Source: Getty Images

Weeks From Selling Pot, Uruguay Producer Sees Future in Hemp

  • Recreational marijuana’s future limited by government rules
  • International Cannabis Corp. makes bet on hemp export market

For all the buzz it’s generating, legalized pot may not live up to the hype. At least not in Uruguay where limits on production and pricing is leading one of two producers to diversify into less regulated hemp.

Weeks before selling its first ounce of pot at pharmacies, International Cannabis Corp. is already betting that hemp - a variety of cannabis - will be a much bigger market than selling the psychoactive part of the plant, according to Chief Executive Officer Guillermo Delmonte. Hemp and its extracts can be used in food, cosmetics and medicine.

Hemp fibre production.
Hemp fibre production.
Photographer: Romain Lafabregue/AFP via Getty Images

“Recreational cannabis is regulated by the government and we sell what the government lets us sell,” said Delmonte, who worked in wealth management at Spanish bank BBVA before joining International Cannabis. “In the hemp market we can produce all we can to meet demand.”

The global market for hemp is set to grow beyond its current $1 billion as more countries legalize production, according to Medical Marijuana Inc., a publicly-listed marijuana grower in California. For a company like International Cannabis, that means expanding beyond Uruguay, which with a population of 3.3 million limits just how much pot can be sold. The company is already in advanced talks with five European and South American pharmaceutical and food companies to supply additives like hemp oil and hemp-based extracts for medical products, Delmonte said.

International Cannabis, majority owned by investment firm Union Group, whose assets include Uruguay’s largest farm company, plans to start planting hemp next month, he said.

While Simbiosys, Uruguay’s only other licensed producer of recreational pot, is focused solely on the recreational weed market for now, shareholder Gaston Rodriguez Lepera sees a bigger future for hemp.

Bloomberg’s Jenny Kaplan and Lindsey Rupp discuss the booming business of marijuana.

Source: Bloomberg

“Uruguay still has an opportunity to develop an industry in areas that aren’t as prickly as recreational pot,” said Rodriguez, 44, who is a consultant to hemp investors. That includes “more socially acceptable ventures like medicinal marijuana or industrial hemp.”

For more on marijuana legalization in U.S. click here

Uruguay’s divide between producers of different cannabis-based products is similar to the U.S., where legal industrial hemp and hemp oil-based additives are an increasingly popular and less risky way to get into the Green Rush. Uruguay has issued hemp permits to four companies, including one backed by U.S. investors, and is studying two more requests, the Agriculture Ministry said in an emailed statement.

International Cannabis and Simbiosys last year outbid nine other investors including Canada’s Tilray to win government licenses to produce as much as two tons of recreational weed a year each for distribution in pharmacies.

Pharmacy sales will start in a matter of weeks under a pilot program, National Drugs Board chairman Juan Andres Roballo said in an interview. International Cannabis and Simbiosys will compete with 17 licensed cannabis clubs, almost 5,000 registered home growers and drug traffickers for a recreational weed market in the South American country of 3.3 million people that government estimates put at around 30 tons a year.

Uruguayan residents who register with a government data base and pass a fingerprint scan at a participating pharmacy will be able to buy as much as 40 grams a month of unbranded, plain packaged pot.

Pharmacies are allowed to charge consumers a 30% mark-up over the $0.90 a gram regulated wholesale price they pay International Cannabis and Simbiosys, according to cannabis regulatory agency Ircca.

Those numbers should allow Simbiosys to turn a profit, though with little margin for error, Rodriguez said. ”It’s a very tight equation. The risk factors are high.”

Low Prices

Low prices haven’t deterred International Cannabis investors from pouring several million dollars into the company. International Cannabis is building a new 6,500 square meter greenhouse that could produce as much as 10 tons of recreational weed a year if the government expands its production quota, Delmonte said.

International Cannabis is also studying opportunities to invest in medical cannabis in other South American countries, Delmonte said.

”The idea is for International Cannabis to position itself as a leader in the cannabis industry in South America,” he said.

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