Cannabis Mitigates Economic Devastation During Pandemic in Latin America

The coronavirus is causing unprecedented economic damage worldwide, but the effects could be potentially devastating in Latin America.

The combination of prolonged strict lockdowns; the closure of borders, schools, and businesses; restrictions on personal mobility for months, among other factors, are expected to contribute to the region's economic activity sinking, reversing years of progress towards development goals and pushing tens of millions of people back into extreme poverty.

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Latin America's economy is expected to contract by 7.2% this year, according to the June report from the World Bank. This reflects the decline caused by COVID-19, and the consequent negative impact on employment, drop in international oil prices, significant impact on travel and tourism, and the already precarious social conditions of a large part of the population, among other factors.

Could any measure mitigate the damage? Lawmakers in Colombia, Mexico, and Paraguay, the main Cannabis producers in the region, have an idea. They are calling for their countries to bet on the legalization of Cannabis, which they say would provide additional jobs and economic growth, as well as exports, and could improve the well-being of their populations.

Colombia

Colombia is facing its worst recession in a century due to the coronavirus. The Organization for Economic Cooperation and Development estimates that the country's GDP will fall between 6.1% and 7.9% in 2020.

The level of employment has hit an all-time low, exacerbated by a collapse of financial markets and a peso devaluation driven by capital outflows. The OECD predicts that Colombia will have the highest unemployment rates in 2020 among the 37 nations that make up its group. In May, unemployment in Colombia was 21.4%, compared to 10.5% in the same month last year.

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The global economic contraction has also impacted the country's exports, as well as the drop in oil prices. Half of Colombia's foreign exchange revenue comes from this industry.

Colombia has made significant efforts in recent years to increase its oil production. Between 2016 and 2017, the sector generated an average of 186,842 jobs, according to the Colombian Petroleum Association. The Oil Industry Union estimates that between 8 and 10 thousand jobs were lost during the first two weeks of confinement due to the coronavirus. The sector will lay off 8% of direct employees and 72% of indirect employees by December, according to Francisco Lloreda, president of the National Oil Association.

Former Senator Juan Manuel Galan, author of Colombia's medicinal Cannabis law and advocate for drug policy reform, told Cannabis Wire that Cannabis can help by providing jobs for people in industries hit by the pandemic, including oil.

“I believe the oil industry will take time to recover, which means many industries in Colombia will have to readjust,” said Galan. “This means that the medicinal Cannabis sector becomes more important than ever.” The sector, he adds, could also provide “tax revenues to offset the lack of revenue from oil exports”.

Meanwhile, Fedesarrollo, an economic and social policy research institute, estimates that one hectare of legal Cannabis produces seventeen jobs and, before the pandemic, saw Cannabis industry export revenues generating $109 million (USD) in 2020.

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With the enactment of Law 1787 in 2016, Colombia was one of the first countries in the region to legalize medicinal Cannabis. Since then, new regulations have shaped a legal framework for the production, processing, and export of the plant for medical purposes.

But an opposition party senator wants to go further and believes there is no better time than now. Gustavo Bolivar seeks to regulate adult marijuana use as a means to end crime and include small farmers, especially those already illegally cultivating, in the legal industry.

Bolivar told Cannabis Wire that it is “urgent” to pass the Cannabis legalization bill in Congress to address the economic crisis caused by the pandemic.

“If we were reasonable, we could boost the 'green gold' economy and profit from a legal Cannabis market that would bring well-being to producers who would no longer be persecuted. And the state would remove traffickers from the market and use resources to mitigate the economic impact in post-pandemic times, when economic prospects are very discouraging,” he said. “We have a quality product for export, and it is one of the best. We would be missing out on a great business opportunity if we stayed on the sidelines.”

Mexico

Mexico's lawmakers have faced obstacles in drafting a bill that would provide the framework for legal Cannabis. The country's effort to legalize dates back to October 2018 when the Mexican Supreme Court ruled it unconstitutional to prohibit personal Cannabis use. After several setbacks, senators voted in favor of a bill in March 2020 to legalize Cannabis for medical, adult, and industrial purposes.

Then came the coronavirus, forcing lawmakers to suspend most legislative activities, including Cannabis regulation. On April 17, the Mexican Supreme Court granted a request to extend the deadline for Congress to regulate Cannabis until the end of the next legislative session in December 2020.

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For Senator Patricia Mercado, a member of the National Regeneration Movement, or Morena (led by Mexican President Andrés Manuel López Obrador), the coronavirus crisis should lead Cannabis legislation to prevail in Congress, and soon. “We cannot wait until December,” Senator Mercado told Cannabis Wire. “It must be one of our priorities to return in September.”

The pandemic is causing financial problems everywhere, but in Mexico, it has hit one of the country's most important industries. Over 12 million Mexicans lost their jobs (formal and informal) during April and May due to the COVID-19 outbreak, according to the Central Bank. Tourism provides 11 million jobs in Mexico, and many of these workers have been sent home. The Mexican Tourism Secretaries Association estimated that the tourism GDP could fall by 10% this year, with losses exceeding US$10 billion (USD).

But Mercado says Cannabis can help restore the economy. “I hope that, after analyzing the advantages of regulation, Congress and the government realize that marijuana can help us grow to get out of this economic crisis,” she said.

Cannabis, she says, will combat unemployment, generate much-needed income for the state, and help small producers become legal.

“The project opens the door to the possibility of Cannabis legalization with non-punitive regulation. It opens potential to lift out of poverty and generate wealth, income, and jobs, as well as take care of small producers so they can benefit,” Mercado states.

Paraguay

While Latin America has become a coronavirus pandemic epicenter in recent weeks, Paraguay is slowly returning to normal after five months of confinement. However, the country of about 7.2 million inhabitants has not been spared from the devastating economic effects of the virus.

The Ministry of Labor estimated in June that COVID-19 could lead to over 250,000 unemployed Paraguayans. This will particularly affect informal workers, who, according to the World Bank, made up 71% of Paraguay's workforce in 2019. These workers do not pay or receive health or social security, and do not have standard contracts or labor protections.

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In February, for the first time, Paraguay granted licenses to twelve companies for the production and distribution of medicinal Cannabis products. So far, this is the only open opportunity for Cannabis in the country, which has taken a very restrictive approach to the plant.

Nevertheless, Paraguay is one of the largest Cannabis producers in South America. Approximately between 6,000 and 7,000 hectares of Cannabis are illegally cultivated in the country, and most of the resulting product ends up in neighboring countries. Some estimates suggest that in countries like Brazil, 80% of imported Cannabis comes from Paraguay. Chile and Argentina also meet their demand mainly with Paraguayan Cannabis.

Victor Ríos, a Paraguayan senator who has been advocating for Cannabis decriminalization since 2009, told Cannabis Wire that Cannabis is a very important source of foreign currency revenue for the country due to its significant role in the underground (untaxed) economy. These underground economic activities generated US$16.5 billion in 2018, approximately 40% of the country's GDP, according to the Paraguay Pro-Development Association.

Regarding the pandemic, Ríos states that the country will need at least five years to recover. “Imagine what this means for a country where the economy is weak, where there is a high percentage of extreme poverty, where 12% of the population suffers from malnutrition, where external debt is about to reach 35% of GDP, and where tax revenue does not even reach 10% of GDP,” Ríos said.

“And a good way out,” he adds, “could be through regulating the Cannabis trade.”

Source: information from the Cannabis Wire website