Uruguay became the world’s first country to legalize cannabis when pharmacies started selling the product last summer. Things have worked out well so far, the country’s top marijuana regulator said, although challenges remain as producers struggle to secure bank financing and the government grapples with supply shortages.
“We moved the frontier of what is possible,” Martin Rodriguez, director of Uruguay’s cannabis regulatory authority, said in Washington, D.C. during the launch of a report on the country’s experience with legalization.
“The model in Uruguay is different from other regions, but the objectives are similar,” Rodriguez said on Thursday during an event organized by the Brookings Institution and the Washington Office on Latin America (WOLA). “This is better than the prohibition of cannabis for local populations.”
PHARMACIES AS DISPENSARIES
The country of 3.5 million allows cannabis to be sold at select pharmacies without a prescription as the country does not offer a separate system for medical marijuana users. Citizens of Uruguay — not tourists — s can purchase up to 40 grams per month at the pharmacies
The price of marijuana in Uruguay has been set at $2.50 per gram, according to a report from Komoron Law, a Michigan-based firm which advises clients on cannabis issues.
Currently, only two companies have been licensed to produce commercial cannabis in Uruguay, the report said, and more than 22,000 Uruguayans have registered as purchasers.
This duopoly presents a problem, said John Hudak, a senior fellow in Governance Studies at the Brookings Institution. “There are supply issues in the country,” he said, citing “the limited amount of cannabis produced in a given harvest.”
“Sometimes the amount of cannabis delivered to a pharmacy doesn’t meet the demand,” Hudak added.
Uruguayans who don’t want to buy weed from pharmacies can instead join registered cannabis clubs to grow their own marijuana. These cooperatives must have less than 45 members and cannot dispense more than 480 grams of marijuana to a single member in a given year.
Uruguay currently has 83 cannabis clubs, said the report, and more than 8,200 Uruguayans have registered as homegrowers.
Foreigners are not allowed to purchase cannabis in Uruguay, so the black market remains an issue despite the product’s low price, said Alicia Chavert, the owner of a Uruguayan pharmacy which dispenses cannabis near the tourist city of Punta del Este, arguably South America’s most important resort town.
When legalization first came into effect, “some members of the public believed that security and violence would become issues around the pharmacy” and promised to boycott the store, Chavert said. Those fears have not materialized, but the business faces challenges in securing bank financing.
THE CANADA CONNECTION
Large banks, fearful of running afoul with U.S. financial regulators, have stayed away from Uruguayan companies that deal with cannabis, something that hinders the industry, the report said.
“It makes pharmacies have a choice between continuing to sell cannabis or to be a cash only business,” said Hudak.
Canada’s plan to legalize recreational cannabis this summer, however, could relieve some of the pressure on Uruguay if Canadian banks jump into the sector, the report said. In January, the Bank of Montreal became the first major bank in Canada to lead an equity financing deal with a legal cannabis producer.
As the first G7 nation to legalize recreational cannabis — with a powerful banking sector and close ties to the U.S. — it’s less likely that U.S. banks or financial regulators would take action against Canadian banks than smaller Uruguayan lenders for financing cannabis companies, the report said.
While Canadian lenders could potentially ease some of the pressure on Uruguay, the small nation has some lessons for Canada and other countries moving towards legalization.
“Uruguay has done well to keep with a strict regulatory model, while expanding the space,” said John Walsh, co-director of drug policy for the Washington Office on Latin America. “If you start strict, it’s easier to loosen up later.”