Uruguay’s Cannabis Industry on a Slow Roll

Uruguay was the first nation in the world to legalize cannabis for recreational use. Usually when a new market opens up, there is a gold-rush mentality that arises with loads of businesses entrepreneurs and con-men trying to cash in. That isn’t what happened in Uruguay at all. The government kept the whole process of building the industry at a slow pace. This may have cost Uruguay a leadership role in the cannabis business, but it also is clear that a country of 3.5 million people wasn’t going to be remain a leader indefinitely anyway.

The rules in Uruguay are straightforward, but they are also restrictive. Citizens, not tourists, can purchase up to 40 grams a month from a pharmacy. There is no separate medical marijuana industry, and the pharmacies are supplied by only two growers. Two strains are available, and both are capped at 9% THC.
With a production duopoly, it is almost inevitable that supply and demand are out of synch from time to time. 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.”

Alternatively, you can join a growing coop. It has to have at least 45 members and can dispense no more than 480 grams per person per year. There are about 91 of these according to the government agency in charge of the regulations – Instituto de Regulacion y Control de Cannabis [ IRCCA] . You can also register to be a homegrower. Neither a coop nor a homegrower can supply a pharmacy. As of last June, there were 35,246 Uruguyans registered with the government, about 1% of the population. 24,324 bought theirs at pharmacies, 2,339 were coop members, and 8,583 were home growers.

The fact that non-Uruguayan tourists are not allowed to make purchases has clearly impeded the development of the industry. There are cannabis-friendly tourist destinations, but with only 35,000 registered Uruguayans, the numbers just are not there to make an impact. This prohibition also allows the black market to continue, which is contrary to the purpose of legalization.

Naturally, the biggest issue keeping the development of the industry on a slow track has been the handling of the money. Uruguay has its own currency, the peso, but US dollars are often accepted for goods and services. In addition, the pharmacies’ transactions wind up routed through the SWIFT banking system . The US banks carry a lot of weight there, and that is one of the reasons US economic sanctions are so effective against various regimes.

With regard to cannabis money, the US banking system still views it as illegal drug money. So the cannabis industry has had to manage a huge amount of cash safely. John Walsh, director for drug policy and the Andes at the Washington Office on Latin America, noted, “The big US-based banks sent a memo to their Uruguayan counterparts, telling them they’d have to close their accounts if they proceeded.” It’s the same issue the industry faces in Colorado and Washington State. In the case of Uruguay, the ban has also made developing an export market difficult.

All the same, moving slowly is not the same as standing still. Uruguay is going to expand the number of growers in the coming months, operating under the same conditions as the existing duopoly. The violence around pharmacies that some feared never materialized, and the black market is in retreat. As Walsh said “Uruguay has done well to keep with a strict regulatory model, while expanding the space. If you start strict, it’s easier to loosen up later.”