Canadian cannabis companies invest millions in Pablo Escobar's home turf in Colombia

Near the hometown of the late Colombian kingpin Pablo Escobar, a growing number of Canadians are seeking their fortunes in the international drug trade.

Today, however, they're doing itlegally.

At least seven licensed Canadian cannabis producershave set up shop in Colombia, investing more than $100 million in the conflict-hitcountry that has become a new frontierin the legal marijuana business, according to a review of company filings.

"We understand the pain of the war on drugs. That war was here," said Bibiana Rojas, managing director of Spectrum Cannabis Colombia, a subsidiary of Canopy Growth, one of Canada's largest marijuana firms.

The company will be investing $60 million in greenhouses, production facilitiesand research in Colombia in the next few years, Rojas said in a phone interview from Bogota, the capital.

"For me, cannabis is a piece of hope," she said, as the countryis "transforming something that caused so much pain in the past" when it financed illegal armed groupsinto "a crop that can bring health and wellness to Colombians."

Political risks

Like other Canadian companies in the country,Canopy's affiliate will be producing marijuana oils and other medical productsrather than smokeable buds, which are still prohibited. Colombia legalized medicinal cannabis production and exports in 2015, but recreational use remains illegal.

With a tropical climate ideal for cultivating cannabis, experienced growers, comparatively low wages and a population of 50 million,Canadian firms see Colombia as an ideal place to invest.

They'rehoping to use itas a hub for cultivating and refining medical cannabis in order to eventually export across Latin America, a region with a population of 630 million.

Canadian cannabis investorssay they are hoping to replicate the model used bymining and the energy firms, where the Toronto Stock Exchange becomes the main hub for raising capital to invest into emerging markets like Colombia.

Some analysts, however, remain concerned about political risk amid the rush by Canadian companies to tap into the emerging market.

"I would be very cautious," said Robert Tetrault, a portfolio managerwho tracks the cannabis sector for Canaccord Genuity Wealth Management in Winnipeg. "As a shareholder, do you want to find out your facility in Pablo Escobar's home turf just got seizedor there are now tariffs, added costsor corruption?"

Two Canadian government agencies that provide credit, insurance and other services to Canadian firms operating in risky markets, Export Development Canada (EDC) and the Canadian Commercial Corporation (CCC), have not yet provided assistance for cannabis firms in Colombia, spokespeople for both agencies said.

A history of violence

Colombia is recovering from a long-running internal conflict involving leftist rebels, right-wing death squadsand various drug trafficking cartels.

The government and the Revolutionary Armed Forces of Colombia (FARC), the country's largest leftist rebel group, signed a peace deal in 2016 although violence involving drug traffickers and armed groups still rages in parts of the country.

More than 50 years of fighting left 7.4 million Colombians internally displaced, according to the UN's refugee agency. The U.S. has spent more than $10 billion US on military aid and drug eradication efforts in Colombia in the past two decades and Colombian authorities have spent tens of billions more fighting the war on drugs.

Profit from the drug trade financed all sides of the conflict.

Former Colombian president Juan Manuel Santos spearheaded the legalization effort before leaving office in August. Santos, who smoked marijuana as a student in the U.S.,said legalization would take money out of the hands of traffickers and spureconomic growth.

The new government, led by conservative President Ivan Duque, has not yet spoken at length about the legal cannabis industry. But analysts don't expect the pro-businessadministration to dramatically shift its position on medical cannabis.

"It would be foolish [for Duque] to turn the other way when the rest of the world is moving forward with an economic boom," said Matt Karnes, managing partner of GreenWave Advisors, a New York-based investment firm.

Producing a gram of cannabis in Colombia costs five centscompared to about $1.50 in Canada, Karnes said, citing lower wages and better growing conditions.

Climate, cost advantages

"There's a reason why we don't grow coconuts and bananas in warehouses in Mississauga," said Chris Naprawa, president of Khiron Life Sciences Corp., a medicinal cannabis company listed on the Toronto Stock Exchange with operations in Colombia.

The minimum wage in Colombia is about $1.64per hour, compared to $14 per hour in Ontario.

Khiron, which includes former Mexican president Vicente Fox on its board of directors, says it will produce more than eighttonnes of cannabis annually from an 80,000-square-foot facility outside Bogota.

The company is already selling cannabis creams and beauty products because"Latin American women spend a fantastic amount on cosmetics," Naprawa said.

Colombians with ailments including chronic pain, epilepsy, PTSD and sleep disorders will be able to ask doctors to prescribe cannabis. Naprawa expects Colombia's domestic market to include six million potential patientsand hopes for tens of millions more in other Latin American countries and Europe who could be supplied from Khiron's base in Colombia.

Currently, Colombians with ailments that could be medicatedwith cannabis are spending about $550 annually on treatment, he said. Prescription users will ingest cannabisby placing drops of cannabis oil under their tongues.

"We will be enjoying extraordinary margins if we charge based on what people are already spending," Naprawa said. Khiron'sfirst prescriptions will be filled in early 2019.

Indigenous rights

Companies that receive cannabis cultivationlicences in Colombia must allocate at least 10 per cent of their production to small farmers, Indigenous people and other groups who havebeen particularly hard-hit by the country's drug violence.

PharmaCielo, a Canadian-financed private company that says it has the largest cannabis production capacity in Colombia, runs its main operations near Medellin. It has also set up a special satelliteoperation in the Valle delCauca, a remote jungle region on Colombia's Pacific Coast,under the licence system.

Historically, it has been a "bad neighbourhood," affected by Colombia's internal violence, said PharmaCieloCEO Anthony Wile.

"It's important for the government to see [the area] developed," said Wile, and the company is building greenhouses in the area and educating local workers on new agricultural techniques.

Indigenous people in the Cauca area have unique strains of cannabis, including red point and Colombian gold, which they have been cultivating for more than 400 years, he said.

Investments in legal cannabis are expected to provide employment opportunities for people in the hardscrabble region who previously had few options other than cultivating coca or working for armed groups.

PharmaCielo hasinvested about $40 millioninto Colombia and employs more than 150 local people, Wile said. The company expects to earn $70 million in 2019 and believes Colombia's cannabis market could eventually be worth as much as $2 billion annually.

"Everyone, obviously, has watched Narcos on Netflix ... [but] the realities of this industry have nothing to do with Pablo Escobar or the drug cartels of the past," said Wile.

"But it does make for interesting cocktail party conversations," said the Halifax native who received Colombian citizenship last month by order of a special presidential decree.