Puerto Rico cannabis market ‘saturated,’ seeks immediate freeze to new licenses
Puerto Rico’s medical cannabis industry generates close to $300 million in annual revenue, from which the government has collected close to $65 million in taxes, according to a study commissioned by the Association of Members of the Medical Cannabis Industry (MICaM, in Spanish).
However, five years since the first location was established on the island, the study validated an “excessive proliferation of clinics throughout the island and the precipitous drop in sales,” MICaM confirmed.
“Since we don’t have a published study required by law by the Regulatory Board that provides parameters and criteria for the granting of licenses, we decided to carry out this study on our industry,” said MICaM President José Aleczer-Rivera.
“Five years after its inception, we have to measure the real impact it is having at an economic level, not only for the government in terms of cannabis taxes, but also for dispensary owners and local cannabis producers,” he said, of the study commissioned to firm Inteligencia Económica.
Although Act 42 of 2017 that regulates medical cannabis establishes the obligation to publish a study on the market that includes the criteria of geographical area, size of the industry and proportion between patients and establishment licenses, which must be published on first 15 days of each calendar year, no study has yet been published, MICaM stated.
“Currently, 277 medical cannabis clinic licenses have been granted, mostly distributed in the metropolitan area, which creates market saturation and is unfavorable for dispensary owners,” Aleczer-Rivera said, of the industry that generates 5,000 direct and indirect jobs.
“Particularly considering that in Puerto Rico there are 119,664 cannabis patients and that there are 311 new license requests. In 2021 alone, 89 were granted, increasing the number of dispensaries by 53%, all of this is evidence of the excessive growth of the industry,” he said.
The study also shows that there are about 432 patients for each dispensary on the island. The average in states with medical cannabis markets is 1,898 patients per dispensary. In the continental United States, most medical cannabis states closely regulate the opening of new dispensaries, thus controlling the saturation of the industry.
“In Puerto Rico, 3.7% of the population are medical cannabis patients, one of the highest rates in the US. However, we have been able to see some drops in medical cannabis sales that have coincided with the opening of new dispensaries, a reduction in the number of registered patients and lower cannabis prices,” said Economist Gustavo Vélez, of Inteligencia Económica.
“For example, medical cannabis sales in January 2022 were down 41% compared to January 2021. In addition, the drop in prices from $2,500 per pound in 2019 to $1,400 in 2022 coincides with the expansion of dispensaries on the island,” he said.
The study also shows that monthly sales per dispensary have dropped from $69,732 in January 2021 to $39,423 in January 2022.
“If controls are not established on the number of dispensaries on the island and the renewal of patient licenses is not facilitated, the industry faces a serious systemic risk that could cause the loss of many dispensaries and other components of the ecosystem,” Vélez said.
“The market already has the characteristics of imbalance on the supply side. Supply has clearly grown faster than demand, driving the average sale per dispensary to dangerously low levels, preventing acceptable levels of profitability and thus having the potential to affect the industry,” Vélez said.
Given the “challenging scenario,” MICaM proposes that the necessary measures be taken to avoid the collapse of the industry, among which are:
- Freezing the granting of new licenses to establishments;
- Creating an Advisory Council made up of representatives of the cultivation, manufacturing and dispensary segments that facilitates the visibility of vital statistics of the industry and produces the annual report required by the medical cannabis regulations;
- Developing regional and municipal criteria for issuing new licenses;
- Adopting an economic policy that recognizes and promotes the industry’s potential so that Puerto Rico becomes a regional and hemispheric player, including the granting of economic incentives to the industry;
- Opening the market for adult use; and,
- As an emerging industry, the government should consider providing incentives like those provided to other industries, such as manufacturing, tourism, and agriculture.
