Tax-free pot: Uruguay moves further in war against marijuana black market

Uruguay, which has legalized marijuana, will also exempt pot production and sales from taxes. The move is designed to keep prices low enough to undercut black market cannabis, according to government advisers on the legalization.

“The principal objective is not tax collection. Everything has to be geared toward undercutting the black market,” Felix Abadi, a contractor who is developing Uruguay's marijuana tax structure, told Reuters. “So we have to make sure the price is low.”

Despite global criticism, in December 2013 Uruguay became the first country in the world to make it legal to cultivate, sell, and consume marijuana. Earlier in May, authorities signed regulations accompanying the law, specifying that every Uruguayan will able to buy in licensed pharmacies up to 10 grams of pot a week for just about US$0.90 per gram.

The low price was established in a bid to fight against drug cartels and compete with black market marijuana smuggled mostly from Paraguay, a neighboring South American country which is one of the region’s largest producers of illegal cannabis. But opponents of the law insist the legalization will only expose more people to drugs.

In the coming weeks, Uruguay will auction up to six licenses to produce marijuana. The government is also considering growing marijuana on a plot of land controlled by the Uruguayan military, which would help avoid the illegal trafficking of the pot.

Under the regulations, Uruguayan citizens over 18 years of age have three options to choose from if they wish to obtain cannabis: purchase it at pharmacies, join a smoking club of 15-45 members that can grow up to 99 plants per year, or cultivate up to six marijuana plants domestically. Each customer will have to register their preferred option with authorities. In any case, an individual will only be able to obtain 480 grams of marijuana per year.