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Cannabis farms

Sunday, February 15, 2015

Uruguay marijuana licences lure world bidders

People take part in a rally calling for the legalization of marijuana, in front of the Legislative Palace in Montevideo, Uruguay shortly before the Senate passed a government-sponsored bill establishing state regulation of the cultivation, distribution and consumption of marijuana in December of 2013.
By Ken Parks
Bloomberg News
South American country plans to issue as many as five permits to grow cannabis

MONTEVIDEO — Canadian medical-marijuana producer Tilray and the founder of a German cannabis products retailer are among 11 investors bidding for a foothold in a formerly illegal industry in Uruguay: marijuana farms.

Once the government issues the licences, pot could reach pharmacies in three to four months, said Alfredo Dupetit, a partner in Montevideo, Uruguay-based bidder Lucus SRL.

Pharmacies will then be able to sell as much as 40 grams (0.1 pound) of pot a month, enough for about 60 joints, to registered users, the government has said.

After serving as the front line in a US-led effort to squash drug production and consumption, Latin American and Caribbean nations have begun opening the door to legal marijuana. Jamaica’s Senate passed legislation this month — on late singer Bob Marley’s birthday — allowing some pot for personal use and regulating medical marijuana, while Chile has authorized the planting of marijuana for medicinal uses.

“By being first, Uruguay has guaranteed that it will have a major role,” in the changing debate over drug policy, said John Walsh, who coordinates drug policy at the Washington Office on Latin America.

Uruguay plans to issue as many as five growing licences as it seeks to implement a law that in December 2013 made it the first country to regulate cannabis for recreational, medical and industrial uses, such as textiles and oils. Uruguay’s cannabis regulatory agency, IRCCA, will probably issue the licences within 20 days, Julio Calzada, head of the National Drugs Secretariat, told reporters February 9.

‘Change the mindset’

Marijuana will be sold for about US$1 a gram, the government has said. According to bidders, that’s about one-fifth the street rate in Uruguay, a country of 3.4 million people wedged between Brazil and Argentina.

Dupetit, who founded dupetit Natural Products, which sells beer and other products made from hemp, said he is optimistic he can turn a profit.

“If this works, it’s going to change the mindset of consumers worldwide who are going to see” they are paying too much for recreational pot, Dupetit said in a February 2 phone interview from Neunkirchen, Germany.

Tourists looking for a cheap and legal high may be out of luck as only residents will be able to buy marijuana at pharmacies.

President José “Pepe” Mujica, whose ruling party also legalized gay marriage and abortion, has pitched the cannabis law to sceptical Uruguayans as a way to hit drug gangs where it hurts — their wallets. The administration says it hopes that legal growers will eventually undercut a black market for pot that government estimates put at about 22 tons a year. Mujica is scheduled to step down on March 1.

Cannabis clubs

Residents 18 or older who register with the government will be able to buy marijuana at pharmacies or grow on their own or through cannabis clubs as much as 480 grams a year for personal use.

Calzada said the regulatory agency IRCCA has whittled down the list of eligible bidders after being contacted by 22 potential investors last year. Approved growers will be required to supply 5 and 10-gram packages of marijuana to pharmacies at a price of no more than US$0.90 a gram during the first year of production.

Licence-holders probably face upfront investments of US$1.5 million to US$2 million to meet requirements that include growing pot indoors or in greenhouses, Fabrizio Giamberini, director of The Latin America Hemp Trading, which bid for a licence, said in a February 2 interview.

US$20,000 fee

IRCCA will charge US$20,000 a year plus 10 percent of sales for each license. Growers will also pay electricity rates that are among the highest in the Americas. Industrial users in Uruguay pay about $0.127 per kilowatt hour, almost double that in the US state of Colorado, where pot is also legal, according to data from consulting firm SEG Ingenieria and the US Energy Information Administration.

“We put together a business model that we feel is competitive and that will allow us to provide cannabis under the current guidelines,” Philippe Lucas, vice-president of patient services at Tilray, which is owned by Seattle-based private equity firm Privateer Holdings Inc., said in a February 6 phone interview from Nanaimo, British Columbia.

License-winners risk chasing a low-volume market of occasional users who don’t consume enough pot to want to join a club or grow their own, said Juan Vaz, a spokesman for home grower organization Aecu who has been growing his own pot for more than two decades.

“Twenty percent of consumers account for 80 percent of marijuana consumption,” Vaz said in an interview Tuesday.

Tilray’s Lucas doesn’t think there will be a lack of demand.

“In jurisdictions that have opened up to recreational cannabis, the biggest initial concern has been lack of product,” Lucas said.

@ken__parks

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