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Puerto Rico Medical Cannabis Industry Teeters on the Brink

By on October 5, 2018

Editor’s note: The following report originally appeared in the Oct. 4-10, 2018, issue of Caribbean Business.

Puerto Rico’s medicinal cannabis industry hangs in the balance and could become the first jurisdiction on the planet where this model fails if the Medicinal Cannabis Regulatory Board (JRCM by its Spanish acronym) does not immediately stop the prequalification of dispensary, production and manufacturing licenses as well as onerous increased costs for patients to obtain licenses. This was stated by José A. Rivera Jiménez, president of the Members of the Medicinal Cannabis Industry (known as MiCam in Spanish).

As explained to Caribbean Business, regulatory changes of medicinal cannabis by the administration of Gov. Ricardo Rosselló Nevares have been hasty and are not based on serious and scientific viability analyses.

“Originally, when the industry’s regulatory framework arose with former Gov. Alejandro García Padilla, within the perspective of the government there were parameters that established a consideration of population, geography, location of patients and all that data marked what would be the development and growth of the industry in an organized way. That lasted very little [time] because the industry formally began operations at the end of 2016 and, by Jan. 2, 2017, the new governor was swearing in,” Rivera Jiménez recalled, referring to last year’s approval of Law 42 and Regulation 9038, which replaced the original regulation introduced by García Padilla.

“In the original regulation, there was a parameter that said that until the industry reached 100,000 patients, the licenses for cultivation and manufacturing would cease; this would give a bit of order to the process, and to verify the supply and demand issue in relation to development. That is not happening,” the MiCam president said.

He also said the local Health Department has received more than 70 requests for cultivation licenses, 52 for manufacturing and 261 for dispensaries, and this constitutes a dislocation between the number of patients who use medical cannabis and its supply, the expert indicated.

Rivera Jiménez also pointed out the alleged contradictory manner in which the state works to grant those licenses for manufacturing, distribution and cultivation hinders the process for patients. He also said the government should carefully analyze where it expects to receive the revenues related to the medicinal cannabis industry.

“They are not thinking; this is economy 101. In the long run, they are provoking the opposite to the economic development they talk about so much, because more than 60 percent of the capital used in the cannabis industry is local and it comes from small and midsize businesses that have seen the possibility of developing a viable business, providing quality services within the high regulation that exists,” Rivera Jiménez said, while indicating the average beginning investment for a dispensary is $250,000.

“The concern is that the JRCM is responsible for promoting cannibalism in the market, which ends up directly affecting the patient, when half the businesses have to close operations because they do not have the capacity to cover a nonexistent market. The licenses that are already granted are enough to serve a market of over 200,000 patients, but we barely have a market of 37,000 patients,” he added.

Rivera Jiménez put the situation into perspective, with what the medical cannabis industry is going through on the island, comparing it with the same industry in the state of Florida. As indicated, this southern state currently has about 17 manufacturing centers to serve a population of 22 million people. In Puerto Rico, he said, only one of these centers (crops) has the capacity to supply the island’s entire market and yet there are 18 of these centers on the island.

The MiCam spokesman also criticized the lack of information that exists regarding possible locations for investors.

“You can be making a millionaire investment in your crop without knowing that there are several manufacturing companies the government also prequalified to invest but did not consider the space in which they are to develop. For example, in the Condado area [in San Juan], there are five dispensaries on a single street, one behind the other, while there are other places where there are none. With this, we are concerned that the excess supply causes a dislocation in the market and that translates into a voracious fight to see who survives in a market that has 37,000 patients,” he said.

Rivera Jiménez also assured that the government is wrongly promoting the industry because the collections that benefit the state should come from the sale of the product and payment of the sales & use tax (known as IVU by its Spanish acronym) and not from requests for licenses.

“But for that money to come in, there have to be more patients. On the one hand, the government comes out in a campaign where the health secretary promotes the new digital platform for patients. That seems great to us because it is important to create mechanisms to speed up requests and make life easier for patients. However, with that platform, what comes is a 40 percent increase in costs to file for patients,” Rivera Jiménez denounced, referring to an additional $20 fee that each patient will have to pay when using the new digital platform.

He said this process, instead of promoting the emergence of new patients and reaching the goal of 100,000 patients by the end of 2018, creates unnecessary stress on the market by increasing costs on patients and derails the industry’s goals.

“Some may think we are only defending the industry’s interests, but that is not the case. It must be crystal clear that in the long term, the patient is the one who is going to be directly harmed when a free market of licenses opens up, when we have a controlled patient market. One thing must go hand in hand with the other,” he concluded.

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