Cannabis in the Tropics: A look at Puerto Rico
As tourism in Puerto Rico slowly returns to what it was before the COVID pandemic, the future of the island’s cannabis industry appears bright, with more than 200,000 registered patients, close to 200 dispensaries and thousands of residents employed in the cannabis growing, manufacturing and retail spaces.
According to the Puerto Rico Department of Treasury, medical cannabis sales in Puerto Rico have increased 1,700% since 2018, from $12.7 million in sales in 2018 to $229.2 million by mid-2021.
Puerto Rico, a U.S. territory since 1917, legalized medical marijuana in 2015 by executive order. This order was later replaced in June 2017 by Act 42, putting the island on the map as a medical marijuana tourist attraction and allowing visitors and locals to purchase up to a 30-day supply of cannabis as long as they have, or acquire, a valid medical cannabis card.
Registered patients are allowed to purchase a daily amount of one ounce of flower or eight grams of THC in concentrate or edible form. According to Manuel Ramírez, CEO of STRAIN, the island’s leading e-commerce platform, flower accounts for 60% of sales, followed by 20% for edibles and 14% for vape cartridges, based on STRAIN’s data for 200,000 transactions in 2020-21. Other methods accounted for the remaining 6%.
Legal sales in Michigan dwarfed by illicit market
Michigan’s actual cannabis market might be three times the size of the state’s legal industry, according to a new, first-of-its kind study by East Lansing-based Anderson Economic group.
According to the report, the state’s total cannabis market in 2020 was nearly $3.2 billion, more than triple the almost $1 billion in revenues from licensed provisioning centers reported by the state. The report goes on to state that nearly 70% of the cannabis-related transactions took place outside the legal system and is neither subject to safety testing or taxes.
The study was commissioned by the Michigan Cannabis Manufacturers Association, a group that has taken heat from consumers and activists for its stance on home-grow and the caregiver market. The MCMA highlighted the potential for continued growth in the state’s relatively young recreational marketplace.
“The Anderson Economic Group study reflects a vibrant regulated marketplace with unlimited economic potential,” said Shelly Edgerton, MCMA board chair. “This includes continually growing demand for medical and adult-use cannabis across the state. The study also suggests continued growth in state revenues for schools, senior programs and other essential services.”
However, MCMA executive director Stephen Linder also noted the report showed “storm clouds on the horizon.”
“The Anderson Economic Group study shows large quantities of untested, illicit cannabis continue flooding the market. This poses a significant threat to patient and consumer safety,” Linder said. “The study makes clear Michigan can and should be a leader in cannabis safety, innovation and entrepreneurship.”
In a June interview with Marijuana Venture magazine, Michigan Regulatory Agency executive director Andrew Brisbo said the agency was actively working to bring more customers into the legal market.
“We want to make sure we are providing access in all the ways that consumers are traditionally used to, and where new consumers to the market might want to find that, so we can ensure they are using the licit market in order to get that access,” he said.
Retail shops in Michigan first opened their doors in Michigan in December 2019.
— Brian Beckley
The average age for patients in Puerto Rico is 42, with 60% of cardholders being men and 40% being women.
Compared to other cannabis businesses in the United States, Puerto Rican dispensaries have additional financial obstacles and limitations to face. Puerto Rico itself is seen as a “high-risk” territory by U.S. banks, due to the island’s history of dealing with corrupt governments and drug trafficking. There is only one credit union (Tu Coop) working with all cannabis-related businesses, creating a monopoly within the industry. It’s worth noting that the industry also remains cash-only, which presents a risk to business owners. The government has yet to allocate a special tax to cannabis products. Currently, cannabis sales have the same, steep tax as any other good, which is 11.5%.
Eliezer Villa, general manager for First Medical Cannabis, the largest vertically integrated business on the island with 17 retail locations, said that “having strong relations within the industry makes it easier to kick-off a new dispensary because of advantages such as product consignment and faster license issuing.”
It’s a challenging scenario for the new or smaller businesses. Aspiring dispensary owners only get a permit if they can first prove they can financially sustain the business for at least 12 months. They also have to provide evidence they have resided on the island for at least two years and that the business is fully in place — including their staff — before requesting inspection. Currently, inspections can take from three to six months before a license is issued.
— Elisa Gómez, STRAIN marketing manager
Three CannTrust execs indicted on fraud charges
Three former executives at Canadian cannabis company CannTrust were indicted in June on fraud and other charges stemming from efforts to conceal the illegal growing of cannabis at the licensed producer’s facilities over a 10-month period in 2018 and 2019.
Former CannTrust chairman Eric Paul, former CEO Peter Aceto and former director and vice chairman Mark Litwin were all charged with multiple offenses under Canada’s Securities Act following an investigation by the Ontario Securities Commission and the Royal Canadian Mounted Police’s Integrated Market Enforcement Team.
All three men were charged with fraud, making false or misleading statements to the OSC and to the market and authorizing, permitting or acquiescing in the commission of an offense. Paul and Litwin were also charged with insider trading.
All three of the men were no longer with the company at the time of the indictment, according to a press release from CannTrust. Paul resigned in July 2019 following a demand made by other members of the board. Aceto was terminated with cause at the same time. Litwin resigned in March.
According to the OSC, during the investigation the three accused did not disclose to investors that approximately 50% of the total growing space at CannTrust’s facility in Pelham, Ontario, was not licensed by Health Canada. In press releases, corporate disclosures, analyst calls and prospectuses, they asserted that CannTrust was compliant with regulatory requirements, and they included all cannabis production in the company’s financial statements, without stating that half was grown without a license. Additionally, Litwin and Aceto signed off on prospectuses used to raise capital in the United States, which stated that CannTrust was fully licensed and compliant with regulatory requirements.
According to a statement from the company, CannTrust’s operating licenses were restored by Health Canada in August 2020, and it resumed operations shortly thereafter and it plans to apply to the OSC for a discretionary order revoking the OSC’s cease-trade order dated April 13, 2020.
“Regulatory compliance, risk management, and effective oversight have become integral to everything the Company does,” the statement said.
— Brian Beckley