If Uruguay’s proposal to regulate the production, sale and distribution of marijuana is properly implemented and overcomes political and economic hurdles, it could be the most important drug regulation experiment in decades.

From the beginning, marijuana legalization has been a tough sell in the country. In June 2012, Uruguayan President Jose Mujica — citing the “terrible consequences” of the dominant paradigm in global drug policy as well as increasing crime and consumption of harder drugs like cocaine paste — sent a bill to Congress which sought to make Uruguay the first country to legalize the cultivation, distribution and purchase of psychoactive cannabis.

*This article is part of an investigation on the challenges of the marijuana legalization process in Uruguay. Read the other chapters here or download the full PDF.

Mujica’s initial proposal met with harsh criticism from the opposition, which accused the government of using its majority in Congress to steamroll controversial legislation without engaging critics. A December Cifra poll found that that 64 percent of Uruguayans opposed marijuana legalization, 10 percent had no opinion, and just 26 percent approved. In response, Mujica put the measure on hold, calling for a longer period of debate in the country.

The initiative was revised over the following months, and a far more comprehensive version was introduced in the Chamber of Representatives (the lower legislative house) in November. This bill was embraced by a diverse coalition of human rights NGOs, lawyers, public health and development workers in the country, which began a public awareness campaign to support it under the banner of a platform known as “Regulacion Responsable.”

Further changes were added as the bill gained the backing of congressmen in the ruling Frente Amplio (FA) coalition. Unlike its predecessor, the updated bill does not allow the state to have a direct hand in marijuana cultivation or its sale. Instead this will be left to private entities, which will be regulated by a new government agency.

Several opposition lawmakers have since expressed measured support for the initiative as well, though it is unlikely that their parties’ leadership will allow them to vote in favor. It now appears set to pass the lower house in a July 31 vote with the support of the FA’s slim majority, despite the fact that public opinion remains mostly opposed to the measure.

Essence and Justification

The specifics of the bill set it apart from other marijuana legalization initiatives around the world. (Download full PDF version of the bill below in Spanish) Unlike in the Netherlands, where cannabis cultivation is still technically banned, this will legalize and regulate every step in the process of marijuana production and distribution. In that sense, it is closer in scope to the recent legalization of marijuana in Colorado, where adults are allowed to purchase the drug from licensed shops as well as grow up to six plants for personal use, and the development of a regulatory framework for commercial cultivation is underway.

Uruguay’s bill permits three forms of marijuana cultivation. The first of these is home cultivation, in which — like in Colorado — individuals can possess up to six plants in their homes, with a maximum annual yield of 480 grams. The second involves so-called “membership clubs,” which allow cannabis enthusiasts to form growing cooperatives of between 15 and 45 members, and collectively grow up to 99 plants. Third, the bill authorizes the state to grant licenses for private enterprises to grow marijuana for commercial purposes, though only the government can lawfully purchase this harvest.

This privately-produced marijuana will in turn be sold exclusively in pharmacies — though the drug will be available without a doctor’s prescription — to those who have signed on to a federal registry. The registry will be private, not made available to potential or current employers. To prevent “marijuana tourism,” legal purchase will be limited to Uruguayan citizens and will be capped at 40 grams per month.

The specifics of regulation and licensing of marijuana in Uruguay will be handled by a new government office, named the Institute of Regulation and Control of Cannabis (IRCCA). The above activities will have to be authorized by the IRCCA, and all other forms of marijuana cultivation, production, sale and cross-border trafficking will be penalized with between 20 months and 10 years’ imprisonment. The bill also establishes strict penalties for giving the drug to minors and driving under the influence of marijuana.

The logic behind the bill is straightforward. Marijuana use has been effectively decriminalized in Uruguay since 1974, when a law was passed allowing judges to use their discretion in cases where individuals possess small amounts of illicit substances intended for personal use. Because the law doesn’t provide a specific benchmark quantity, and marijuana cultivation and purchase are still illegal, there is an apparent contradiction in the legal code. The bill’s supporters claim it is addressing this decades-old contradiction.

“It is paradoxical. The state allows individuals to use the substance, but forces them to buy it on the black market. Those who try to avoid this by growing marijuana for themselves are punished,” said Martin Fernandez, a lawyer who has defended several clients arrested for marijuana cultivation. According to Fernandez, the current government has taken a more relaxed attitude to small-scale marijuana growth, but it was not always that way. Before 2009, it was not uncommon for those arrested with a dozen cannabis plants to face a year in jail, at least.

Uruguay’s Marijuana Market: the Supply Chain

By regulating marijuana, the government hopes to free up police resources to focus on growing insecurity and traffic in more harmful substances, as well as hit the pocketbooks of criminal networks profiting from marijuana sales. Government drug officials claim the country’s marijuana market generates between 30 and 40 million dollars a year.

In essence, the success of Uruguay’s marijuana legalization bill relies heavily on the government’s ability to undercut street prices and offer a better product than the imported Paraguayan cannabis consumed by most users in the country, as well as strict monitoring of cannabis plots.

While Uruguay’s criminal landscape is a far cry from Mexico’s or Colombia’s, there are foreign groups involved in the drug’s supply chain. According to the estimates of the Uruguayan Association of Cannabis Studies (AECU), an organization of experts on cannabis growth, roughly 80 percent of the marijuana smoked in Uruguay comes from Paraguay.

SEE ALSO: Uruguay’s Marijuana Market Map

AECU President Juan Vaz claims that the going price for freshly-cultivated marijuana in Paraguay is around 10 dollars per kilo. The cannabis buds are harvested, dried, and then pressed into bundles either with a hydraulic press or by placing the harvest in bags or between sheets of plastic and burying it in shallow pits.

This process is largely done by cultivators in rural areas in eastern Paraguay, who sell the pressed marijuana in bulk to traffickers in the area. These traffickers, in turn, make roughly 35 dollars for every kilo they move, according to Vaz. While some of this product is flown directly to Uruguay on small private planes, most marijuana makes its way into the country by land via Brazil or Argentina.

Polls conducted by Uruguay’s National Drug Council (JND) have found that that the country has an estimated 120,000 users of marijuana, of whom 18,000 are daily users. The JND estimates that domestic demand can be satisfied with around 25 tons annually, while AECU places it at 35 tons. Still, both numbers are small compared to the markets in neighboring Brazil and Argentina. For example, the JND estimate is less than half of the marijuana seized in successful raids by antidrug agents in Argentina last year (54 tons).

Exactly how much of this marijuana enters Uruguay from Argentina and how much comes in from Brazil is a matter of debate. In 2011 and 2012, Uruguayan officials seized roughly two tons every year (1.96 and 1.98 tons, respectively), a tiny percentage of what is presumably entering the country to satisfy its demand. According to police, the vast majority of this was seized along the border with Argentina, at customs stations on the three bridges that span the Uruguay River or in the port of Montevideo. Police officials, and most drug experts, believe these are the most common routes for marijuana entering the country.

However, JND drug expert Fernando Olivera claims this may not be entirely accurate.

“Most of the seizures in the country are made at fixed checkpoints,” said Olivera. “Very few occur on the Brazilian border, which is much more open, but this does not necessarily mean it is more secure.”

Policing this border is a nearly impossible task. The northeastern border with Brazil is a 1,068 kilometer-long stretch of land that lays almost entirely unguarded. In some cases, as in the northern city of Rivera, only a road separates the two countries, and the locals speak a peculiar mix of Spanish and Portuguese known locally as “Portuñol.”

Rivera has thrived as a result of its location. (In the photo of Rivera above, at right is Uruguay, at left is Brazil.) The city’s sprawling business district is full of duty-free shops, hotels and casinos aimed at Brazilian tourists looking for a weekend getaway and cheaper consumer goods. Because of the fluid and porous nature of the border there, it is also popular among illicit smugglers.

According to Antonio Aguirre, a representative to the Rivera province legislature, this has always been the case, and locals see smuggling as part of the culture.

“To us it is a way of life, taking goods from one side to the other,” said Aguirre. “To people here, whether it’s [contraband] alcohol, cigarettes, or yes, even a couple of kilos of marijuana, it is seen as the same. For many the border is an artificial line.”

Growing Cheaper, Better Marijuana

Regardless of its entry point, in economic terms the Paraguayan marijuana will be the main competition for the government. In order for the regulation bill to work, the state will have to make the marijuana sold in pharmacies more attractive to users than the imported product, available on street corners in cities and towns across the country.

This is no easy task. According to Juan Vaz, purchasing 25 grams of marijuana in Montevideo costs the equivalent of between 100 and 125 dollars. But cannabis experts and activists from elsewhere in the country consulted by InSight Crime suggest this varies considerably depending on location. A member of the pro-legalization Movida Cannabica, of Florida province, claimed that the going price for 25 grams there was half that, at roughly $50. Another cannabis legalization activist from Paysandu claimed that 25 grams can be purchased along the Argentine border for a quarter of that price, around $22.

The government’s regulation bill does not set a price for the marijuana sold in pharmacies. However, last year JND Secretary Julio Calzada told reporters that his office estimated that 40 grams should be sold for around $35, or roughly $22 per 25 grams. Obtaining this price point may be the difference between a successful and an unsuccessful bill. Assuming it does not increase significantly, at that price it would definitely undercut the market in Montevideo, home to some 1.3 million of the nation’s 3.3 million people. That is sure to take a bite out of the profits of drug smugglers, and make the Uruguayan market much less appealing to them.

But in the event of any major fluctuation in price, the youth thought to be top consumers of the marijuana may simply opt for the cheaper product, regardless of the quality. In addition, $22 per 25 grams may not beat the prices in the interior and in border areas, which may remain vulnerable to the intrusion of the Paraguayan product.

It is in these areas that the government hopes to beat the black market in quality rather than price. Compared to the dry, imported Paraguayan product, the state-sold marijuana will be safer and of higher quality. The bill specifically bans legal cultivators from pressing marijuana, a process that is believed to make cannabis less potent, as well as leave it more susceptible to bacteria and fungi.

Of course, the IRCCA may alter the price when the bill goes into effect, depending on the associated production and administrative costs. Effective regulation of the marijuana market will require cultivators of all sizes to take precautionary measures to prevent their crop from falling in the wrong hands. For household growers, this is a matter of keeping their six plants indoors or behind locked gates. For membership clubs and licensed commercial growers however, this is a different matter.

“Security isn’t cheap,” says Juan Vaz. “It could mean cameras, alarm systems and even private guards, costs which may be passed on to the consumer.”

The Future of Marijuana Regulation

The future may also bring political pressure for the state to raise taxes on the drug to generate more revenue, which would obviously increase the price and make it less competitive with Paraguayan marijuana. While the bill does not mention any specific taxes on the growth or sale of cannabis, this could change considering the unpopularity of the measure.

Polls show that public opinion has not changed on the marijuana issue, with 66 percent of Uruguayans opposing legalization in an April survey. Another argument for leveling taxes on the drug may come from Tabare Vazquez, the former president who is widely expected to win the presidential race in October 2014.

Although he is a member of the same political coalition as President Mujica, he has refrained from endorsing marijuana regulation, saying: “There is no reason to smoke marijuana.”

Excise taxes on cigarettes were a hallmark of a strict, highly successful tobacco regulation law that Vazquez sponsored during his 2005-2010 presidency, and he may be more open to leveling taxes on marijuana to discourage its use.

For this reason, some of the biggest threats to the effectiveness of Uruguay’s experiment are political. If politicians succumb to pressure to limit the scope of marijuana regulation by tampering with the availability or price of the drug in pharmacies, then the initiative will be doomed to failure.

Marijuana users are already being forced into a vulnerable position by submitting their names to a federal registry. While this database cannot legally be shared with employers, it provides an undeniable incentive for users to keep buying the drug from their regular suppliers rather than going the legal route. For those that remain willing to purchase from pharmacies, raising the price could be the final straw.

As long as the law is implemented well, the proper security measures are followed and the price of the drug is kept low enough to be competitive, the bill will likely drastically reduce the black market for cannabis in Uruguay. While plenty of undetermined variables remain, the reliability of the country’s institutions makes it well-suited to the challenge of properly regulating the marijuana market.

Uruguay ranked 20th in Transparency International’s 2012 Corruption Perceptions Index, tying with Chile for a spot just below the United States. Because of its high degree of accountability, its strong state presence and stable government, it is difficult to imagine a better country in Latin America than Uruguay to experiment with marijuana legalization.

*Geoffrey Ramsey is a former investigator for InSight Crime. He currently resides in Uruguay where he is doing research for Open Society Foundations, one of InSight Crime’s funders.

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