The Wall Street Journal

Uruguay Has Big Hopes for Pot Industry First Nation to Fully Regulate Cannabis Industry Seeks Investors

By KEN PARKS May 23, 2014 6:05 p.m. ET

Uruguayan President Jose ‘Pepe’ Mujica’s experiment with state regulation of marijuana has created a stir among investors. Mr. Mujica at his home. Alejandro Kirchuk for The Wall Street Journal

Uruguay doesn’t want marijuana tourists flocking to its shores for cheap pot. Instead, the small South American nation hopes that its status as the only country to fully regulate the cannabis industry will turn it into a magnet for investment in medical and other applications of the plant.

World leaders and activists on both sides of the drug-legalization debate are closely watching Uruguayan President Jose “Pepe” Mujica’s experiment with state regulation of marijuana for recreational, medical and industrial uses, such as rope, textiles and paper made from hemp.

“New Zealand, Canadian, U.S. and British businessmen have visited us and expressed their interest to invest once the rules that regulate production are in place,” Julio Calzada, who heads the National Drugs Secretariat, said in a recent interview.

More than 100 investors, big and small, have held informal discussions with the government about medical and nonmedical uses of cannabis, said Mr. Calzada, who added that the first medical marijuana investments could be announced later this year. He declined to name the companies.

But Uruguay’s marijuana law has created a stir among some investors, including well known names in the medical marijuana industry in Canada and Europe. Cannabis can legally be used in several countries and U.S. states to remain unnamed for regulatory reasons, said entrepreneurs had approached the company with the idea of working together in Uruguay.

But he expressed concern that Uruguay is lumping recreational and medical cannabis under the same law, risking the reputations of medical marijuana research companies.

Another company, PharmaCan Capital, a Canadian merchant bank that is currently invested in two licensed medical marijuana growers, is following developments in Uruguay. For now, however, the company sees better opportunities in the Canadian market, which benefits from government backing, said Chief Executive Paul Rosen.

Mr. Calzada’s comments about interest in the prospects for investment in Uruguay came after Mr. Mujica’s government earlier this month published regulations governing how the tiny country of 3.3 million will oversee the production and sale of marijuana.

Uruguay’s marijuana law offers certainty to investors and an opportunity for new industries to develop, Mr. Mujica said in an interview with The Wall Street Journal on May 7.

“What is the advantage that Uruguay could offer? You can legally experiment and do business,” said Mr. Mujica, a former guerrilla who also served a previous government as agriculture minister. “It is a plant thatDcould give rise to a throng of industries.”

Mr. Mujica and the governing left-wing coalition invested significant political capital to pass the marijuana law last year, even though nearly two-thirds of Uruguayans opposed the measure. The Mujica administration has said the aim of the law is to deprive drug-trafficking gangs of a key source of revenue, while generating money for treating addicts and educating the public about drugs.

In June, the government plans to issue up to six licenses to private growers that will supply marijuana to pharmacies toward year’s end, Mr. Calzada said. Then, consumers for the first time will be able to make purchases.

The rules for industrial uses of cannabis are expected to be ready in no more than two months, while the drafting of medical marijuana regulations will take about four months, said Mr. Calzada, who left the door open for exports.

“It is a possibility that we don’t rule out, but we aren’t working exclusively on that,” he said.

What is clear is that Uruguay doesn’t want to export pot for recreational use, nor will the country permit tourists to come looking for an easy high.

“We don’t have the slightest interest in contributing to expanding the consumption of marijuana in its psychoactive form, fomenting the development of addiction,” Mr. Mujica said.