Puerto Rico: A U.S. territory on the same growing latitude as Jamaica, and a consumer base of 3.5 million residents. (gregobagel/iStock)

Ramping Up Quickly

Governor Alejandro García Padilla authorized the medicinal use of cannabis in 2015, and a legal regulatory framework is now working its way through government in the form of Senate Bill 340. Current regulations allow vaping, but prohibit smoking of the flower. Qualifying conditions include cancer, fibromyalgia, chronic pain and migraines.

With 3.5 million people, Puerto Rico’s population is about the size of Connecticut, but it’s a territory, not a state. As such, it’s exempt from many federal tax laws, including IRS rule 280E, the one that prohibits cannabis businesses from claiming normal expenses. Noted cannabis attorney Bob Hoban has written on his Hoban Law Group Blog:

“Because it is not a state, federal taxes do not apply to income generated by Puerto Rican individuals or entities. Instead, individual bona fide residents are not federally taxed on income derived from Puerto Rican sources and Puerto Rican corporations are treated as foreign corporations immune to U.S. corporate taxes.” 

So the Caribbean island has business advantages the US mainland can’t offer. As a result, there’s been a flood of recent investment in the cannabis sector, all of it, as per Puerto Rican law, moving through majority-owned Puerto Rican companies.

Natural Ventures PR, one of the island’s first players, has already established a 100,000 square-foot cultivation facility and a 30,000 square-foot manufacturing facility in Caguas, an inland city about 15 miles south of San Juan.  The company now has licensing deals with CannaRoyalty, an investment firm based in Canada, and JuJu Royal, a Colorado company founded by Julian Marley. United Cannabis, a biotech corporation headquartered in Denver, recently partnered with San Juan-based Herbal Biotech Pathways Lab to establish a joint venture to market its Prana brand cannabis products.

The licensing process is expensive. Fees range from $5,000 to $10,000 for a manufacturing license and $20,000 for a dispensary license. Currently there are 17 dispensaries, eight cultivation facilities, four manufacturing facilities, and two laboratories approved by the Health Department. As of January, 2017, there were 114 dispensaries, 46 cultivation facilities, and 32 manufacturing facilities that had been pre-qualified for the approval process.

Inside Track for Some

Pagan, who owns a smoke shop called Monticello on San Juan’s up-and-coming Loiza Street, told me that as she saw the industry develop, she felt a sense that “this is not fair.” When I asked what she meant, Portela jumped in.

“Like in any other state, if you have the money and the means, you have a license,” she said. “You get a cultivation and a manufacturing license—even if you don’t have any type of expertise.”

“This was an industry before it was legal,” noted Pagan.

One of their goals is to build a network of “creatives and innovators” who don’t have the capital to invest on the production side but could find opportunities in branding, marketing, and design.

“I’ve come from an industry that’s been illegal for a long time, so we’ve always had a kind of ‘whatever’ attitude towards the product. It has been tacky,” said Pagan. “Now, as the industry evolves, you have designers coming in, you have creatives coming in, and I’ve seen that trend in my store.”

Regenerative’s Frances Aparicio: ‘I want to give great jobs. I want people to work with me, not for me.’ (Colleen Kimmett for Leafly)

They’d like to develop a greener network of collaborators to build the cultivation and manufacturing sector here. So far, for example, no one in Puerto Rico is doing licensed outdoor or organic grows—and this on a Caribbean island that’s at almost the exact same latitude as Jamaica, which is world renowned for its outdoor cannabis grows.

When Parleta and Pagan met in 2015, they immediately connected over their shared cannabis politics. Together, they bring different strengths to the venture. Portela started her career in the Puerto Rican tourism bureau. That helped her develop a familiarity with the workings of government procedure and bureaucracy.  Pagan, by contrast, has been a fixture in her neighborhood’s growing independent arts and culture scene, opening Monticello not long after she graduated from the University of Puerto Rico.  “Gaby,” said Portela, “is the true nature of the industry.”

Today the duo serve as ambassadors of a sort, parsing Puerto Rico’s shifting regulatory landscape for investors abroad (“when it comes to regulations here, if you’re not in the know, it’s very complicated,” says Parleta), and bringing back useful intel, translated for a Spanish-speaking audience here.

‘I Want to Contribute to Puerto Rico’

At the conference, working a booth at the trade-show section of the conference, I met one of the young entrepreneurs of the type that Pagan and Parleta seek to target.

Jim Rodriguez, 34, is the co-owner of Cultivana, which imports Magical Butter machines and distributes them to dispensaries on the island. Rodriguez, who has worked as a salesman and a chef, was already making edibles in his kitchen when “the cannabis industry in Puerto Rico began with the gossip, and then the boom.”

He and some friends decided to create a company and market the product. Getting certified to do so was really difficult, Rodriguez told me. He blamed the government, saying it “buscarle la quinta pata al gato”– it looks for the cat’s fifth leg, which is to say, makes things unnecessarily complicated.

“People really want this,” he said. “They need to work harder than in the States, but it’s possible.”

Rodriguez tells me that he and his partners are all in their 30s, have all put their own money into the venture so far, and have kept their day jobs for now. “So we are 24-hours-seven working,” he says. “But we have big faith in this industry, and we want this industry to be here, in Puerto Rico.”

The Cultivana crew: Bringing Magical Butter machines to Puerto Rico. (Photo courtesy of Cobian Media)

It’s a sentiment I heard again and again at the conference: the desire, especially from millennials, to build an economy on the island that can actually support the kind of lives they want to live.

I heard it from Frances Aparicio, a 28-year-old promoter and partner in the Regenerative Group, a medical cannabis holding corporation he and his best friend started two years ago. He told me that he believes the economic crisis is an opportunity for entrepreneurs like him.

“I want to contribute to Puerto Rico,” he said. “This is the most important thing. I want to give great jobs. I don’t want minimum federal wage; I hate that. I want people to work with me, not for me.”

Aparicio says there’s a shift happening in the mindset of Puerto Rican millennials, away from the “colonialist thinking” that once held up mainland America as the land of milk and honey. “This is Latin America,” he tells me. “And we need to think globally.”

Some are Moving Cautiously

The Regenerative Group includes three partners from Puerto Rico, one from Colorado, and one from China. Aparicio tells me the Colorado partner, who wishes to remain anonymous, has put about $2 million into the licensing and construction of a cultivation facility. The company plans to build three dispensaries on the island as well.

Aparicio said that he’s cautious about moving too quickly. “I’m very careful with the funds that we have,” he told me. “I know a lot of people who are burning a lot of cash. . . one thing I’ve learned in life is being first is not going to win every time.”

A Bottlenecked MMJ Card System

One of the barriers to developing the medical cannabis market in Puerto Rico right now is the fact that the government’s MMJ card system is bottlenecked. 10,000 individuals have applied for medical cannabis cards but only around 4,000 have received them. According to one recent report, there is only one staff member and one card printing machine at the department.

Bigger players with deep pockets might be able to lose money until the user market grows, but new and emerging players don’t have that luxury. Aparicio co-founded the Puerto Rico Medical Cannabis Association to educate, lobby, and campaign on behalf of users. How frustrating is the application backlog?  Aparicio himself has a medical card from California but is still waiting on his ID from Puerto Rico.

Aparicio’s group recently launched a petition (#sialaflora) calling for the flower itself—one of those most affordable means of accessing cannabis—to be included in the legal regulatory framework.

They’re also trying to educate the populace about cannabis. Despite the fact that many young people are in favor of legalization, Puerto Rico remains a very conservative Catholic place.

Hector Santiago, an agronomist who works in the plant nursery business, recently started a cannabis-focused company called Be Better (which he tells me has pre-approval from the government for a cultivation license. He keeps his finger on the public pulse via his public radio show, Manos a la Tierra(Hands in the Earth). The show is about “everything agricultural,” he told me, “but I focus a lot on cannabis, and I receive a lot of callers who want to talk about this topic.”

Jobs They Need in an Industry They Love

Santiago says most young people under 35 are enthusiastic. Seniors 65 and older are “very, very religious,” and they often initially opposed any form of legalization. They become more receptive, he said, when they realize that cannabis can be used to treat symptoms of glaucoma, fibromyalgia, and cancer. It’s the middle-agers, 40 to 60, Santiago said, who seem the most difficult to convince. “We were raised to believe that this is bad, this is not good, that it’s from the hell,” he said. “That’s the mindset that we have to change.”

Puerto Rico might not have to wait for islanders to change their minds. Puerto Rico’s current regulations include a reciprocity clause, which opens the possibility for individuals with medical marijuana cards from states like California and New York to use them on the island. This “canna-tourism” angle is what makes Puerto Rico particularly interesting to industry leaders on the mainland—particularly executives with companies based in New York, Illinois, and Massachusetts. If the cannabis market’s potential is realized in Puerto Rico, more ambitious young people like Carmen Portela will be able to stay on the island, “and get the jobs they need in the industry they love.”

“I mean,” Portela said, “why would you want to leave this paradise?”