Uruguay's attempts to enter the global cannabis market fall flat as marijuana shortages abound

In December 2013, Uruguay legalized Cannabis for recreational use and sale and had since proven itself to be on the cutting edge of drug and marijuana deregulation and reform. Now, five years later, with medical cannabis legal in a number of U.S. states and various countries across the Americas and the world, Uruguay seeks to continue its market edge by becoming one of the major exporters of medical cannabis around the globe.

Uruguay first exported medical cannabis in December 2017 but has not made significant strides in their market since. Today, non-Uruguayan medical cannabis is exported from Oceania to Europe to the Americas, though recreational exports are still globally banned.

The Latin American cannabis market is expected to explode in the next decade reaching a value of $8.5 billion by 2028 up from $125 million now. As the world’s 96th largest economy, Uruguay stands much to gain by building its medical export business early.

Uruguay's Year in Weed/France 24 English

Frustrated consumers turn to the black market

The country has a six-year advantage for its production facilities. Since 2013, the country has had more than eight thousand Uruguayans register for home growing initiatives and nearly seventeen collectives licensed to grow cannabis. Despite the potential capacity, until December 2018, only two medical licenses had been allotted, to Symbiosis and ICC Labs Inc. (TSX-V:ICC), who have thus far failed to yield their allotted amount of two tons per year, leaving long lines and shortages for medical consumers within Uruguay.

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This shortage of medical supply has impacted full implementation of legalization, prevented Uruguay from building export stocks, and has left consumers frustrated and turning to illegal sellers, undermining the legalized system. At full capacity, including non-medically licensed growers, the system could produce 9.7 tons, according to La Nacion, an Argentinian news site, which would more than satisfy local demand.

If the country wants to meet and exceed the demand of its citizens, it will need to make big changes in its growing capacity. The government is well aware of the problem. Uruguay’s National Drugs Council Secretary-General, Diego Olivera, acknowledged to the Associated Press, "The demand is greater than our productive capacity. It is a challenge we need to tackle.”

To address this, in December 2018, Uruguay announced that it would provide five additional federal licenses for medical cannabis cultivation, which they hope to award in mid-February.

The cannabis market embraces Uruguay

In addition to new licenses, Uruguay embraced international Cannabis investors Aurora Cannabis (NYSE:ACB), who recently bought all outstanding common shares of ICC Labs. Meanwhile, Khiron Life Sciences Corp. (OTCQB:KHRNF) (TSXV:KHRN) announced in January that it would buy Nettagrowth International, one of the first licensees to grow medicinal cannabis in Uruguay, and Auxly Cannabis Group Inc. (TSX.V:XLY) (OTCQX:CBWTF) purchased 80 percent of Inverell, an Uruguayan cannabis producer with a full federal license.

The hope is that companies with strong international resources will connect Uruguay to markets across the world.

A bumpy start for Uruguay’s cannabis market

Will these strides will bring success for Uruguay’s burgeoning export market? Already they are off to a bumpy start.

Growers, already struggling to meet supply, won’t receive the new licenses until mid-February. By February, outdoor growers will have already missed prime growing season during the country’s summer months of December-February. They also face competition from countries like Colombia, an equatorial nation with a perfect cultivation environment, which has begun mass cultivation.

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They too want to dominate the cultivation and export market.

Despite these challenges, in 2013 when Uruguay undertook the first attempt at a fully regulated cannabis market, there wasn’t a global market for cannabis on this scale. Canada’s groundbreaking legislation in 2018 legalizing recreational marijuana, has driven the market into overdrive, with firms everywhere trying to gain the greatest advantage. Undeterred, Uruguay remains one of two countries in the world to legalize recreational cannabis, and with so many growers already participating in the internal market, they have an advantage they may be able to use to their benefit though, they still have a ways to go to become leaders in the global export market.