Study suggests that medical cannabis industry is saturated

By John McPhaul

jpmcphaul@gmail.com

Five years after the establishment of the medical cannabis industry in Puerto Rico, the Medicinal Cannabis Industry Members Association (MICaM by its Spanish acronym), commissioned an economic study from Economic Intelligence, led by economist Gustavo Vélez, which reveals the excessive proliferation of dispensaries throughout the island and the precipitous drop in sales in those establishments.

“Since we do not 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,” MICaM President José Aleczer Rivera in a written statement. “Five years after its creation, 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.”

One of the aspects that add great value to the medical cannabis industry is that it is an extremely beneficial industry for the local economy, since all stages of the business chain, from cultivation to distribution, are carried out locally, noted Aleczer Rivera, an attorney. Annually, the value of the market is estimated at $250 million to $300 million a year, and the island treasury has collected about $65 million in taxes from the industry, which has generated about 5,000 direct and indirect jobs.

Despite the fact that Law 42 of 2017, which 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 in the first 15 days of each calendar year, no study has yet been published.

“Currently, 277 medicinal cannabis dispensary licenses have been granted, distributed mainly in the [San Juan] metropolitan area, which creates a saturation of the market, being unfavorable for dispensary owners, particularly considering that in Puerto Rico there are 119,664 cannabis patients and that there are 311 new applications,” Aleczer Rivera said. “In 2021 alone, 89 were granted, increasing the number of dispensaries by 53 percent; all of this is evidence of the excessive growth of the industry.”

The study carried out shows that there are about 432 patients for each dispensary on the island, while the average in states with medical cannabis markets is 1,898 patients per dispensary. In the mainland United States, most states with medical cannabis closely regulate the opening of new dispensaries, thus controlling the saturation of the industry.

“In Puerto Rico, 3.7 percent of the population are medical cannabis patients, one of the highest rates in the United States,” said Vélez, whose firm conducted the study. “However, we have been able to see a decline in medical cannabis sales that has coincided with the opening of new dispensaries, a reduction in the number of registered patients and lower cannabis prices. For example, medical cannabis sales in January 2022 were down 41 percent 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 in the island.”

The study further indicates that monthly sales per dispensary have dropped from $69,732 in January 2021 to $39,423 in January 2022, creating a precarious situation for the cannabis industry on the island.

“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,” he added. “Obviously, supply has grown faster than demand, which has driven the average sale per dispensary to dangerously low levels, which prevents acceptable levels of profitability and therefore has the potential to affect the industry as a whole.”