Wednesday, September 18, 2019

Puerto Rico Medical Cannabis Industry Under Threat

By on October 26, 2018

Editor’s note: The following originally appeared in the Oct. 25-31, 2018, issue of Caribbean Business.

Fear of an imbalance in the supply and demand of Puerto Rico’s medical cannabis industry continues to worry stakeholders over a potential collapse of the fledgling industry if the government does not quickly respond to their claims, said Julián Londoño, an associate with specialty pharmaceutical company Nextgen Pharma & vice president of the Puerto Rico Medical Cannabis Association (PRMCA).

The alliance of businessowners, medical professionals, scientists and patients has three main concerns regarding the way the government is developing the industry on the island, he said. There is an apparent lack of control in relation to the established licensing model; a possibility of market saturation; and apparent noncompliance by the Medicinal Cannabis Regulatory Board (MCRB) regarding a stipulation in regulation 9038, which requires 51 percent of its capital to be locally sourced.

“The first concern we have is a lack of control over the licensing model, and even more so when the legislative intention was never that there be an excess [number] of licenses, which is what we are seeing now. And that excess is precisely the biggest risk the industry is facing. An industry that has just been born, that is growing, that is a closed market, and that is the important part that the government often does not understand, that it is a regulated market, meaning nobody, unless they have a license from the state, can buy the products that are sold in dispensaries,” explained Londoño, who was one of the industry members who participated with the Legislature in drafting Act 42 and Regulation 9038, which governs the medicinal cannabis market in Puerto Rico.

“That creates a sales pool based on a…market of 34,000 patients. For that reason, it is necessary for the state to be extremely careful in managing the licenses; otherwise, the model will not survive, and that is what worries all members of the industry,” he said.

Londoño insisted that the legislative intent should guide the development of the island’s cannabis industry and assured that the cannabis board could be acting precisely against the purpose of the law. The PRMCA spokesman did not rule out filing a class-action lawsuit if the matter is not addressed, which he said could bankrupt several local investors.

He denounced that Regulation 9038, which came into force in July, “indiscriminately” reopened licensing and is “inconsistent with a jurisdiction that is highly restrictive” with respect to the issuance of patient licenses. He also said the measure allows for “indiscriminate” issuances and changes of establishment licenses that do not comply with the regulations, under the pretext of investment and economic development.

There is a gray area with respect to foreign investment restrictions, and neither Act 42 nor the regulation stipulate whether investment from foreigners decreed under Act 22—the Act to Promote the Relocation of Investors to Puerto Rico, which exempts local taxes on passive income—is considered local capital.

The uncertainty results in oversight issues regarding the origin of the investments, as many of these investors trade on the stock exchange, and any individual could buy stocks and, therefore, own shares of those companies. What the local regulation seeks in the licensing process, and specifically with the 51 percent requirement, is to be aware of the origin of investments to prevent the participation of unwanted players in the bona fide industry.

Londoño also criticized the state’s focus on revenue from the granting and renewal of manufacturing, production and dispensary licensing, rather than on daily sales of the drug to thousands of patients.

The government, he said, is giving rise to “market saturation. When we now see there are 52 dispensaries for a volume of 30,000 patients, and when you do the math, it would be an average of 800 or 900 patients per dispensary, and when you calculate the $70 to $80 average ticket [dispensary purchases], there is no way 52 dispensaries can be economically viable with this type of income, and that puts at risk the issued license,” he assured, predicting that many dispensaries would experience financial difficulty that could lead to failure.

Caribbean Business learned that the expert in economic matters at the MCRB, Manuel Laboy Rivera, who is also the secretary of the Economic Development & Commerce Department (DDEC by its Spanish acronym), was the decisive vote against establishing a moratorium on the issuance of licenses for manufacturers, producers and dispensaries until 100,000 patients were certified by December, when the regulation was drafted, as members of the medicinal cannabis industry had recommended to the board to strike a balance between supply and demand.

No DDEC official had returned requests for comment as of presstime about why the department opposed a moratorium that, according to stakeholders, would benefit the industry, how the decision was made, how foreign investment under Act 22 affects the industry and if they would be willing to reconsider the establishment of a moratorium on the granting of manufacturing, production and dispensary licenses.

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