Thursday, October 19, 2017

Puerto Rico revenue projections from medical cannabis called ‘very optimistic’

By on September 11, 2017

SAN JUAN – The government’s projections regarding the development of medical cannabis-related industries in Puerto Rico could be overly optimistic, concluded the associate professor of business administration at the University of Puerto Rico’s (UPR) Río Piedras campus, Karen Castro González, in her analysis, “Fiscal Impact of Medical Cannabis in Puerto Rico.”

According to Castro González, an expert in accounting and financial management, her projections focused on the issuance of permits, licenses and renewals, as well as the sales and use tax (IVU by its Spanish acronym). Also, the professor used a Treasury Department estimate that projects revenue related to this activity at about $100 million annually, of which $30 million to $60 million will come from IVU collections and the rest from the above-mentioned sources.

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However, for the professor, these projections are unrealistic, and although it is expected to have a positive impact on government revenue, the development of medical cannabis-related industries is far from representing fiscal salvation for Puerto Rico.

“I believe the projections are very optimistic or maybe they are thinking about recreational cannabis, which is where we have seen other jurisdictions capitalize. Of course, my conclusions indicate there will be a positive impact on government revenue, but it seems to me the government’s estimates are too optimistic,” she said during the presentation of her analysis during the 34th annual meeting of the Puerto Rico Economists Association.

“The [revenue from] IVU and licenses for medical cannabis for the Government of Puerto Rico in the coming years could reach $30 million, optimistically; we are talking about 60,000 patients or more. To generate what the government estimates, the sales of medical cannabis that would need to be generated would have to be between $250 [million] and $520 million. We are talking about a lot of cannabis; everyone would be medicated in Puerto Rico,” she added.

According to her projections, and using a conservative estimate of between 20,000 and 30,000 registered patients already consuming the product, the government would generate revenue for 2017 that would fluctuate between $45.6 million and $68.5 million, well under the $100 million the government has indicated it hopes to raise with medical cannabis and the goal of 25,000 registered patients outlined by Gov. Ricardo Rosselló. The professor reminded that registered patients does not necessarily mean patients consuming the product.

While for 2018 related revenue could reach $51.6 million to $77.4 million. By 2021, the expert’s calculations result in $74.4 million to $111.7 million in revenue, which is closer to what the Rosselló administration envisions for this year.

Taking stock of Puerto Rico’s medical cannabis legislation

In her IVU-related calculations, the professor estimated $5.3 million to $7.8 million for 2017, between $6.7 million and $10 million for 2018, and $8.5 million to $12.8 million for 2021.

For all types of medical cannabis-related licensing, including dispensaries, laboratories, manufacturing and cultivation, transportation, and other related areas, government revenue would be about $3 million in 2017, $4.4 million in 2018, and about $5.4 million in 2021.

“By 2021, the government estimates a patient potential of 87,000, but I think that in that year, being optimistic, there may be only 50,000 to 60,000 registered patients. This is assuming all the prejudices against medicinal cannabis have been overcome and that people have the money to buy the medication. We would have to take into account certain factors that I believe the estimates out there..are not considering,” Castro González said.

Medical Cannabis Law Packed With Questions on Patient Access

The associate professor of the economics department of of the Social Sciences Faculty in the University of Puerto Rico’s Río Piedras campus, Indira Luciano Montalvo, concurred with Castro González in that the projections of the government do not reflect the reality of medical cannabis on the island and its strict oversight under Regulation 8766 and the Medicinal Cannabis Regulatory Board established by Act 42.

For the former La Fortaleza economic affairs adviser, the most effective way for the state to capitalize on the controversial plant is through legalization, which includes recreational use, and not only through decriminalization.

“If we talk about broad legislation, we know that the economic impact can be broader. And with broad legislation I mean that it is legalized as such. We see states like Colorado generating a lot of income from that, specifically the government, but they have a broader legal scope than the one approved here,” Luciano Montalvo explained.

The professor also questioned the criteria used in Puerto Rico for medical cannabis and related industries, as legislation is not based on an empirical and scientific analysis.

“The fundamental basis for the prohibition of cannabis and industrial hemp, we found is a moral question, although it does not rule out economic interests linked to its prohibition. We have seen it in the discussions in Puerto Rico on the subject. I think that public policy based on morality is nonsense,” the professor said.

“The economic impact will depend on the legal reach,” she added.

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