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Uruguay's lessons on marijuana legalization

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Michael Komorn

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The Brookings Institute released a comprehensive report on Marijuana legalization in Uruguay in March. In the report the researchers detail how well the program has worked and why the limitations placed upon legalization have only backfired against the country.

The implementation of legalization in Uruguay has directly mirrored the implementation of medical marijuana here in Michigan. With local police forces ignoring and treating marijuana as if it were still illegal in many cases, while the state licenses and regulates the market. 

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However, the IRCCA’s careful enforcement strategy is occasionally complicated by the National Police. In the period following the law’s passage, Uruguay saw some disconnect between the letter of the law and how police enforced it. Reports surfaced of IRCCA-registered growers being arrested and falsely accused of violating the law. In November 2014, for instance, a registered homegrower in the city of Bella Union, Artigas Department, was arrested and accused of having 11 cannabis plants, five over the legal limit. 

However, he was released when a judge found that these five were male plants and seedlings, making his grow entirely compliant with the law.

 

More recently, in July 2017, the newspaper La Diaria documented two cases of registered growers claiming to have had similar encounters with police.27 In both cases, authorities reportedly found more than the legal annual harvest of 480 grams. However, one of the growers told La Diaria that he had contacted the IRCCA regarding what to do with his excess yield, and had not received a response. These cases illustrate a defining challenge for enforcing Uruguay’s law: the law itself is stringent, and its regulations are fairly complex, straining the government’s still-limited manpower to ensure total enforcement.

The IRCCA’s limited staff—it has a team of six inspectors who are responsible for ensuring compliance28—does not realistically allow the institute to check the annual plant yields for all 8,266 homegrowers and 83 registered clubs. Instead, this job falls to law enforcement, who often act on tips from neighbors who may be uninformed about what the law actually allows. And while police themselves are becoming increasingly informed about ensuring compliance with the law, there is still a great need for education of law enforcement—particularly in the country’s interior.

 

Timeline of legalization in Uruguay

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IMPLEMENTATION TIMELINE

June 20, 2012 – President José Mujica’s administration presents “Strategy for Life and Coexistence,” which includes proposal to legalize cannabis

August 8, 2012 – To spur debate, Mujica presents legislature with a short proposal to create a regulated state monopoly over the market for cannabis

November 12, 2012 – Lawmakers of the ruling Broad Front coalition replace Mujica’s proposal with the bill that will eventually become Uruguay’s cannabis law

July 31, 2013 – The bill passes in the lower house, the Chamber of Deputies

December 10, 2013 – Bill passes the Senate

December 20, 2013 – Mujica signs bill into Law 19172

May 1, 2014 – Mujica administration issues regulations which, among other things, specify the mutual exclusivity of the three methods of access and restrict sales to Uruguayan citizens and residents

August 27, 2014 – IRCCA begins registering homegrowers

October 26, 2014 – Ruling Broad Front coalition maintains its slim majority in both houses of legislature

October 30, 2014 – IRCCA begins registering cannabis clubs

November 30, 2014 – Tabaré Vázquez, also of the Broad Front coalition, elected to succeed Mujica as president for the 2015-2020 term

February 4, 2015 – Outgoing Mujica administration issues regulations allowing the government to permit cannabis research and for the health sector to prescribe medical cannabis products

March 1, 2015 – Vázquez takes office amid assurances that he will implement Uruguay’s cannabis law as it was passed, and subject it to thorough monitoring and evaluation

August 20, 2015 – Ministry of Interior presents new protocol outlining proper procedures for police encounters involving cannabis

October 1, 2015 – Following 14 months of reviewing bids and verifying financial records of more than 20 applicants, authorities announce selection of the first two companies to receive commercial cannabis cultivation licenses: ICC and Simbiosis

July 19, 2017 – After months of cultivation and quality control, commercial cannabis sales begin in pharmacies across the country

August 2017 – Banks begin to threaten to close accounts linked to cannabis out of compliance with U.S. financial law, and some pharmacies pull out. Others are forced to sell on a cash-only basis

January 2018 – Authorities announce plans to address distribution shortages by allowing for sales in non-pharmacy locations, similar to dispensaries elsewhere

The report made the following recommendations:

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Recommendations

Uruguay makes no claims of being a blueprint for others to follow, but its legal regulation of cannabis is a pioneering effort from which other governments will surely learn. Like any administrative model, there is room for improvement. The effort to strengthen an already robust regulatory and administrative program is critical to meet public expectations and to advance the overall goals of a law.

We offer ideas in seven key areas for the Uruguayan government to consider as implementation of cannabis legalization continues. In some cases, these recommendations suggest that Uruguay be nimble to changing policy environments and prepare for opportunities that may organically develop that will assist with the program. In other areas, we recommend that Uruguay consider steps to address unforeseen or unintended gaps in ways that could improve the overall program.

A. Access to financial institutions

The Uruguayan government understands the need for cannabis-related businesses to have access to banking. Such access improves businesses’ ability to compete, levels the playing field across sectors, enhances accountability, and reduces opportunities for graft. However, forces outside of Uruguay, namely financial institutions in the United States, have prevented such access.

Uruguayan government officials genuinely, but unsuccessfully, sought to find domestic solutions for this challenge. However, Uruguay has a few additional options. Officials can work closely with other nations’ large financial institutions (non-U.S. banks) to see if an institution is willing to assume the risk of banking Uruguayan cannabis businesses. To that end, those financial institutions must also be willing to play a game of chicken with U.S. financial regulators, as any large financial institution capable of assuming such risk will likely have an interbank account in the United States

A second possibility exists in Canada. In 2017, the Canadian House of Commons approved legislation to regulate cannabis, and barring a surprise decision from the Senate, legal sales should commence in 2018. Such a move will make Canada the second nation to legalize non-medical cannabis, and the first G7 nation to do so. Canada will be expected to use standard financial institutions to bank its businesses. Otherwise, it will be urged to find some other internal solution to grant access to financial products. Uruguay could engage with any private financial institutions working with Canadian cannabis companies or, perhaps, with the Bank of Canada if it is willing to work with Uruguay. There exist positive trade relations between both countries generally and an alliance based on longterm trust. Canadian Prime Minister Justin Trudeau sees cannabis legalization as a positive part of his agenda, and he could encourage Canadian financial institutions to work with Uruguay as a signal of support both for an ally and for a common area of groundbreaking policy reform. What’s more, Canadian financial institutions’ willingness to work with Uruguay would raise the same hypothetical legal concerns among American financial regulators that Canada’s own system of cannabis banking would raise. So long as they had interbank accounts in the United States, Canadian banks working with Canadian cannabis companies would fall under the same American legal jurisdiction as Canadian banks working with both Canadian and Uruguayan cannabis companies. However, it is less likely that American banks would threaten large Canadian banks or follow through on those threats. This situation may provide Uruguay with its most promising opportunity to grant its cannabis-related businesses access to stable, safe banking.

B. Educating medical and law enforcement professionals

One challenge that exists after a government reforms its laws with regard to medical or non-medical cannabis is that other professionals receive limited education with regard to new laws and policies. As a result, problems can abound in a variety of contexts. Two professions frequently subject to such challenges are medical professionals and law enforcement.

Some individuals in Uruguay use non-medical cannabis for medical purposes (i.e., seizure disorders, anxiety disorders, chronic pain, etc.). Medical professionals, including doctors and researchers, should see legalization as an opportunity. They can collect data, conduct research, understand consumption patterns among patients, identify side effects or interactions, and work to have open conversations with the nation’s cannabis users. The government can play a role by sponsoring continuing education classes, working with universities and medical schools to outline changes in curriculum that reflect the current law, and fund research into the medical efficacy of cannabis. These efforts can help begin a process of cultural change within the medical community—a group that is notoriously conservative and hesitant to change.

Law enforcement authorities in Uruguay also face challenges with regard to the law. From department to department, municipality to municipality, and even officer to officer, the knowledge of the new law can vary dramatically. 

Reports exist, particularly in municipalities outside of Montevideo, of product seizures and arrests at cannabis clubs or homegrows (as discussed above). In some cases, those actions arise because of genuine violations of the law. In others, charges are dropped because individuals are not violating the law. In order to combat these challenges and to improve the capability and resource management of law enforcement, the Ministry of the Interior should design a continuing training course based on its protocol for cannabis enforcement. The Ministry can train individuals at the department-level who can then hold training sessions throughout the country with law enforcement. Such training will help officers better understand the new law and can be updated regularly in order to be responsive to minor and/or dramatic changes in the nation’s cannabis laws.

C. Expand medical cannabis

Medical cannabis in Uruguay is a complicated issue. The law allows a process by which patients can access medical cannabis. Doctors can prescribe cannabis to patients; that product can be dispensed through pharmacies. However, to date, the Ministry of Public Health has only authorized a single product, Epifractan, for sale to patients. In lieu of more products available in a regulated system, patients are forced to join cannabis clubs, grow at home, access the commercial market in order to get recreational cannabis to use medically, or resort to black market activities.

In addition, medical doctors in Uruguay are quite skeptical of cannabis’ medical efficacy. In response, medical professionals like Dr. Raquel Peyraube have offered Uruguay’s first medical cannabis (continuing education) course to help improve the knowledge base of doctors, highlight existing research, understand different types of products, clarify proper dosing, discuss conditions that cannabis can help and possible side effects, and answer other questions doctors may have. This resource is an important step toward expanding medical access in Uruguay.

Right now, Uruguayans with medical needs not met by Epifractan seek out cannabis through the domestic, non-medical market or travel to other countries with more comprehensive medical cannabis laws to obtain products to bring back home. Both systems remove the doctor from the medical process and make patients less likely to be forthcoming with their doctors about their use of medical cannabis. Uruguay should take steps to expand patient access and make the system safer and more regulated. In fact, the country has an infrastructure in place to do this, as it has authorized the production of medical cannabis for export to other countries like Canada and Mexico. Uruguay could simply expand those existing operations to supply a domestic market with little disruption to the system.


D. Reconsider the exclusivity of distribution

As mentioned above, Uruguayans must choose among three options to procure cannabis: the commercial market, homegrows, and membership in a cannabis club. Each of these systems comes with its own challenges. Homegrown cannabis is subject to crop failure, particularly among amateur growers. Cannabis clubs face membership shortages, crop failures, and, in some cases, legal challenges or institutional hurdles that threaten the supply to all members. The commercial market has faced significant shortages nationwide and “cannabis deserts”—areas of the country that lack any pharmacy dispensing cannabis.

These individual challenges across methods of access leave prospective buyers with few options when they are unable to purchase. That can induce illegal behaviors in multiple forms, two of which stand out. First, individuals in clubs or homegrows can cultivate excessive amounts of cannabis (a number of plants beyond what they are legally allowed) so as to have inventory in the case of a temporary lack of access. In this situation, people are violating the law, and in times when there is an uninterrupted supply of cannabis, excess cannabis could be sold to others—an additional violation of the law. Second, when individuals are unable to access cannabis through government-approved legal channels, they may simply resort to the black market. That black market may include “legal” growers who grow in excess (as mentioned above), illegal growers, or the purchase of illegal products like pressed cannabis largely grown in Paraguay, referred to locally as prensado.

Each of these situations undermines the goals of the law. While no level of reform will entirely eliminate black market activity, some of the activities described above exist because of the way the law is structured. The government may consider devising a system whereby individuals who are unable to access legal cannabis because of external shocks can find a secondary means of access. For example, if a cannabis club loses its crop because of an agricultural mistake, the IRCCA could certify the crop loss, confiscate the plants, and certify that those individuals can temporarily access the commercial market. A similar system could be constructed for homegrowers who fail to harvest cannabis.


E. Create a dispensary model with a viable revenue stream

In the wake of pharmacies’ lack of access to banking and the decision of several pharmacies to exit the cannabis market, the government has opted to consider cannabis-only dispensaries as a cash-only solution to maintain access for consumers. This effort is an admirable one and one that overcomes multiple challenges (lack of access to banking, the limited number of pharmacies agreeing to participate, and the limited distribution of cannabis-dispensing pharmacies across the country).

However, it is unclear whether these dispensaries will have a viable revenue model given the limitations placed on pharmacies with regard to the maximum supply they can receive and the fixed price point. As mentioned above, the price of cannabis is currently fixed at about US$1.40 per gram. Based on our conversations with pharmacy owners and others, it is clear that very little money is made off of the sale of cannabis, even by selling every gram of product distributed per month per location. While pharmacies may be able to sustain this model because of their other business operations and the positive impact on non-cannabis sales that cannabis consumers provide, such would not be the case for an entity charged only with the sale of cannabis.

This situation could be addressed in three ways. First, the government could directly subsidize cannabis dispensaries, effectively underwriting their operations either as private entities or as government-run institutions. This proposition may not sit well among the Uruguayan public, given the public’s limited support for the law. Second, the government could allow the price to fluctuate to a market equilibrium, which would drive the price up to a point that would allow dispensaries to pay for themselves. This option is likely unpopular with government officials who seek to keep prices low in order for the legal market to displace larger portions of the black market, especially the market for prensado. 

Third, dispensaries can be allowed to sell other items including food products, cannabis-related products, branded items, or other products in order to increase revenue for the establishment, making it more viable.

F. Consider allowing legal sales to tourists

Uruguayan officials were clear during the passage of the law that they did not want the nation to become a cannabis vacation destination. However, the reality is that tourists come to Uruguay with the understanding that cannabis is not difficult to find if it is desired. As a result, tourists purchase through illegal means, and that demand induces individuals to produce cannabis illegally for sale to tourists. This product is unregulated and the government collects no revenue from those sales. In many ways, the desire to reduce black market demand among Uruguayans generated a law that increased the black market demand among visitors.

Uruguayan officials may consider piloting a program by which tourists can purchase cannabis legally. Such a move—likely through the commercial market—should only come once supply issues are stabilized for the domestic market (citizen consumers). However, Uruguay could increase the price point for consumers in ways that could generate revenue for dispensaries to be better financed and for the government to collect additional tax revenue. There can also be a smaller, maximum quantity that a visitor is allowed to purchase (a model the state of Colorado used early on in its legalization process). Such a maximum reflects the reality that most visitors stay for short periods of time, do not need as much as citizens, and might illegally sell excess marijuana to others if they were able to purchase larger amounts.


G. Readiness to correct future implementation problems

Although Uruguay has done well in rolling out the implementation of non-medical cannabis, the country has encountered some significant challenges. That is not necessarily a flaw in the system, but a reality of cutting-edge public policy. As the world’s first country to legalize cannabis fully, it was bound to encounter problems. And, as the country continues to implement this program, more problems will arise. Good public policy making requires governments to anticipate problems before they happen and respond effectively when they do.

Uruguay will surely encounter more challenges in the future. In order to prepare for those situations, the IRCCA needs to be well-funded and well-staffed. It needs to go out into communities and talk to business owners, consumers, homegrowers, club owners, medical professionals, law enforcement, civil society groups, and activists (on both sides of the issue) to understand fully what is working and what is not working. The government should employ its own evaluators to assess the functionality of all aspects of the system. However, government cannot do it all alone.

The IRCCA and other government entities must rely on independent, academic analysis about the positive and negative aspects of the system and listen to recommendations with regard to solutions. Comprehensive input and community conversation is essential for Uruguay to continue to be a cannabis policy success story into the future.

 

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When all is said and done, the world will realize that cannabis should never have been criminalized in the first place and that it should be allowed to grow wild wherever and whenever it wants. 

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