Monday, October 14, 2019

Upstart Puerto Rico Cannabis Industry Stunted by Politics

By on April 11, 2019

Medical Marijuana Growth Confined by Fits and Starts

Editor’s note: The following was first published in the April 11-17, 2019, issue of Caribbean Business.

More and more jurisdictions are partaking in the economic bonanza created by the medicinal, recreational and industrial cannabis industry, which is netting millions in revenue and has proven to be a driver of economic development, not only for the 43 U.S. states where the plant’s use has been legalized medically, recreationally or both, but also worldwide.

However, three years after the use of cannabis was legalized medically in Puerto Rico, the island continues to show signs of falling behind in the development of this industry, an issue tied, according to experts, to excessive regulation and improvisation by the state.

Although one of the first steps taken by the administration of Gov. Ricardo Rosselló Nevares when taking office in January 2017 was to create a law to regulate the industry through Act 42 of that year, the setbacks that keep the medical cannabis industry in a quagmire of uncertainty have been constant and appear to be a combination of a lack of coordination between agencies and branches of government, as well as pressure from conservative sectors of the Legislative Assembly that do not support the cannabis industry in any form.

The most recent incident that could be seen as a reflection of this presumed disdain and improvisation by the government regarding this industry—which offers an alternative to alleviate pain in patients and has shown great economic potential for the island’s coffers—occurred March 29, when the Puerto Rico Health Department’s Medicinal Cannabis Office issued a memorandum warning establishments that are licensed to manufacture and sell medical cannabis that they are not authorized to sell products containing cannabidiol, or CBD, a non-psychoactive component that can be extracted from the plant.

The Medicinal Cannabis Office categorically stated that establishments authorized by the Medicinal Cannabis Regulatory Board cannot grow, manufacture, transport or dispense products derived from medicinal cannabis. These include T-shirts, caps and vaporizers that do not contain medical cannabis, and “any action contrary to the provisions of Act 42-2017 and/or Regulation 9038 exposes the licensed establishment to be sanctioned according to the regulatory provisions.”

The order came just one month after the industrial hemp sector received a boost from the governor when he issued an executive order that created a committee to evaluate and present recommendations on the development of this industry. He based it on the plan that must be submitted to the U.S. Department of Agriculture (USDA), as provided by the 2018 farm bill, or the Agriculture Improvement Act, which opened the hemp market nationwide.

However, less than a week after the memorandum was issued and flags were raised by members of the island’s cannabis industry, the executive director of the Medicinal Cannabis Regulatory Board, Antonio Quilichini Arbona, issued a new circular letter April 4, canceling the previous notice related to products manufactured with CBD, with no explanation given.

What is CBD?

Although both are active components of the marijuana plant, the applications and effects of tetrahydrocannabinol, or THC, and cannabidiol, or CBD, are relatively different, although they produce the same effect—relieving pain and anxiety.

On the one hand, THC, is the principal psychoactive component of cannabis and interacts with nerve cells, resulting in an effect similar to that caused by dopamine in the brain, which produces the effect sought by people who consume marijuana for recreational purposes, whether smoked or ingested.

On the other hand, CBD is a compound that interacts with receptor cells and stimulates a nervous system response. CBD is the active ingredient in ointments, oils, extracts and pills used for medicinal purposes and has no psychoactive effects.

According to the National Institute on Drug Abuse, the human body produces its own cannabinoid chemicals, which play a role in the regulation of pleasure, memory, thinking, concentration, motor coordination, perception of time, appetite and pain, in addition to the five senses.

Lagging behind

Although medical cannabis continues to gain momentum worldwide, in Puerto Rico the government apparently continues to improvise its regulation, affecting several aspects of the industry, such as labor protections for cannabis patients and the balance between supply and demand which industry members continue to denounce, among other resulting obstacles.

According to Health Department data, 59,302 people are registered as cannabis patients in Puerto Rico, of which some 76 percent are of working age, or 21 to 60 years old. However, no law on the island protects patients from anti-narcotics regulations.

These patients could experience employment discrimination or be dismissed from their job if a company maintains a policy of zero narcotics, which includes cannabis. Employers can base their decision on the Comprehensive Drug Abuse Prevention & Control Act of 1970, which lists cannabis as a Schedule 1 Drug, along with heroin and LSD.

Although Act 42 legalized medical cannabis in Puerto Rico, the fact is article 148 of Regulation 9038 categorically prohibits the use of medical cannabis in the workplace, in contradiction to the use of CBD recommended for patients with chronic or terminal conditions that produce pain.

Likewise, as Caribbean Business reported last year, Puerto Rico’s medical cannabis industry hangs from a thread and the island could be the only place where this model has failed if the cannabis regulatory board—which includes Health Secretary Rafael Rodríguez, Agriculture Secretary Carlos Flores and Economic Development Secretary Manuel Laboy—does not halt what industry stakeholders call the indiscriminate granting of licenses to manufacturers while the number of patients remains stagnant.

The president of the Members of the Medicinal Cannabis Industry (MiCaM by its Spanish acronym), José A. Rivera Jiménez, told Caribbean Business that the changes to the regulation are to the detriment of the industry and were not based on scientific analysis.

“Originally, when the regulatory framework was worked on under the administration of former Gov. Alejandro García Padilla, parameters were established that considered factors such as population, geography, the location of patients and the number of registered patients to ensure an organized growth of the industry,” Rivera said back then. Now, he is saying, “That lasted very little because the industry formally began operating at the end of 2016 and, already in January 2017, the new governor was sworn in and changed those parameters.”

He added that the original regulation included “a parameter that indicated that until the industry reached 100,000 patients, the cultivation and manufacturing licenses would not continue to be granted. This would give the industry a bit of order in its process and would allow for a leveling of the problem between supply and demand that now exists and that does not allow the industry to fully develop.”

The industry rep argued that the 20 manufacturing licenses the government has granted to date are sufficient to meet the demand of more than 200,000 patients.

Profitable market

The stigma cast on marijuana, which has lasted for decades, has shown signs of wear and tear in the 21st century due to the revenue the legalization of cannabis has generated for states, while industry growth seems unabated.

From Oregon to New York and from Alaska to Puerto Rico, what was barely unthinkable 20 years ago is being accepted by the majority of the population, and even by politicians. As recently as in January, during a roundtable convened by the governor to discuss strategies against crime, San Juan Mayor Carmen Yulín Cruz recommended the decriminalization of the plant as “a first step in the right direction” to tackle what at the time seemed like a rising crime wave on the island.

Among the conundrums policymakers face is the fact that while conservative sectors of the island continue to condemn the use of cannabis, coffers where it has been legalized or decriminalized across the nation have greatly benefited.

To put the pace at which this new industry is growing into context, one of the pioneering states, Colorado, saw $67.6 million in revenue from the cannabis sales tax, application and license fees in 2014, the year it was legalized. As of February 2019, the state had collected $948.8 million, according to the state’s Department of Revenue.

This trend is continuing throughout the country, with states showing high medical cannabis numbers. For example, according to a May 2018 Forbes article, Arizona recorded $406.7 million in sales over the past year and Michigan estimated its sales at $633 million.

Meanwhile, California reached $2.75 billion in sales in one year, taxed at 15 percent, while Colorado sold $1.13 billion and Washington state $975.3 million.

According to Fortune magazine, the U.S. marijuana industry grew to $10.4 billion in 2018 and has created more than 250,000 jobs. Last year, $10 billion was invested in the industry in North America, while projections for this year are of $16 billion.

Silver lining

For Puerto Rico, 2019 could very well become the year in which the island–with a public debt and unfunded liabilities of more than $100 billion and still recovering from two catastrophic hurricanes that struck in 2017–begins to pull itself out of an economic rut.

The players in the cannabis industry, including members of the legislative branch, should strive to reach a consensus that benefits patients as well as government coffers. Not establishing such a plan would be detrimental to both.

For Carmen Serrano, general manager of Nextgen Pharma, a pharmaceutical company specializing in the development and manufacture of cannabis-based products, 2019 is shaping up to be a magnificent year for the island’s cannabis industry, as long as it continues to develop in an organized manner.

“From the point of view of cultivation and manufacturing operations, 2019 is emerging as a year of high growth. With the entry of new patients into the program and the recognition of our brand through our products, we will continue to expand our production capacity,” Serrano said. “With the operation of dispensaries under our sister company, b.well Healing Center, we also anticipate a positive picture.”

Among Nextgen Pharma’s projections, Serrano indicated that six new dispensaries will be inaugurated, raising the company’s locations to 10 around the island.

For attorney Goodwin Aldarondo, president of Puerto Rico Legal Marijuana, which educates the public about the legal aspects of medical cannabis, concurred with projections pointing to this year being decisive for the industry.

“This is going to be the year of medicinal cannabis because there is already a board, there is a regulation and there is a law. There are over 50,000 patients and a digital platform where they can register immediately,” Aldarondo said.

According to Medicinal Cannabis Office data, as of Feb. 1, Puerto Rico has 70 dispensaries, backed by 20 cultivation and 20 manufacturing facilities. Of the 59,302 registered cannabis patients, 25,467, or 42.94 percent, are women and 33,835, or 57.06 percent, are men. The most prominent use is among patients ages 31 to 40, at 21.66 percent, while those age 20 or younger, is at 0.56 percent.

The Health Department region where most medical cannabis patients reside is Metro/Fajardo with 23,526, while Ponce has only 4,841. The condition most treated with cannabis in Puerto Rico is anxiety disorders, for which 12,219 people have received a prescription, followed by chronic pain, with 11,414 patients.

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