Cannabis: lessons from Uruguay for Latin America from a landmark law

RIO DE JANEIRO, BRAZIL – The momentum that cannabis regulation has received in the region in recent months, following the approval of the export of dried flowers in Colombia, had points of contact with what happened in Uruguay at the end of 2013, after the passing of the law that allowed production for medical, industrial and psychoactive consumption purposes, which included the sale of marijuana in pharmacies.

Almost eight and a half years after the election that marked the government of José Mujica (2010-2015) at the international level, the laws already passed show the lights and shadows of an industrial sector that has been called “green gold” because of its expectations, but has not taken off.

Read also: Check out our coverage on Uruguay

On the one hand, Uruguay has made progress from the standpoint of individual freedom and regulation, improving supply and consumer safety. On the other hand, companies seeking to exploit the cannabis industry’s niche stressed that they disagreed with the regulatory path taken and called for the development of a domestic market for medicinal use.

Although the executive, the industry and legal advisors prefer not to teach lessons to other countries, the fact is that the progress that Uruguay has made in this area over time has made it possible to draw initial conclusions in different areas.

What are the regulations? What should be considered before investing? What are the variations that affect consumption? What happens to the tourists? Bloomberg Línea interviewed government officials, lawyers specialized in the subject and businessmen to get some clues on a subject for which Argentina is also looking for a legal framework.

‘SCATTERED’ REGULATIONS

The lack of a unified regulatory framework is one of the issues that specialized lawyers and businessmen are focusing on. Uruguay passed a framework law on cannabis regulation in 2013, but then implemented various decrees and formulated other laws related to the market and its derivatives.

Attorney Josemaría Motta of the law firm Guyer & Regules said Uruguayan regulations are “very inconsistent,” pointing to the Canadian regulation, which contains “a comprehensive law that regulates all aspects in a very detailed and clear way.” “For example, if you have a drug in Uruguay, you fall under the drug regulation, and if you have a cosmetic product, the cosmetic regulation applies,” he said. On the other hand, there is the Ministry of Public Health,” he said.

The Uruguayan government issued a decree in 2021 facilitating the export of cannabis after an initial decree in 2015 showed difficulties in regulating the medical market. According to experts, this has improved the scenario by adding specificities and variants, but it is still far from being a comprehensive regulation.

One of the spokeswomen for the Chamber of Medical Cannabis Companies (Cecam) and CEO of YVY Life Sciences, Andrea Kruchik Krell, agreed with the difficulties and said that companies are lobbying for a general regulatory review. “Today there are no clear rules (for licensing). You have to go through a lot of hassle, back and forth, because you don’t know what to do. If you have clear rules, you do what they ask you to do and that’s it,” she said.

The executive said that this government has had “a manifestation of removing obstacles so that the industry moves forward,” and that it has appointed Presidential Advisor Nicolás Martinelli “to try to remove the obstacles,” but she regretted that the processes are slower in the orbit of the Ministry of Public Health. “In everything, it’s very important that public health agrees, and this is where we’ve seen the biggest challenge from industry,” she said.

Marco Algorta, Cecam’s first president, was also critical of “a number of obstacles” he said are found in the MOH. The lack of progress also hinders the development of a local market for medical cannabis, which would allow Uruguay to test different products and then import them with greater added value.

In the final phase of the previous government’s term, Law 19.845 was passed, declaring cannabis research a national interest and establishing a study center with a framework to promote innovation. Meanwhile, Law 19.847 was also enacted, creating a program for access to and promotion of medical cannabis. Entrepreneurs pointed out that the regulation of these laws is urgently needed to develop a local market.

“About seven years ago, a law was created that was not intended for the kind of things we do today. It was designed primarily to authorize recreational use and as a measure to combat drug trafficking. Everyone else kind of patched it up to develop a medical industry, but the law needs to be changed,” Krell said.

Business expectations are being weighed by the government, which is emphasizing its role as a regulator in the various sectors of the economy. This means adjusting both health, legal, production and safety standards.

The secretary of the National Drug Agency, Daniel Radío, defended the executive branch’s performance, but called the current regulation “a good step” but one that could be “improved.” “Legislation is not made on demand, and cannabis policy is not determined by the business community. It has to be defined by policy. You have to be careful about these things. If you don’t speak English, live far away and have high costs, you can’t put that burden on legislation. But that doesn’t mean you don’t have to keep reviewing it,” he added.

THE BUSINESS MODEL: SCALE AND PRODUCTION COSTS

Aside from the legal framework, stakeholders also believe that Uruguay faces difficulties in terms of its business model, both because of a possible lack of foresight in exports and because of scale and production costs.

“Are the obstacles in legislation or in finding markets? I wonder. Because if in reality we all want to sell to Switzerland, it is likely that at some point we will clog the market,” wondered the head of the Office of Drugs, which reports to the President of the Republic.

Federico Piano, also a lawyer at the Guyer & Regules law firm, said there are “different types of experiences” in exports. On the one hand, he said, there are companies that take a long time to materialize, and on the other hand, there are companies that cannot place their products.

“The industry has had different problems. Some of them are industry-specific, not government-specific. The reality is that often they have the licenses, which may have taken longer than they initially wanted, and the product they have can’t be marketed because the European standard sees the quality that comes from Uruguay and it doesn’t work for them,” Piano added.

Radío also cited production costs in Uruguay as one of the difficulties, due to labor costs and more expensive fuel. Meanwhile, companies, for example, warn of disadvantages compared to a market in the region like Colombia. The Andean country has five production cycles that allow it to flourish throughout the year, while in Uruguay there is only one or at most two cycles, depending on weather conditions. Therefore, according to entrepreneurs, it is important to be able to develop a domestic market.

LICENSES AND EXPORTS

According to the Institute for the Regulation and Control of Cannabis (Ircca), Uruguay currently has five licenses for the cultivation of psychoactive substances for adults, 17 for medical use, 18 for industrial use and 27 for research. Meanwhile, 48,286 people are registered to purchase marijuana from 24 licensed dispensaries, about 13,738 people are registered for home cultivation, and cannabis clubs have 7,185 members in 229 member clubs.

Meanwhile, according to the Uruguay XXI State Foreign Trade Promotion Agency, the development of the cannabis industry achieved its first export in 2019 and generated more than US$7.5 million in sales the following year, but this fell to US$3.4 million by September 2021. Flower exports account for 97% of the sector’s placements between 2019 and 2021, in Uruguay’s case with Switzerland, Israel and Portugal.

Based on 2020 data, the sector has created more than 1,000 direct jobs, increasing during the planting and harvesting seasons. According to the official report, there are more than 120 companies associated with the sector, of which more than 80% are MSMEs.

Another problem is the lack of authorization from the financial system, as Uruguayan banks do not allow clients dealing in cannabis due to US regulations. It is expected in the industry that the government of Joe Biden will show flexibility in this regard. The funds will then be transferred through companies abroad or through accounts in personal names, industry sources said.

THE “GLUE” OF THE VARIANTS

Uruguayans can access cannabis for non-medical use in three ways: at dispensaries, by joining a cannabis club or by growing it themselves. At the beginning, there was a supply problem, partly because there were not enough products in relation to demand, and partly because the network of outlets is limited. In 2020, there were 14 dispensaries; today there are 24, but “it’s still too few,” Radío said.

Starting this year, the government also plans to introduce a third variety with more THC to meet demand from some users in dispensaries who have turned to clubs or the black market out of dissatisfaction with the current varieties. According to the head of the Drug Enforcement Agency, clubs produce an average of 16% THC marijuana.

“We have only two varieties in the dispensaries, which differ not in their THC content (5%), but in their characteristics,” Radío said. The drug minister explained that the biological process is being introduced with the aim of having a product with a THC content of about 10% in pharmacies this year.

WHAT TO DO ABOUT TOURISM?

Last year, the drug minister also proposed giving tourists access to state-owned marijuana, saying the current system creates inequality between visitors and Uruguayans or residents. “Non-residents often come with the expectation of consuming cannabis. It would be good to change this so that non-residents also have access,” the official said.

However, Radío said there are legal and practical difficulties in implementing it. Since the law requires registration, which makes access difficult, he suggests an alternative registration system to promote the possibility of use by foreigners. “If we want to sell to tourists, it can’t be that there is no point of sale in Colonia. And there is one in Maldonado. We are thinking about alternatives,” he said of the outlets.

The YVY Life Sciences company is also advocating for regulatory changes to attract cannabis tourism. “Tourists come to Uruguay to buy cannabis, and (in the current situation) we are promoting the illegal market. When a tourist comes to Uruguay, he has no way to legally get this product. We must create legal channels where tourists are safe and not expose them to drug trafficking and the illegal market, even though it is an already legalized industry,” said Krell, CEO of the company.

In conclusion, the Secretary of the Drug Administration states that there are “two packages,” one for economic development and one for individual freedoms. In the second statement, he considered that Uruguay “is on the right path to defeat, or at least resist, the hegemonic paradigm of prohibitionism.” Regarding industrial opportunities, he called for an assessment of the differences between “expectations” and “actual opportunities.” “There were a lot of expectations raised. There was talk that this would be the soy or the meat of the future. I respect those who have made those assessments, but I think we need to slow down and walk up to the stones. There is an opportunity, and there is actually investment, but we need to find markets. It’s not just about production. And we have to consider that there are strong competitors in Eastern Europe,” Radío said.

With information from Bloomberg