Nov 23, 2020

How the Jamaican Cannabis Economy Could Lower Supply Chain Costs for the Global Cannabis Industry

Jamaica has a long and documented history with cannabis. The island has remained a leading producer of marijuana in the Caribbean for over a century, and the cultivation and consumption of cannabis has held enormous economic, cultural and religious importance to its people.

Like the rest of the Caribbean, Jamaica has taken significant steps toward regulating and instituting a vibrant legal market in recent years, amending its laws to decriminalize marijuana, instituting a regulatory body to issue legal licenses, and providing pathways for cannabis farmers to transition into the legal market.

Efforts to establish a vibrant cannabis economy in Jamaica were typified in a 2018 move to pass comprehensive export regulations, which would provide for the sale and distribution of medical-grade cannabis to the global market. Expected to pass in April 2020, the COVID-19 pandemic temporarily slowed the regulation’s approval, though finished agreements are still expected in mid-2022.

Once exporting regulations are released, Jamaica—a tropical jurisdiction renowned for growing the best cannabis in the world and a business-friendly island with the potential to cut cultivation costs for producers dramatically—will become one of only 10 countries with a vigorous cannabis exporting regime.

In other words, Jamaica could quickly become the answer to solve supply chain insecurities and high costs for countless global cannabis companies seeking cost-efficient producers—and almost nothing could deter global interests from capitalizing on that opportunity.

What’s the status of the legal market in Jamaica?

In April 2015, Jamaica passed the Dangerous Drugs Amendment Act, which introduced several key changes to the island’s law as it relates to cannabis. The legislation decriminalized the smoking and possession of small quantities of marijuana, granted provisions for members of the Rastafari faith to use and cultivate cannabis for sacred purposes, and—crucially—established official regulatory practices for the licensing, cultivation, and distribution of medical and recreational cannabis to global standards.

In essence, these amendments ushered in a cannabis market in Jamaica, administered by the Cannabis Licensing Authority (CLA), which was created to oversee the industry on the island, issue licenses and transition farmers to the legal market.

After limited success jumpstarting the industry initially, Jamaican lawmakers—like many opening their countries to cannabis commerce—came to understand a core principle: In order for a developing cannabis economy to reap its maximum economic benefits, it must first establish a sufficient legal framework to support trade and new investment, particularly given the novel nature of cannabis commerce.

In turn, the CLA shifted its focus to adopting legislation that would provide a pathway for exporting cannabis to legal jurisdictions around the world, supporting direct investment in the Jamaican industry.

Once implemented, the rules will liberate the long-term viability of the market in Jamaica, positioning the island to cater principally to international businesses and the many governments who’ve established import guidelines for their own economies. Rapidly expanding international markets, like those in Australia, Germany, Canada, and the United Kingdom—will all turn their eyes to the island. “While there is business in bringing people to Jamaica to experience the finest cannabis and use our products,” one official was quoted as saying last year, “the biggest opportunities involve making it convenient for the world to have access to the products Jamaica has to offer.”

Speaking last fall, Jamaican Agriculture Minister Audley Shaw went further. “I have set a target for the regulations to be promulgated and in place, because I want us to start exporting into external markets,” he said. “Canada wants it. Australia is crying out for it. Germany wants it. All our local players will be able to leverage overseas markets and support the growth of the economy.”

What supply chain issues confront the legal market?

News that Jamaica is positioned to grow cannabis for the global industry is significant for a key reason: At large, the legal market has yet to standardize a cost-effective way to grow, process and distribute marijuana, despite cannabis’ position as a global cash crop.

The value chain for legal cannabis is young, and while markets begin to open around the world, supply chain relationships between industry players remain less outlined than established markets for commodity products.

While evolved cannabis markets—like the industry in Canada—have begun to establish a recognizable supply chain for cannabis and its byproducts, supply shortages and exorbitantly high costs for licensing, production and staffing have continued to inhibit their success.

In Canada and the United States, for example, licensing and development fees can cost a cultivator upwards of $800,000—enough to seriously weaken any producer before seeds are even planted. More, labor costs to staff those facilities and cultivate the product prove untenable for keeping prices low. Staffing an average greenhouse for cannabis cultivation in the United States, for example, could conservatively cost a producer 400,000 USD per year—where the cost to compensate workers at the same rate in a smaller economy, like in Jamaica, would cost the same producer less than 50,000 USD.

In all, the costs associated with licensing, staffing, regulatory and application fees, land purchases and construction for less-effective indoor growing facilities could cost a Canadain cultivator $1 million to $2 million, depending on the size of their operation. And in 2018, the operating costs associated with indoor cannabis cultivation totaled about $425 per pound of dry flower produced.

As the market grows around the world—and as producers, manufacturers, distributors and retail companies enter the market to form a definable supply chain—several challenges like these have emerged.

Because some large cannabis corporations have begun growing themselves, smaller licensed producers have experienced supply fragmentation—and across the board, all producers have been hampered by high production costs in cold climates and expensive markets. Manufacturers and distributors have confronted high fulfillment frequencies and a shortage of commercial growers who can produce cost-effectively. And many retailers, unable to integrate into production within their jurisdictions, have faced high costs and uneven supply from producers. Many, in turn, have sought partnerships with commercial cultivators outside their locations.

With the market growing by nearly 30% per year—and projected to value 70 billion USD within the decade—cannabis companies who find a way to stabilize their supply chains are best positioned to reap the benefits of this exciting and evolving industry.

According to a key 2018 analysis, “those who get their supply chains right have the opportunity to become market leaders, while those that do not are likely to incur excessive costs, miss commitments and lost market share.”

In other words, stabilizing cannabis supply should be—and is—a key priority for businesses across the industry.

How can a Jamaica-based producer lower costs for the global market?

These key supply needs lead Jamaica—and commercial producers ready to begin production on the island—to command the global industry in cultivation.

Massive Therapeutics, for example—equipped with state-of-the-art hybrid growing facilities, a dedicated network of community partners, and the resources to swiftly accommodate a diverse portfolio of global clients—is positioned to pioneer the large-scale cultivation of medical-grade cannabis on the island.

In essence, our mission in Jamaica encompasses all of the benefits of low-cost cultivation in the Caribbean.

With a business-friendly environment, ideal climate for production, low labor costs and a blank slate for widespread commercial cultivation, Jamaica has the potential to stabilize supply and lower costs for cannabis companies around the world.

In all, licensed production in Jamaica is far less expensive than in a country like Canada—even while producing higher quality cannabis. The average operating and production expenses associated with cultivating one pound of dried flower for an indoor producer in Canada cost roughly $425 in 2018. In Jamaica, Massive Therapeutics’ operating costs for the same amount totals just over $100 in 50 hybrid greenhouses—nearly one fifth the operating costs.

In all, Massive Therapeutics can lower cultivation costs for medical-grade cannabis by nearly 80%.

A grower of our size—expected to cultivate 50 greenhouses—therefore stabilizes supply for companies up and down the value chain, lowering costs while ensuring quality.

We’re able to circumvent many of the production costs that prevent producers from turning profits, and distributors and manufactures can source cannabis with room for their own gains. Countless cannabis companies who’ve crippled under the costs of production can partner with a low-cost supplier, and retail companies and drug developers are able to engage—or integrate—with a producer beyond their jurisdictions.

In all, a Jamaica-based grower like Massive Therapeutics—who enters the market from a low-cost jurisdiction and establishes stable supply for global partners—could easily prove to be the industry’s most valuable asset.