(Bloomberg) -- Uruguay led the world in legalizing marijuana a decade ago, but its dream of building a medical cannabis and hemp powerhouse employing thousands of people with $1 billion in exports is facing a harsh reality check.
Shipments abroad have totaled less than $30 million since 2018 as anemic sales, red tape and miscalculations now fuel a business exodus. Uruguay’s abysmal experience, including just 750 jobs, exemplifies challenges investors face globally in building out an industry subject to intense regulatory scrutiny or outright bans in many places.
From the US to Europe and elsewhere in Latin America, the global pot business has lost some of its cachet since the gold rush days of the late 2010s and the Covid pandemic. But the downturn in Uruguay — a country of 3.4 million between Brazil and Argentina where cows outnumber people — stands out given its pioneering steps, business-friendly environment and history of building multi-billion-dollar industries like tech and forestry almost from scratch.
In the past year and a half, major cannabis producers and service providers in Uruguay like Pharmin, Global Cannabis Holdings and Boreal closed, while pharmaceutical company MedicPlast exited the business.
MedicPlast didn’t respond to requests for comment. Canada’s Aurora Cannabis plans to shut its Uruguayan operations, which it acquired in 2018 for $263 million, by the end of September, according to a company spokesperson.
The cannabis crash is happening in a relatively stable place, in contrast to producers elsewhere in unpredictable Latin America. Some of the region’s richest billionaires call Uruguay home, while Google recently chose the country to build an $850 million data center. Add on a relatively liberal society and Uruguay looked positioned to punch above its weight in medical marijuana production.
Cannabis producer Burey is one of the industry’s survivors for now. Like many, however, it underestimated how long it would take to get the business off the ground in the face of heavy red tape.
Executive Director Frank Roman opened Burey’s indoor greenhouse and extraction lab in late 2019, but three years passed before it could export active pharmaceutical ingredients, or APIs, to Brazil and Peru due to a glacial permitting process. Burey’s first prescription cannabis oil only reached Brazilian patients last year for the same reason, Roman said.
“A cannabis company that starts from scratch in Uruguay will take three to four years to begin selling and that is a killer,” Roman said in an interview. “Companies die if they don’t have a lot of backing.”
Uruguay also hobbled medical cannabis producers by requiring pharmaceutical grade products, while closing the door to lightly regulated and easier to make nutritional supplements that would have generated quick sales, said Ignacio Bussy, chief executive officer at extraction lab GreenMed.
Similar stories have played out around the world. Germany’s partial legalization of pot this year and a proposal to reclassify marijuana as a less dangerous drug in the US failed to spark a lasting rally in cannabis ETFs. Business is so tough that Tilray Brands has diversified into craft beer. Bold forecasts for pot newcomer Argentina remain largely hollow.
Uruguay’s ruling left-wing political party made the nation the first worldwide to legalize most recreational, medical and manufacturing uses of pot in 2013. The idea was to take business away from drug gangs and create a new source of export revenue.
Fast forward eleven years: Recreational consumption in Uruguay through official channels has soared while the business never took off. More than 96,000 people who want to get high have registered with the government to obtain the psychedelic substance from almost 400 cannabis clubs, dozens of licensed pharmacies or as home growers.
Uruguay has made it faster and cheaper to obtain medical marijuana permits after delays in publishing regulations following legalization, said Carlos Lacava, who represents the health ministry on the board of cannabis agency Ircca. He attributed recent setbacks to investors misjudging demand and the regulatory burden inherent in the cannabis trade, among other factors.
Entrepreneur David Luftglass and his partners are trying to develop a business park with a cannabis nursery after shelving plans last year to build a massive $50 million extraction lab. “We discovered that the international market wasn’t ready,” he said.
Producers like GreenMed initially prioritized shipping dried flower to markets such as Europe and Australia in the absence of regulatory approval to sell in Brazil and Uruguay. Now it’s looking to sell higher value APIs and formulated products like CBD and THC oils to South American countries in which medical marijuana is legal.
Pot research company Prohibition Partners estimates medical sales in eight regional countries could reach about $153 million this year, with Brazil accounting for about two thirds of the market.
GreenMed started selling its first prescription CBD oil in Uruguayan pharmacies last month with four other formulated products slated for launch in the first half of 2025, according to Bussy, the company executive. GreenMed made its first commercial shipment of APIs in June to Brazil.
“Brazil will be more than 50% of our sales in the next two to three years,” he said.
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