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Cannabis How Colombian firms with Canadian cash want to move beyond the drug war – by growing cannabis

Cannabis grows at a PharmaCielo Ltd. facility in Rionegro, Colombia. The Canadian-Colombian venture and other companies are turning to Colombia to grow cannabis for medical use, giving locals a chance to move away from prolific illegal drug businesses.

Eduardo Leal/bloomberg

This article is part of our coverage on the business of cannabis

A couple of years ago, a slick group of strangers showed up in the office of Edward Garcia, mayor of this sleepy town in a lush agricultural valley in central Colombia. They wanted to talk about marijuana.

Mayor Garcia is used to outsiders with an interest in the local agricultural staple: his town, Corinto, is so famous for the cannabis grown on its low hills that its name is a synonym for marijuana in much of Latin America. The campesinos, smallholder farmers who grow it, will tell you it’s the best marijuana in the world. But the crop is tied up with heartache. Corinto, and the other towns in this valley in the province of Cauca, were the site of some of the most brutal conflict in Colombia’s decades of civil war. Drug money fuelled the war; the campesinos sold their product to narco-traffickers working with regional and Mexican cartels as well as to guerrilla forces.

This new batch of visitors, however, was not traffickers. The first of them were representatives of PharmaCielo Ltd., a joint Canadian-Colombian venture; they were soon followed by other aspiring entrepreneurs, many of them flush with Canadian capital, all of them hoping to turn Corinto’s expertise with cannabis into a lucrative medical marijuana industry.

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Mayor Garcia was initially skeptical. But when medical cannabis was regulated in 2016, the new law required companies to source 10 per cent of their raw materials from smallholders. Then he began to allow himself a little optimism.

“We wrote marijuana into our town business plan,” he said. Corinto offered the new businesses tax breaks, and worked with the military to set up monitoring systems so that the product could be transported safely. By next year, he hopes that seven medical cannabis businesses operating around Corinto will be employing 500 people.

“For us, 500 people with formal jobs, spending money in the markets, that makes a difference – we haven’t seen a new investment or new jobs in 50 years,” he said. “This is a chance for things to be different.”

Edward Garcia, the mayor of Corinto, hopes to transform his war-scarred town with jobs and investments generated by medical cannabis companies. Marijuana grown in Corinto is so famous that the town’s name is a synonym for the plant in much of Latin America.

Christian EscobarMora/The Globe and Mail

Mayor Garcia’s enthusiasm is echoed in many quarters these days. Colombia is the second country in the Americas to legalize medical cannabis, after Uruguay (which legalized recreational, medical and industrial uses in 2017). Champions of the move say it promises as much as half a percentage of GDP in new economic activity; an alternative to the illegal drug trade; and jobs and stability in some of the most neglected parts of the country. The global cannabis market could be worth as much as US$40-billion next year, and Colombia hopes eventually to own a fifth of it; this new commodity could earn more than coffee, flower, coal or banana exports.

Related: A biography of cannabis

And, at least on paper, there is good reason for the optimism. Colombia is wooing foreign investors, talking up its potential in the new era of peace as a resource-rich country with a business-friendly regulatory environment. Colombia has the ideal climate for cannabis, with the evenly split 12 hours of light and dark each day that the plant prefers, a pool of low-cost labour and easily-transferable expertise and infrastructure from a large cut-flower export business.

But all the ebullient talk can’t mask the fact that this nascent industry faces serious obstacles.

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The lights of illegal marijuana-growing operations illuminate the rural landscape of Tacueyo, a municipality in Colombia’s Cauca region.

Christian EscobarMora/The Globe and Mail

Women cut marijuana plants in the town of Tacueyo. Growing cannabis on these small farms is illegal but ubiquitous - most campesinos have a few plants on their land, relying on a crop they can harvest three or four times a year.

Christian EscobarMora/The Globe and Mail

First, there’s the question of access to basic financial services. Uruguay’s new industry has been shut out of banking completely; businesses in Colombia are scrabbling to retain their access to accounts. The problem is U.S. drug law: the Patriot Act prohibits banks from handling funds for distributors of “schedule 1” controlled substances – and in U.S. federal law, that includes marijuana. That means that no Colombian or international bank that wants access to the U.S. market or currency can do so, either.

“There are 36 companies here and they are all having trouble with banking,” said Andrés Lopez Velasco, who heads the National Drug Foundation, the division of the Health Ministry responsible for the new industry. ”They open an account and the next day the bank manager finds out it is a cannabis company and closes the account.”

The second issue is security. The new town slogan in Corinto is “peace and development;” there is a wildly optimistic brochure for a tourist route in Mayor Garcia’s office. It doesn’t mention the half dozen different armed groups encamped in the hills outside the town, some of which have been forcibly recruiting children in recent months.

While the security crisis seems distant from the plush offices of cannabis companies in Medellin and Bogota, the reality is that the 2016 Havana Accords with the Revolutionary Armed Forces of Colombia (or FARC, in Spanish) did not bring peace to this country. The demobilization and reintegration of former FARC fighters is going relatively well. But a range of actors is battling for control in the power vacuum created by the exit of the FARC. They include other leftist guerrillas, plus bands of dissident FARC, right-wing paramilitary organizations and, perhaps most ominously, a range of non-ideological groups, including Mexican and Brazilian cartels, seeking to control the drug business the FARC abandoned under the terms of the peace accord. These groups have murdered more than 100 human-rights and environmental activists – who lead local resistance – since the start of this year, and control large chunks of territory around the country.

In Toribio, Colombian army soldiers confiscate bundles of illegally-grown cannabis that was being was being transported down the mountain for sale in the city of Cali or beyond.

Christian EscobarMora/The Globe and Mail

The nascent cannabis industry also faces a political threat: Colombians in June elected Ivan Duque, who will take office in August. Mr. Duque is a strong critic of the peace deal with the FARC and a champion of the “war on drugs” criminal prosecution approach (although he has said little publicly about the medical cannabis business).

Personal consumption of narcotics was decriminalized in Colombia in the 1990s – but for decades the country has focused on combatting the production and illegal export of those drugs, with an anti-drug fight that included aerial spraying of hundreds of thousands of hectares of coca crops, bankrolled by the United States’ Drug Enforcement Agency (DEA). President Juan Manuel Santos broke with that position shortly after he took office in 2010, telling an international audience that the war on drugs was a failure and Colombia must go a new direction.

His government began a slow change of tack with harm-reduction methods such as needle exchange, and the legalization of medical cannabis. A chief proponent of this move was Juan Manuel Galán, a 45-year-old Liberal-Party senator with a deeply personal motivation for his belief in decriminalization. His father, Luis Carlos Galán, was a politician who campaigned against the power of the drug mafia, particularly the Medellin cartel headed by Pablo Escobar; he was assassinated by cartel hit men while running for president in 1989.

Senator Juan Manuel Galán spearheaded legislation to decriminalize medical use of cannabis. He hopes to see Colombia’s dark history with narco-trafficking (which includes the assassination of his father, a presidential candidate, by a cartel) transition to a profitable, legal industry.

Carlos Villalon/The Globe and Mail

Mr. Galán saw decriminalization as the best way to fulfil his father’s legacy, but he needed a strategy that would work in this socially conservative country where everything to do with narcotics comes freighted with painful baggage. After surveying the cannabis regulation efforts from Uruguay to Colorado, Canada to Israel, he decided medical marijuana was the best first step. Polling suggested that as many as 60 per cent of Colombians favoured medical use of cannabis, he said – many had had an experience like his, watching a beloved uncle die of cancer in 2014, his pain eased by then-illegal cannabis.

“It was a way to advance the fight against narco-traffickers and to try to build a new policy on drugs,” he said. “People who didn’t understand my father still don’t understand the power of criminals to infiltrate the institutions of the state.”

The new law stipulated that Colombia would not export raw materials, but only finished products. “We need technology transfer, but if all we allow is the export of the flower, it will never happen,” the senator said. “Companies have to produce here and transform it into oils.” A processing plant is a roughly US$10-million investment.

As he had hoped, international investors were quick to take note of the new opportunity; the Ministry of Justice started granting licences for growing cannabis, while Health Minister Alejandro Gaviria’s office issued licences for turning the plant into cannabidiol projects.

The ministry wants all cannabidiol products put through the clinical trial process, which will take five years, but in the meantime is allowing pharmacies to formulate individual preparations using the loophole for “orphan drugs.” The ministry is also holding seminars for doctors to explain the effectiveness of cannabidiol – which some research suggests is more effective than opioids in managing pain in oncology and palliative care. PharmaCielo, the company furthest along in the process, has permission to cultivate plants – in both Corinto, and its main site near Medellin – for testing and registry with the ministry. The firm has raised US$37-million so far from private investors, predominantly Canadians and Colombians, and expects to go public through a reverse takeover later this year.

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Mr. Lopez Velasco said the potential market is huge. ”Mexico and Argentina legalized use but didn’t allow production, Brazil is legalizing – producing here is 50 times cheaper than Germany,” he said. But he hopes to see Colombia export beyond its neighbours; the country already has a free-trade agreement with Europe, and he hopes Health Canada will approve Colombian products. “We can supply the world with cannabis.”

An employee trims plants at PharmaCielo’s Rionegro facility, near Medellin. The company has permission to cultivate there and in Corinto.

Eduardo Leal/bloomberg

Nasa Indigenous people who once grew cannabis illegally, and who hope to switch to farming for Pharmacielo, at a meeting in Corinto.

Christian EscobarMora/The Globe and Mail

Andrés Galofre, chief commercial officer for Toronto-based Khiron Life Sciences Corp., says the company has research showing 5.8 million patients within Colombia have diagnosed conditions that could be treated with medical cannabis. Khiron will focus on epilepsy, chronic pain, multiple sclerosis and management of symptoms of cancer, he said in a recent interview in Bogota.

“We founded and incorporated in Canada because it’s the hub for resources,” he said. “This industry has to legitimize itself to be taken seriously and that takes resources.” They brought seeds and expertise from an Israeli company, he said, hired a former Merck executive to do operations, and a former DEA agent to handle security. Khiron is steering clear of former conflict areas, doing all of its production 150 kilometres south of Bogota in a rice-growing region.

He said that Khiron raised an initial $20-million in investment in Canada – but then struggled to bring it into Colombia, where banks raised the issue of drug-money laundering. Then the company bounced through a series of banks that couldn’t decide whether to give them an account. But he said none of that will deter investors when they see the potential market; Khiron began trading on the TSX Venture Exchange on May 24.

But Daniel Rico, a former drugs policy adviser to the president who has consulted with several of the new cannabis companies, said he thinks the gold rush mentality has led to a crowded field full of entrepreneurs with unrealistic expectations.

“This is a market of big players and big money,” he said. “Pfizer and Philip Morris are going to make it a global business, not companies like Khiron and PharmaCielo. It’s good for Colombia if we can be the supplier but it’s not going to be so many jobs. It’s not like coffee or cocoa, which employ hundreds of people. You could supply the whole world market on 100 hectares.”

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Mr. Rico said he’s dubious of PharmaCielo and others who are putting part of their business in Cauca. “It’s a good branding move: marijuana from Cauca is like champagne from Champagne,” he said. “But the entrepreneurial approach is to avoid risk.” Cauca is a patchwork of competing communal and ethnic identities, he said, where activists routinely close roads and occupy areas in protests over land and water rights, the military and police have no control over large swaths of territory.

“You’re going to need engineers and professionals – getting them to live in a small town in Cauca will cost you a lot. You need to be close to an airport or a port – but in Corinto you’re a six-hour drive from Antioquia [where many processing plants are being built or planned], so then you have the security risk on the roads. The security conditions remain really problematic. And they’re creating more expectations with the community than they can fulfil.”

Federico Cock-Correa, who runs the Colombian operation of PharmaCielo, doesn’t disagree with any of this. For the company’s first four years, it had an excellent relationship with a bank that recently came under pressure from the United States not to serve them. “I’m very busy trying to open new accounts,” he said. And he has no illusions about the security situation in Corinto. But the federal government must get serious about securing the region, he said, because so much is riding on the investments by PharmaCielo and others, to show the country has changed. "The local authorities and the people wants this to happen – they want to protect this,“ he said. “They are desperate to develop this.”

Omar Largo Ramos, 41, is one of 63 members of Caucannabis, a co-operative in Corinto formed to do the local production for PharmaCielo. Mr. Largo Ramos is an experienced cannabis farmer, who typically had 500 marijuana plants on his small farm at any time in the past 25 years. He could harvest them three times a year, which made cannabis four times more profitable than anything else he could grow, he said. But he ripped the plants out when he joined the co-op, hoping that he could earn more there than he did growing alone, and now he is waiting for operations to gear up here. Even if it pays less, it will be safer, he said, and he won’t be supporting the criminal groups that have made Corinto violent all his life.

“We were always afraid before, always hiding,” he said. He never knew when fighting might erupt around his farm. And he could have wound up in jail if the army came to inspect his fields, or if he was stopped while transporting bales of cannabis to town. “It’s so much better, if this plant can be something that heals people.”

Andrés Cock-Correa, Federico’s brother and the community relations manager for PharmaCielo, says it’s farmers such as these, and the chance to do something good for the people who paid the highest price in the war, that motivate the firm to navigate the challenges of working in Corinto – in the face of challenges that the brothers admit are considerable.

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On Andrés’s first day working in the area, he was delivered a “bill” for an extortion payment to a guerrilla organization. “I sent the message back that we’d rather abandon the growing project than pay them,” he said. “That we’re here to create jobs not pay extortion.” As the project takes on greater visibility, his employees are getting visits from shadowy characters asking what kind of cut is coming to them; Mr. Cock-Correa says his staff knows PharmaCielo will pay nothing – and he knows this puts them at risk.

Andrés Cock-Correa works with campesinos in the Cauca Valley who are giving up illegal cannabis cultivation and instead going to work for the Colombian-Canadian medical cannabis firm PharmaCielo.

Christian EscobarMora/The Globe and Mail

Some of the nascent industry’s problems will be easier to fix than others. Senator Galán said he believes the banking problem may soon be resolved; Colombia’s finance minister was recently in Washington to lobby on the issue, he said, and the rapid expansion of the global medical cannabis business – emerging as a key, less-addictive alternative to opioids – will force a resolution to the U.S. legal issue.

But the health minister, Mr. Gaviria, said in an interview that the coming change in Colombia’s government could complicate all of this. A surge in illegal coca production since the peace accords – and an increase in illegal drug consumption within the country – are contributing to a new hardening of attitudes, he said. Mr. Duque, the president-elect, says he wants drug possession repenalized, the minister noted. A new, anti-drug president probably couldn’t shut down the new medical industry, he said, given that dozens of companies have already invested millions of dollars. “We have many investors, local and international – there’s too much at stake – which is good in a sense because now we have in the good sense vested interests – people who are going to fight to have sensible regulation in place.”

But a new leader who disliked the industry could stonewall it. “We still have some issues to solve and in order to solve those issues we need a pro-active government,” Mr. Gaviria said. “A passive government is not going to be good for the industry, and that’s a probable scenario.”

In Corinto, Mayor Garcia is doing his best to juggle a pile of competing interests. He wants the military to keep the town safe, so that the new businesses stay. And he wants campesinos to do all they can to learn from the producers, so that in a few years they can push government to require even more local-producer content.

“We are well aware that the marijuana we grow now is not useful for them,” he said. “So we’re telling campesinos, ‘start working with them, learn the process of how it’s grown for medical use’ … we want campesinos to become entrepreneurs. Yes, the big companies are going to be the ones to transform it into medicines, but we can also be business people producing the best raw materials for them.”

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Those farmers, his town, the whole country, has suffered so much because of other people’s desire for the plants grown here, he said. “It’s time something good came out of this.”

Christian EscobarMora/The Globe and Mail

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