Next month will mark a year since the first legal retail sales of cannabis began in Uruguay, following the country’s legalization law that passed back in 2013. And it is fair to say the program is off to a modest start.
While in California and Oregon, oversupply has glutted the market, Uruguay is having the opposite problem. “The demand is greater than our productive capacity,” the head of Uruguay’s National Drugs Council, Diego Olivera, told the Associated Press. “We have to address that challenge.”
And while Uruguay has 8,750 registered individual growers, allowed to harvest up to 480 grams (a little over a pound) annually, as well as 90 user clubs with a collective 2,529 members, retail outlets have been slow to sign up. Only 14 of the country’s estimated 1,200 pharmacies have registered to sell cannabis. This makes for long lines and frustrated customers.
A sobering account in U.S. News & World Report points to one unique obstacle on the path towards widespread commercialization of cannabis in Uruguay: the USA Patriot Act. Famously passed in the aftermath of the 9/11 attacks, the Patriot Act includes measures intended to bar terrorists from using the international banking system to launder profits from illegal drugs. Paradoxically, these measures are now bottlenecking Uruguay’s efforts to daylight cannabis and bring it out from the control of criminal networks.
Most banks in Uruguay route their international transactions through banks in the United States, which fall under the Patriot Act. Fearing legal repercussions, several U.S. banks — including Citibank and Bank of America — have threatened to cut ties to their Uruguayan counterparts for servicing the legal cannabis industry.
This, in turn, means pharmacies that sell cannabis are restricted to cash transactions — and many more are staying away. Uruguay’s government says it is developing measures to stay on the good side of U.S. law while still protecting its own internal cannabis business. But these have not been announced. A report in Mexico’s Proceso newspaper quotes a frustrated Gastón Rodríguez, a top shareholder in Symbiosis, the company contracted to produce two tons of cannabis annually for the Uruguayan government. “All I have are conjectures, not certainties,” he said.
Fumbling Toward a Solution
Earlier this year, the Washington Office on Latin America (WOLA), a progressive policy think-tank, issued a report, “Uruguay’s Cannabis Law: Pioneering a New Paradigm.” It broke down the details on the banking dilemma.
Under Section 320 of the Patriot Act, banks cannot serve accounts complicit in any offense that “involves the manufacture, importation, sale, or distribution of a controlled substance (as that term is defined for purposes of the Controlled Substances Act)…” That includes cannabis. Section 319 explicitly extends the reach of the law to foreign banks with “an interbank account in the United States with a covered financial institution.” Nearly all Uruguayan banks — even government-operated ones such as the Central Bank of Uruguay and the Bank of the Republic (BROU) — fall under that definition.
“This situation left Uruguayan banks with a choice: shut down cannabis-selling pharmacies or risk the withdrawal of major American financial institutions from the country,” writes WOLA. “The latter came with significant economic risk. The former would affect only a handful of pharmacies. For Uruguayan banks, the choice was an obvious one, and pharmacies were notified that their accounts would be closed. The BROU, as well as private banks such as Itaú and Santander, all reportedly closed accounts held by pharmacies in August.”
WOLA notes the irony: “One can easily argue that the legalization of cannabis in Uruguay aims to diminish illegal drug traffickers’ operations and financing in ways that undercut terror and violence, but U.S. law and banks’ interpretation of that law generated an ultimatum for Uruguay. Cannabis-dispensing pharmacies faced a choice, as well. They could switch their entire operations (cannabis and non-cannabis) to a cash-only system, or they could stop selling cannabis, continue as a standard pharmacy, and maintain their access to banking — a choice that Uruguayan banks made clear in their communications with pharmacies. Pharmacies chose different options.”
Uruguay’s Institute for the Regulation and Control of Cannabis (IRCCA) is weighing options of its own for a national solution to the problem. These are said to include a cannabis-only account through the Central Bank of Uruguay, for facilitating an arrangement between cannabis businesses and domestic credit unions. But it is uncertain these measures would appease U.S. banks and overseers.
Finally, as U.S. News & World Report notes, Uruguay is also considering switching from U.S. banks to Canadian ones to handle its international financial dealings. With Canada on the brink of legalizing itself (and in the midst of a bitter trade dispute with Washington, D.C.), it is starting to look like U.S. intransigence on the cannabis question could contribute to a decline in Uncle Sam’s traditional hemispheric leadership.
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