Cannabis companies are rushing to set up operations in Colombia, looking to gain a foothold in one of Latin America's drug capitals as governments across the world embrace the burgeoning legal marijuana industry.

Growers, many with financial backing of firms from Canada and the U.S., estimate as much as $500 million has been invested to buy farmland, build greenhouses and set up labs to produce oils, creams and other products that contain cannabidiol, or CBD, an extract used to treat everything from chronic pain to insomnia. So far, none are growing marijuana rich in tetrahydrocannabinol, the substance that makes smokers high.

Embracing the industry may seem surprising for a country that has long been embarrassed about its status as the world's largest cocaine producer and has struggled to escape its reputation as a violent narcotics center that gave rise to the likes of Pablo Escobar. But with the global cannabis market estimated to be worth more than $50 billion by 2025, Colombia has sought to become a center of production for exports to countries around the world that are legalizing its use. Domestic laws permit small quantities of pot for personal consumption, but the country hasn't put in place final regulations for medical use.

"When you mention Colombia, unfortunately, some people relate that name with illegal drugs," said Julian Wilches, a former director of drug policy in the Justice Ministry who co-founded the medical cannabis company Clever Leaves, which began operating in 2016. "We have an opportunity here to take a controlled substance and change that reputation, to bring health to people and development to our country."

Clever Leaves is producing about 24 metric tons of dried cannabis a year, grown in greenhouses on a sprawling farm tucked in a valley about 8,000 feet above sea level in the Andes. With an expansion already underway, the farm should be able to produce about 324 metric tons next year, making it among the world's largest growers.

Colombia in 2016 joined a small group of countries that permit cannabis cultivation, leading hundreds of companies to apply for licenses. The country's natural advantage is its position near the equator, which provides around 12 hours of sunlight year-round, making it cheaper for growers than places where artificial light is required.

That attracted some of the industry's largest names, with investments from Canada's publicly traded Canopy Growth Corp., PharmaCielo, Khiron Life Sciences, Aurora Cannabis Inc., and Aphria Inc.

The expansion has continued even as investors have cooled to once high-flying pot stocks. The largest exchange-traded fund of marijuana companies tumbled more than 35% in the past three months to a record low this week, dragged down by concerns about vaping-related illnesses in the U.S. and a slow path to profitability for some of the industry's biggest players.

"The cannabis industry in the last three months has faced a reduction in investment, but the interest in Colombia is still very promising," said Juan Diego Alvarez, vice president of regulatory affairs at Khiron, which plans to produce about 80 tons a year of cannabis in Tolima, a mountainous area in the Central Andes. "Colombia in the near future will become a center for development and research for the industry."

EXPORT FOCUS

The sector has been held back by a complicated regulatory and permitting system. While hundreds of companies were granted licenses since 2016, only a handful have begun growing. None of the cannabis currently being produced is the kind that produces significant levels of tetrahydrocannabinol because of more onerous regulatory procedures for those varieties.

Because Colombia has yet to finalize regulations for the domestic market, producers are focusing on exports.

President Ivan Duque vowed last month to cut bureaucracy and support the industry. Revenue from the sector in Colombia is forecast to balloon to $791 million by 2025 from $99 million in 2020, according to a draft study by think tank Fedesarollo. Researchers estimate the market for cannabidiol in the U.S. alone could be worth almost $23 billion by 2023.

Clever Leaves became one of the first Colombian companies to book sales, exporting products to the United Kingdom and Poland. It is targeting Germany after it receives approval from the European Union.

As Colombia looks to ramp up exports, it's already facing competition from other Latin American countries, with governments from Mexico to Argentina establishing laws to develop industries in those countries. Colombia is more advanced in the process, according to Kyle Detwiler, the chief executive officer of Northern Swan Holdings, a New York company that has invested about $40 million in Clever Leaves.

"It's the perfect region for growing," he said.

If cannabis investors were waiting for a sign that the beleaguered industry is turning the corner, Tuesday wasn’t that day.

Pot stocks came under pressure after U.S. cannabis operator MedMen Enterprises Inc. announced the termination of its all-stock takeover of PharmaCann LLC. The sector’s growing pains were also evident in Canada, as Aleafia Health Inc. ended a five-year supply agreement with Aphria Inc., citing a failure to meet obligations under the deal.

These developments come on the heels of a turbulent period in the cannabis space. Regulatory woes, disappointing earnings, ongoing problems getting pot stores up and running, and an emerging health crisis linked to vaping are casting dark clouds across the industry.

Legalizing cannabis has been “an unprecedented undertaking,” said David Wood, a Calgary-based partner at Borden Ladner Gervais LLP, in a phone interview.

“We haven’t really chosen to compete with black markets by regulating them before. There’s no playbook here,” he said.

It’s a far cry from a year ago when exuberance carried investors into the cannabis sector after Canada became the first developed nation to legalize recreational use of the drug. Constellation Brands Inc.’s $5-billion bet on Canopy Growth Corp. fueled optimism that not only is legal pot here to stay, but will be a valuable commodity in the pharmaceutical and consumer-packaged goods industries.

Since then, cannabis company valuations have tumbled.

The closely-watched Horizons Marijuana Life Sciences Index ETF is down about 50 per cent over the past year and individual stocks have suffered similar, if not more outsized, downturns. Canopy, for example, is down 28 per cent since it received its investment from Constellation and 59 per cent from its peak a year ago.

In fact, MedMen directly cited the decline in Horizons’ cannabis-focused ETF as one of the “market developments” that led the U.S. cannabis operator to call off the PharmaCann deal on Tuesday.

Investors bought into the cannabis hype, rather than acknowledging its legalization was about ensuring public safety and not industry profits, according to Laurence Booth, finance professor at the University of Toronto’s Rotman School of Business.  

“Fundamentally, cannabis is an agricultural product,” he said in a phone interview.  “We don’t go this crazy for wheat or soybeans.”

Not seeing is believing when it comes to a new device for testing cannabis intoxication.

The Impairment Measurement Marijuana and Driving device — or IMMAD — uses a Samsung VR headset specifically designed to test a driver’s peripheral vision. Subjects are required to push a Bluetooth button every time they see a flashing stripe on the edges of their field of vision.

“Marijuana causes temporary paralysis of the cells operating in the retina,” Denise Valenti, an optometrist and lead developer of the product, told International Business Times. “So, when you have certain neurologic deficit in your retina, you just can’t see the stripes. If you can’t see, you can’t drive.”

Valenti, who developed the IMMAD alongside computer science professor Mark Pomplun at the University of Massachusetts, said that adding eye tracking technology to the device should increase effectiveness in determining intoxication from cannabis.

“The final version will be a quick, simple, objective, sensitive, specific test of marijuana driving impairment for law enforcement,” she said. “This test will be threshold related and have a number value compared to a large normative database. That test will take two minutes per eye.”

Marijuana has proven notoriously difficult to accurately test for in the human body. The presence of THC, the psychoactive component of the drug, does not necessarily mean a person is impaired. And higher levels of marijuana use do not necessarily mean higher levels of impairment. And because marijuana-impaired drivers might also be using alcohol, past tests have proven less than effective.

“We’re going to need more research and more help from the medical community, from medical researchers, to help us understand different products with different levels of THC, how different individuals are affected by that, how that relates to impairment, and ultimately how that relates to the ability to drive a vehicle and a potential crash risk,” David Harkey, president of the Insurance Institute for Highway Safety (IIHS) and Highway Loss Data Institute (HLDI), told Consumer Reports.

Despite marijuana legalization in 11 states and widespread decriminalization, police still focus on arresting Americans for cannabis possession.

A new crime report produced by the FBI’s Uniform Crime Reporting Program found there were 663,367 marijuana arrests in the United States last year. That amounts to one cannabis arrest every 48 seconds. More alarming, however, is that the FBI’s data shows the marijuana arrests have increasing each year for the past three consecutive years. There were 663,367 cannabis-related arrests in 2017, an increase from 653,249 arrests in 2016.

The data was compiled by the FBI after local police agencies shared their crime data with the federal agency. The numbers reported that more than 90% of these marijuana-related arrests were for possession alone. Furthermore, cannabis arrests outnumbered arrests for burglary, sexual assault, arson, fraud, and disorderly conduct.

“Despite cannabis being decriminalized in over half of the country, a growing number of states enacting laws to legalize adult-use and medical cannabis, and the reality that two-thirds of Americans support legalization, cannabis arrests continue to rise,” Steve Hawkins, the executive director for the Marijuana Policy Project, told The Fresh Toast. “This new arrest data is a stark reminder that cannabis prohibition is far from over.”

Hawkins noted that focus on marijuana arrests distract police nationwide from focusing on more serious crimes. The same FBI data reported that only 62% of murders, 33% of rapes, 30% of robberies, and 53% of aggravated assaults were cleared nationwide in 2018. A study published in Policy Quarterly last year demonstrated that clearance rates for violent crimes increased following marijuana legalization in both Washington and Colorado. Clearance rates for property crimes also rose in these states, while declining nationwide.

“Moreover, in the absence of other compelling explanations, the current evidence suggests that legalization produced some demonstrable and persistent benefit in clearance rates, benefits we believe are associated with the marijuana legalization proponents’ prediction that legalization would positively influence police performance,” researchers said.

As advocates like Hawkins emphasized, marijuana legalization impacts society in ways beneficial beyond eliminating negative impact from the War on Drugs. If nothing else, it allows police to focus on solving more important matters than prosecution marijuana possession.

“There are many reasons to support replacing prohibition with regulation, but as additional data from the new FBI report illustrates, arresting cannabis offenders prevents police from focusing on real crime,” Hawkins said.