A new report examining the progress and pitfalls of marijuana legalization in Uruguay suggests that the industry has a sustainable future despite some expected struggles, and could offer some important lessons for other Latin American governments that may also look to drug legalization as an alternative to traditional drug policies.
The report, titled “Uruguay’s Cannabis Law: Pioneering a New Paradigm,” was released March 21 by the Washington Office on Latin America (WOLA) think tank and the Brookings Institution, and details several early successes and failures of the country’s cannabis law while offering some recommendations on how to better manage the industry moving forward.
Lawmakers in Uruguay signed the country's cannabis bill into law in December 2013 and pharmacies began selling two strains of legal marijuana cultivated by two government-authorized firms in July 2017. As of March 2018, the report found that 12 pharmacies in eight departments around the country serve more than 22,000 buyers. The department of Montevideo -- one of the country’s most populous and home to Uruguay’s capital -- is the only department with multiple pharmacies selling marijuana. Eleven of the country’s 19 departments do not have any pharmacies dispensing the drug.
While the report makes clear that Uruguay has in large part done well with marijuana legalization, it also identifies several obstacles.
Arguably the most pressing issue jeopardizing the sustainability of marijuana legalization, as InSight Crime previously reported, has to do with US banking laws. Banks in Uruguay have relationships with US banks and local pharmacies selling marijuana. But under the US Patriot Act, US banks cannot do business with companies involved in the sale or distribution of a controlled substance, including marijuana. As a result, the report found that US banks have informed the Uruguayan banks they are doing business with that they must stop working with pharmacies that sell marijuana.
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According to the report, “This situation left Uruguayan banks with a choice: shut down cannabis-selling pharmacies or risk the withdrawal of major American financial institutions from the country ... For Uruguayan banks, the choice was an obvious one, and pharmacies were notified that their accounts would be closed.”
Pharmacies that sold marijuana also faced a choice. According to the report, these pharmacies could either “switch their entire operations (cannabis and non-cannabis) to a cash-only system, or they could stop selling cannabis, continue as a standard pharmacy, and maintain their access to banking.”
Uruguay’s cannabis law has also confronted other expected obstacles.
With only two authorized suppliers, a limited number of pharmacies selling the drug and growing demand, supply shortages were inevitable, according to the report. In addition, tourists are not allowed to purchase marijuana and the roll out of medical marijuana has been very slow. The report found that these factors have contributed to concerns that tourists seeking marijuana and patients seeking cannabis oils and extracts for medical purposes are turning to the black market in order to find these products.
There have also been issues with enforcement. According to the report, the stringent nature of the law and the complexity of its regulations has created a disconnect between the law itself and how its enforced. The report details several instances where police officers arrested registered growers who were later found to be complying with the law.
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The report from WOLA and Brookings identifies many expected struggles and areas for improvement in Uruguay's experiment with marijuana legalization. But the future of the industry is largely positive as most of these issues can likely be overcome with policy changes and continued education and experience.
In particular, the “proliferation of informal networks” -- primarily as a result of the slow implementation of medical marijuana, but also due to tourist demand -- that the report identifies as having emerged following marijuana legalization is cause for some concern. But the report’s authors suggest that minor adjustments could help alleviate this problem.
While legalizing marijuana was indeed an effort to reduce black market demand, the report found that Uruguayans instead created a law that “increased the black market demand” among tourists. The report recommends that initiating a program in which tourists can legally purchase marijuana after local supply issues have been sorted out could help steer them away from the black market, while also providing another revenue stream for pharmacies that are struggling due to issues with access to banking.
Improving the “exclusivity of distribution” to sort out supply shortages and the ways in which citizens can purchase marijuana could also help divert buyers away from the black market, according to the report.
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The report’s authors suggest that officials consider a system where buyers who cannot access legal marijuana have access to a secondary system. Currently, Uruguayans can choose one of three options to acquire marijuana: the commercial market, homegrows, or membership in a cannabis club. Each of these options comes with its own risks, from “cannabis deserts” where marijuana is unavailable to crop failure, which can lead buyers to black markets. Providing buyers with more options and flexibility for purchasing marijuana could help displace the black market, according to the report.
"If Uruguay chooses to eliminate the exclusivity of the three registries, and if they consider extending sales to the tourist market, I certainly think that will have a bigger impact on the black market than we've seen so far," Geoff Ramsey, a research and communications associate at WOLA and one of the report's authors, told InSight Crime.
The legalization of marijuana in Uruguay also raises concerns about the drug fueling black markets in neighboring countries like Argentina and Brazil. But while there has been evidence of legal marijuana in the United States fueling black markets in other states, Ramsey told InSight Crime that "there's not much of a demand for Uruguay's commercial cannabis in neighboring countries" due to the low percentage of tetrahydrocannabinol (THC), one of cannabis’ main psychoactive chemicals, in Uruguay's marijuana.
Above all, Ramsey told InSight Crime that the evidence so far suggests that the future of legal marijuana in Uruguay is "very positive" and that other countries looking to enact progressive drug policies in the future will "look closely at the Uruguayan model."