Uruguay's Marijuana Law Comes Under Tax Pressures

In a July article for InSight Crime, I wrote the following about political pressures on Uruguay's marijuana initiative, and the risk these could pose to the law's goal of undercutting demand for imported Paraguayan cannabis (which provides an estimated 80 percent of Uruguay's market):

The future may also bring political pressure for the state to raise taxes on the drug to generate more revenue, which would obviously increase the price and make it less competitive with Paraguayan marijuana. While the bill does not mention any specific taxes on the growth or sale of cannabis, this could change considering the unpopularity of the measure....

Another argument for leveling taxes on the drug may come from Tabare Vazquez, the former president who is widely expected to win the presidential race in October 2014. Excise taxes on cigarettes were a hallmark of a strict, highly successful tobacco regulation law that Vazquez sponsored during his 2005-2010 presidency, and he may be more open to leveling taxes on marijuana to discourage its use.

It looks as though these pressures are beginning to materialize, though not from Vazquez (who surprised many observers by embracing the measure following its passage in the lower house).

On Friday, syndicated columnist Andres Oppenheimer criticized the newly-released complementary regulations of Uruguay's marijuana law. In his twice-weekly column, he cited remarks by opposition politicians like National Party Senator and Senate Health Committee Chairman Carlos Moreira, who compared the government's anticipated price for legal marijuana of $1 per gram with the high taxes on cigarettes. Oppenheimer writes:

While Uruguayan consumers pay about 22 percent in non-essential goods taxes for a bottle of water, 27 percent for a bottle of beer and about 68 percent for a regular cigarette, marijuana sales will not pay any such taxes, at least for now, according to opposition leaders and government officials who have read the marijuana regulation decree’s fine print.

It's true that the regulations state that transactions related to cannabis sales will be exempt from standard taxes on non-essential goods. But the law will still bring in state revenue.

As Presidential Under-Secretary Diego Canepa stated during the press conference announcing their release, commercial growers will be subject to a "variable fee," which would ultimately be used to vary the price of the drug in pharmacies. The proceeds from this will go towards funding the Institute for Regulation and Control of Cannabis (IRCCA), the law’s regulatory body, as well as a campaign to educate the public about the consequences of marijuana use. And as Canepa himself told Oppenheimer, additional taxes may be added later once the full extent of participation in the IRCCA's registry becomes clearer.

Ultimately, the lack of built-in tax on marijuana sales -- at least initially -- is one of the strengths of the law. This provides important flexibility, allowing officials to accurately set the price to keep the drug competitive with the black market without worrying about additional taxes making it prohibitively expensive for users. It's also worth noting that this gives the Uruguayan government an advantage over authorities in Washington and Colorado (where the drug's price will be set by state and local taxes as well as supply and demand).

News Briefs

• For the first time in what seems like a considerable while, Uruguay is in the headlines today for reasons other than its marijuana law. Uruguayan President Jose Mujica met with U.S. President Barack Obama in the Oval Office yesterday, and drug policy was not on the agenda. Instead, as the BBC notes, the two discussed Uruguay’s interest in education exchanges and expanding its agricultural exports to the United States. Mujica also sought Obama’s support ahead of tobacco giant Phillip Morris’ pending lawsuit against his country’s aggressive anti-smoking laws. According to El Observador, Mujica lamented being a continued “social” smoker, and the U.S. president shared his experience with quitting cigarettes.

• Much of the U.S. coverage, by contrast, focused on Mujica’s colorful remarks (see the New York Times, Washington Post, Wall Street Journal and McClatchy) during the subsequent press conference. These included a prediction that the U.S. would  “have to become a bilingual country…because the strength of Latina women is admirable and they will fill this country with people who speak Spanish and Portuguese.” Mujica also waxed poetic about his visit, saying: “I would like to be a little bit younger, to see Mississippi, know the ranches -- in Los Angeles, the milk farms, other things.”

• The talks between Venezuela’s government and the MUD opposition coalition appear to have hit a slight bump. According to El Universal, the opposition has temporarily suspended working group discussions on the sidelines with officials on the issues of amnesty, creating a truth commission and on the independence of government institutions. MUD official Ramon Jose Medina said that this was a response to “unjustified repression of students and protesters.” However, the main talks will resume again on Thursday, in the presence of UNASUR delegates.

• The Associated Press has an analysis of the suspicious links between construction firms and politicians in Brazil, which have further fueled criticism that its World Cup preparations have been marred by corruption.  According to data from Brazil's highest electoral tribunal, campaign contributions by companies that won contracts for the most World Cup projects skyrocketed in the most recent election.

• BBC Mundo reports on the conflict between state oil company Petroamazonas and Ecuador’s indigenous Kichwa people, who oppose oil extraction in the central Ecuadorian Amazon.

• Emily Achtenberg of NACLA offers an overview of a new mining law proposed by Bolivia’s President Evo Morales, which illustrates his efforts to balance tensions in the country’s mining sector ahead of October elections.

• Despite being called to testify to judicial authorities by Colombia’s attorney general regarding his accusations that President Juan Manuel Santos received illicit campaign funds, former president Alvaro Uribe did not appear in court yesterday.  El Espectador reports that Uribe has been summoned once again by Attorney General Eduardo Montealegre to provide evidence of his claims that Santos received $2 million in campaign donations from an intermediary and campaign advisor who allegedly accepted money from drug traffickers. According to EFE, Uribe is expected to attend this time around.

• In a column for Al Jazeera America, U.S. Congressman Hank Johnson criticizes the silence of the Drug Enforcement Administration (DEA) in response to calls from U.S. lawmakers and Honduran investigators to answer questions about the role of DEA agents in a deadly May 2012 operation that killed four residents in Honduras’ isolated Mosquito Coast region.

• The right-wing political party that brought Alberto Fujimori to power in 1990, Cambio 90, is cutting ties with the imprisoned former president. According to Peru’s La Republica, party director Renzo Reggiardo announced that the group had changed its name to avoid “associations with Fujimorismo.” Going forward, the party will be known as Peru Patria Segura.

• The L.A. Times is the latest U.S. outlet to report on Mexico’s struggle to disarm the “self-defense” militias and incorporate them into legally-recognized entities, profiling the suspicions that many local residents harbor against the militia groups. Meanwhile Animal Politico explains the difference between the two legal forces the militias will be allowed to join. The first, the Rural Defense Corps, will be paid and under the command of the Defense Ministry, while the all-volunteer Rural forces will be under the umbrella of the Interior Ministry. According to the news site, most of the autodefensas will be integrated into the former.