Uruguay’s Legal Cannabis Market: Lessons Learned
By Esteban Rossi I., Ph.D., Analyst, New Frontier Data
Nearly a decade ago, Uruguay’s President José “Pepe” Mujica argued that no one should go to prison for smoking cannabis, and that it was absurd to allow illegal or informal actors to control the market. Subsequently, under his leadership, Uruguay embarked on a bold and unprecedented policy experiment to legally regulate cannabis for adult use. Though most of the Western world has since become familiar with Mujica’s legacy, the pressing question remains: What is the best path to establish regulate this young industry and create a new market?
In attempts to characterize the best policy approaches to cannabis legalization, New Frontier Data reviews the accomplishments, lessons, and perspectives from the Uruguayan experience. We draw from data and analysis available through, Equio our business intelligence platform, along with trade records, interviews with key stakeholders, and information provided by the Uruguayan Cannabis Institute (IRCCA).
After a slow and fitful start, the IRCCA achieved three important milestones and set the course for multiple jurisdictions. In a few years, Uruguay established a successful adult-use market, carved a niche in international flower markets, and managed the public narrative surrounding the legalization process.
Presently, Uruguay has approximately 260,000 adult users that obtain cannabis through different channels. According to IRCCA between 30%-35% of them regularly purchase cannabis through pharmacies (48,000), home cultivation (13,000), and clubs (7,000 users) distributed in 200+ clubs). Although the remaining 190,000 users still obtain cannabis in the mostly domestic grey market, the regulated market exhibited a 27% growth rate between 2021 and 2022.
Local firms, licensed by IRCCA and supported by the agriculture ministry and export agency, found a niche in foreign markets. In 2020, shipment figures were as follows: THC flower for $5.2 million USD of THC-flower; CBD-flower for $2 million USD, for a total of $7.2 million USD. In addition, Uruguay exported a few small seed shipments along with Epifractan, a CBD tincture manufactured by Medicplast, in a deal worth $173,000 USD. Conversely, flower exports during the first 10 months of 2021 accounted for $5.1 million USD.
Over the past two years, Uruguayan THC-flower reached Germany, Portugal, and Israel while most CBD flower entered Europe via Switzerland. Tinctures or extracts, in turn, were mostly shipped to Brazil and Argentina. These figures represent the accomplishments of fewer than 20 firms that delivered quality products for international buyers. In addition, recent figures also provide a benchmark to evaluate the business projections for younger firms.
While these companies are well-positioned to take advantage of recent legislative advances in European markets, investors should remain cautious about potential protectionist approaches to regulation and international trade. If European countries like Malta, Luxembourg, and Germany choose quality and price advantages and favor free trade, Latin American firms will face soaring exports in 2022 and 2023. Conversely, if European lawmakers follow the Canadian example and restrict imports, the market will evolve much more slowly, and subject consumers to higher prices.
The Uruguayan regulatory model hinged on government control of the adult market and demonstrated that even in traditional societies, citizens dislike prohibitionist policies and actively seek alternative approaches. Uruguayan public officials carefully managed the public discussion regarding cannabis policy in Latin America. The IRCCA clearly communicated that substances like THC should not be consumed by teenagers and should be used under appropriate guidance. Still, the agency demonstrates how the state can play an active role in the cannabis market to ensure that users can safely access a quality product at a reasonable cost.
So far Uruguay demonstrated that private-public collaboration yields results and that the premises defended by Mujica ring true today as back in 2013. Meanwhile, the public and financial markets benefited greatly from the creation of this new industry. Sadly, the kind of principled vision and strength of the Uruguayan government proved hard to find. In Colombia for example, although the government recently expanded access to generic formulations, incomplete technical and trade regulations continue to delay flower exports. The situation is particularly confusing since the president himself announced back in July 2021 that he would support the cannabis industry. In a similar vein, multiple Latin American governments continue to criminalize users and home-growers and have yet to develop a robust regulatory framework to reach regional or international markets.
In addition to the potential shortcomings of political leaders, users and firms must shoulder some of the blame for the incremental evolution of the legal industry in the region. All too often, cannabis enthusiasts and business leaders misunderstand the enormous impact of four decades of prohibitionist policies. In fact, few narratives in recent history have been so successful in shaping public imaginaries around social justice, public health, and police control. Therefore, the legal cannabis industry requires substantial communication and educational efforts to win the hearts of socially conservative leaders and their constituencies.
Expectations for 2022
Over the next several months we should expect incremental growth, closely tied to legislative advances in Europe as well as Israel and Australia. IRCCA is preparing to launch a new product (flower strain) with higher THC content to satisfy the needs of experienced consumers. Slowly but surely, Uruguayan and Colombian products will continue to chip away at the illicit market that comprises roughly 12 billion and look for customers in Europe, Australia, and Israel (see Latam, 2021. Global Report). Moreover, a growing number of small to medium firms will continue to develop new products for small or online markets. It is most likely that the next breakthrough product will be developed in one of these local niches. Lastly, new players recently jumped into the seed production business aiming to provide seeds to home growers, Uruguay and Colombia seem well-positioned to lead the way.