 billion by end of 2025, according to Grand View Research. In the U.S., regulatory uncertainty makes projecting future market potential less certain, but investment bank Cohen has recently estimated the market for CBD could grow from $1-2 billion today to as much as $16 billion by 2025.
It was a delight to return to Bogota after so many years, to reconnect with the city’s vibrancy and experience that unique sensation of time and space compressing with the energies of the past and the future. I discovered another facet of Colombia’s dynamism in Clever Leaves as it leverages the country’s many advantages to stake a claim in a new outpost of fertile commercial territory.