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FEATURE-High prospects for Uruguay's legal marijuana business

Source: Reuters - Fri, 13 Dec 2013 02:43 PM
Author: Reuters
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By Malena Castaldi and Felipe Llambias

MONTEVIDEO, Dec 13 (Reuters) - Uruguay's pioneering move to legalize the planting and sale of marijuana opens the door for a clandestine cottage industry of pot growers to transform into a legitimate business that could even export medical cannabis, a commodity in short supply.

More and more countries are setting up medical marijuana programs to help relieve the pain of terminally-ill patients and treat other health conditions, but there are few legal sources of the drug in the world and Uruguay could tap that tight market.

Uruguay's domestic marijuana output is expected to expand rapidly under a law that cleared Congress on Tuesday allowing its citizens to grow up to six plants a year in their homes and more in smoking collectives.

Many have been doing this secretly for years. Smoking marijuana - and indeed the private consumption of all drugs - has not been a crime in Uruguay since 1974, but the small South American nation of 3.3 million people is now the world's first to fully regulate marijuana from cultivation to consumption.

When the law is implemented in 120 days, Uruguayan residents will be able to buy 40 grams (1.4 ounces) a month over the counter at pharmacies licensed by the state, which will fix the price, tax the trade and issue permits for larger producers.

"The big difference is that we are no longer outlaws," said Alvaro Calistro, who has grown pot in his Montevideo backyard for 20 years. "This allows us to increase the scale of cultivation."

Calistro expects a rise of licensed entrepreneurs growing marijuana on small farms outside the city, though who will get permits to grow the drug for sale in pharmacies has yet to be specified in regulations the government is to draw up by April.

Licensed medical marijuana for export would have to be grown in greenhouses to pharmaceutical and security standards required by the health authorities of importing nations.

"A whole new spectrum of opportunities opens up," said Juan Vaz, head of the Uruguayan Cannabis Studies Association, which campaigned for legalization. "It's the end of the hypocrisy of prohibitionist policies that failed to combat drug trafficking."

Vaz, who has smoked marijuana for 30 years and does research on the genetics of the plant, said legal cultivation will provide good quality pot at a price that will put the criminals out of business.

"The difference between homegrown and illegal pot is like that between a good wine and plonk," he said.

SOCIAL LABORATORY

Uruguay's government plans to fix the price of marijuana sold in pharmacies at $1 a gram, which is roughly enough to roll two joints, Vaz said.

With costs estimated at between 20 and 50 cents, the official price should provide growers a tidy margin and undercut the black market price for marijuana, which is mostly smuggled in from Paraguay and peddled at around $1.40 a gram on average.

Uruguay's leftist president, Jose Mujica, a 78-year-old former guerrilla fighter, has recognized that legalization is an experiment and says it will be reversed if it backfires.

Critics say it will increase marijuana use, lead to abuse with harder drugs and attract pot smokers from the world over looking to pick up the drug at Uruguayan pharmacies. To prevent that, the marijuana sales will be restricted to adult residents of Uruguay who must be registered as users on a government data base.

The immediate impact, most experts agree, will be to reduce the smuggling of Paraguayan marijuana into Uruguay, often thrown in bundles from planes or stashed in the fuel tanks of trucks.

Success in reducing drug-related crime in Uruguay would strengthen advocates of legalizing marijuana elsewhere in Latin America, where leaders have tired of the U.S.-led "war on drugs" and the failure to curb the power of the region's drug cartels.

"Other countries will be watching very closely to see how it plays out for Uruguay now that this is a real political option," said John Walsh, a drug policy expert at the Washington Office on Latin America, which monitors U.S. policy in Latin America.

"Uruguay has a good shot at doing it well," Walsh said. It is small and safe, unscathed by the brutal violence unleashed by cocaine traffickers in other Latin American countries such as Colombia and Mexico, he said.

The Uruguayan experiment could add momentum to the marijuana legalization debate in the United States, where the states of Washington and Oregon last year made it legal to grow and smoke pot.

MEDICAL EXPORTS

If regulation works, Uruguay could become an exporter of medical marijuana to countries such as Canada that are allowing an expansion of the use of the drug for health reasons.

Canada became the first country to allow terminally ill patients to grow and smoke their own marijuana in 2001. Since then, the number of people in the country legally authorized to use marijuana has grown to more than 37,000 and will rise to 434,000 by 2024, according to official projections.

The rapid growth led Health Canada to take legal production of medical marijuana out of private homes and put it in the hands of licensed growers as of April next year, a business that is estimated to be worth $1.3 billion by 2024.

In the transition, Canada will have a deficit of some 100,000 kg of medical marijuana that a foreign supplier could cover, says Ron Marzel, a Toronto lawyer for the Canadian cannabis industry.

Canada's health industry did not respond to questions as to whether it might seek to import medical marijuana from Uruguay.

At present, there are few lawful jurisdictions that can supply medical marijuana. Israel is a pioneer in the field but only supplies its own patients. The Netherlands has for decades allowed licensed cafes to sell cannabis, but the supply side of the business is only legal for medical marijuana, sold at a fixed price of 12 euros a gram.

Marzel, who has been retained by an advisor to the Uruguayan government on medical marijuana regulation, believes patients should not have to pay high prices when they have a medical need.

"I am optimistic and bullish about Uruguay being able to produce low-cost, high-quality medical cannabis for export to Canada," Marzel said. "If it acts fast, it could look at placing some 20,000 kilos in Canada over the next year."

Others are looking beyond the medical side of the business.

U.S. marijuana entrepreneur Brian Laoruangroch, whose Seattle-based company Prohibition Brands aims to mass-produce marijuana cigarettes one day, sees huge potential with the trend towards legalization. But he says Uruguay must get the regulations right because the world is watching.

"If a good business structure is implemented, free of corruption and black market problems, perhaps my firm would be interested in doing business with Uruguay," Laoruangroch said.

"Anything less than the most tightly regulated industry with professional businesses will send the wrong message." (Additional reporting by David Ljunggren in Ottawa; Writing by Anthony Boadle; Editing by Kieran Murray and Vicki Allen)

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