Latin America’s biggest cannabis production facility, Boreal Uruguay, has closed its doors. The company, which inaugurated its plant amid great expectations in mid-2020, is now facing a labor conflict with its former employees, who will bring the company to court. 

The closure comes at a time when the medical marihuana industry in Uruguay appears to have stalled.

According to Uruguay’s Rural and Agroindustrial Workers’ Union, the staff was fired via Whatsapp. The “notice” was a message with a picture of a certificate of social security  unenrollment.

Owned by Canadian capital and located in Colonia Garibaldi, over 500km from Montevideo, the company started operating in September 2020, during the peak of the pandemic. With 5,000 built square meters, a production capacity of up to 20 tonnes per week and crops on 50 hectares, the firm was not only the largest in the region but also seemed to have the potential to compete globally, something that was cut short in the middle of the tough times the industry is facing.

“We measure the work by the harvests, which is the, let’s say, productive part of all this, and it was being carried out with less and less people each time. While the first harvest year there were 300 people, by the second harvest it was a lot less, I’d say just over a 100,” Nicolás Ghigliazza, who worked as a maintenance technician, told local newspaper El Pueblo.

Union members are demanding compensation for the layoffs and a legal case is working its way through Congress. But the Boreal Uruguay closure is symptomatic of a troubled market in Uruguay, a country at the forefront of cannabis legalization.

Last May, medical cannabis officials from the Cannabis Regulation and Control Institute (Ircca) and the Public Health Ministry (MSP) appeared before Congress’ Special Commission on Addictions and said that the local market is going through a difficult time.

Late to the medical game

The use of medical cannabis is an aspect of marijuana legalization that was sidelined ten years ago, at the time of the debate around Law 19,172, which would end up authorizing and regulating adult and recreational use of cannabis. It wasn’t until 2019, with Law 19,847, that the medicinal use of cannabis was enabled. In February this year, Decree 56/023 allowed access to compounding preparations.

Carlos Lacava, coordinator of the MSP’s National Program for Medical and Therapeutic Cannabis Access said that, beyond the bureaucratic issues “investors have had to deal with several problems.” 

“Some of the companies operating and developing pharmaceuticals are not working at full capacity,” Lacava said. 

He added that many of the 19 authorized companies in the country have asked for their Ircca licenses to be terminated “because they are not working, since their businesses haven’t been able to make progress for different reasons, either because they haven’t had successful crops and didn’t achieve the necessary quality, or because they haven’t been able to develop extraction and pharmaceutical production processes.”

According to Lacava, companies that set up shop in the country did so “with a much greater capacity than the market can absorb” and, although they can expand to foreign markets, “this hasn’t happened, since basically none of the companies currently producing for Uruguay are doing business abroad.”

Local and global hurdles

On July 18, the Chamber of Medicinal Cannabis Companies (Cecam) said that the sector is going through a sharp contraction due to “regulatory restrictions” which, in their opinion, conditioned “the business horizon”. Sources at Cecam said they regretted that it was happening when “all projections point to growth in the global cannabis industry market in all areas: medicinal, food, supplements, cosmetics and industrial, with a wide variety of options.”

The lack of an even global market in terms of regulation is another problem, since it “affects the business landscape” of Uruguayan companies, especially those who focus on producing hemp without a clearly-defined final destination for their crops. In that sense, the Chamber reported that the planted area dropped by 80% between the seasons 2021/2022 and 2022/2023, and the number or companies operating fell from 167 to 53 in 2022. 

“The unrestricted markets for these companies are Switzerland and the Czech Republic, whose regulations have similar requirements to Uruguay (admitted THC level < 1%). However, the rest of Europe has set a THC <0.3% level, so they can’t sell it there because the genetics are not right,” Chamber president Ricardo Páez explained in the report. 

“Prices for flowers have dropped: today people pay close to US$100 per kilogram, when three years ago they paid as much as six times that number,” he added. 

While Uruguay was a pioneer in terms of recreational cannabis sales, the use of this product for medical purposes has slowed down due to regulatory issues, mainly “bureaucratic obstacles”. In order to pioneer again, Paez said it is “essential” to get the country to produce and consume locally all the products currently on the market, a challenge for which legislation is key.

“At domestic level, it doesn’t make sense that you can’t sell flowers that are being exported for tobacco-substitute consumption, nor those exported for medicinal use that have a high THC content,” said Páez. “These are intended for therapeutic use, so why can’t we use them with the same purpose in our country?

*With information by Ámbito Uruguay