Overseas Primer

Legal and regulatory issues are among the factors that MJ businesses and investors must weigh when eyeing overseas markets

By Alfredo Pascual

Opportunities abound in the North American cannabis market, but companies that want to lead the way should consider opportunities overseas. For this international business package, Marijuana Business Magazine explored the legal and regulatory issues – among other factors – that executives and investors in cannabis companies should consider when looking to expand internationally.

1. Reasons to Expand, Besides Growth

  • Reduce the risk of federal prohibition if your current focus is the United States: Even if your company operates in Canada, there’s a large risk connected to focusing on a single, heavily regulated jurisdiction subject to rule changes or increased competition at any time.
  • Exploit the advantages of growing in lower cost markets: In Colombia, for example, you can grow cannabis for a few cents per gram.
  • Reduce the impact of destabilizing fluctuations in your home market: Expansion is one way to hedge your bets against drops in price or changes in the rules.
  • Bring the know-how: Investors with years of experience operating in North America have an opportunity in countries with emerging industries. Producers in new markets have little to no experience with extraction techniques, for example.
  • Step up your game: Expansion means learning how to deal with foreign partners and compete with foreign companies.

2. Questions You Need to Ask Before Making Decisions

Are you willing to take new risks you can’t accurately quantify?

If you want a first-mover advantage, you’ll probably need to go to the new market before the rules are clear. For instance, PharmaCielo announced it was granted a license to manufacture cannabis in June 2016 in Colombia. But because the legal framework wasn’t yet final, the company couldn’t start growing until December 2017. Are you willing to spend resources setting up a firm and applying for licenses in a foreign country before you know how your firm will be able to operate? If not, someone else will be first and have time-to-market advantage, plus the possibility of influencing how regulators shape the framework.

Are you prepared to wait?

A country legalizing cannabis is great news, but it might not be an immediate opportunity. It usually takes a considerable amount of time before companies are allowed to do anything. Argentina passed a medical cannabis law about one year ago, but it still hasn’t implemented much. Uruguay legalized cannabis in December 2013, but the first medical cannabis product, a CBD oil, didn’t reach pharmacies until December 2017.

Will your product sell in the targeted country?

The cultural aspect of entering a new market is critical. Maybe your trendy CBD beauty product in Colorado won’t gain traction in Peru, where the focus will be on medicinal CBD products for children once the regulations are approved.

Is your target market familiar with your products?

Don’t assume new markets will have the sophistication of California. Most cannabis consumers outside North America don’t know what shatter, crumble, budder and moon rocks are.

How comfortable do you feel in the country where you want to do business?

You’ll probably have to spend a considerable amount of time there, and you’ll also have to deal with the local culture. If you have no experience doing business outside North America, you will undoubtedly find surprises. Growing conditions in Colombia are more favorable than in North America, but infrastructure and security (in certain areas) are not. Are you willing to accept that?

What will you do if business cannot be conducted in English?

It’s a huge risk to take your business partners’ knowledge of English for granted. If you want to invest, you’ll need local people, and the best agriculturist you can find may not speak English. If you want to export, don’t expect buyers to learn your language just to be able to buy from you. If you need an interpreter, bring one who has your interests in mind.

3. Initial Planning Steps

  • Prepare a global business plan: Write down why you want to expand outside North America. Are you committed to long-term growth despite short-term difficulties and probable losses? Don’t assume prices will be higher than at home.
  • Export vs. home market: Do you want to export only, or do you want to invest in a foreign country? If you want to invest in cannabis cultivation and/or manufacturing in another country, will you export from there or address the local market? Will the investment abroad survive as a stand-alone business with local sales, or will exports be crucial? If exports are crucial, how long can you afford to wait until you’re able to export? That process might take longer than expected.
  • Conduct foreign market research: Look for local sources. Local legal advice will likely be needed, but it probably won’t be the only help you need.
  • Manage your risk: Chase too many opportunities, and you might end up unable to execute any of them. Chase only one, and you’ll risk getting whacked by regulators, political changes or currency fluctuations.
  • Choose business partners: Decide if you want a local importer to do your selling or if you want to open a subsidiary to import for yourself. If you want to produce in a foreign country, do you want to do it alone or find a local partner to help you?
  • Look for backers: Find financing before it’s too late.

4. General Advice

  • Build relationships: Exporting or investing in the cannabis industry overseas doesn’t happen from one day to the next. A trustworthy team of professionals that will endure difficulties is more valuable than a one-time deal.
  • Be flexible with your time limits: Things often don’t go as planned. The winners of a public tender for cannabis cultivation in Germany were supposed to be announced in mid-2017. As of March, it was still uncertain when the results would be announced. And in late March, a German court slammed the brakes on the country’s plan to grant contracts to cultivate medical marijuana, further muddying the waters.
  • Research never stops in this ever-changing industry: This can’t be stressed enough. Never expect regulations to be similar to those in your home market. Assume everything will be different.
  • Understand the culture: “Ahorita,” diminutive for “now” in Spanish, doesn’t mean “now” in Colombia.
  • Find a completely new way to evaluate companies abroad: In Canada, one of the first things you want to know about a cannabis company is how much it can grow, because you assume the business will sell it all. Meanwhile, it’s not how much land a company owns that will make the difference in Colombia, it’s the ability to execute and sell. And remember: Location is important, but never take infrastructure for granted.

Alfredo Pascual is a Germany-based public-policy consultant who specializes in international cannabis markets and regulations. He’s currently focusing on the application process for licenses in Colombia. Previously, he worked for ICC Labs – a licensed, integrated cannabis company in Uruguay that produces cannabis for medical and recreational uses, with a primary focus on developing expansion opportunities internationally.