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On the Economic Potential of Cannabis Cultivation in Lebanon

Salem Darwich,
Jamal Ibrahim Haidar,
Hussein Zeaiter
The causes and drivers of Lebanon’s economic crisis are well known and documented, with most studies and reports focusing on Central Bank monetary policy and Ministry of Finance measures. Less is known about prospective, unconventional economic policies that Lebanon could adopt to alleviate the impact of the crisis. One such policy would entail focusing on economic sectors in which Lebanon has a comparative advantage. Lebanon can capitalize on its comparative advantage by identifying foreign markets with untapped potential, an approach which presents the best opportunity to boost exports without additional public spending. Controversially, one such export product is cannabis. In 2020, McKinsey & Company produced an economic policy report titled “Lebanon Economic Vision”, in which they estimate that cannabis cultivation in Lebanon has the potential to generate 4 billion US dollars (USD) in revenues annually. Below, we focus on four of the report’s findings and recommendations, as well as potential discrepancies in those findings and recommendations, which deserve keen attention and scrutiny.

First, the "Lebanon Economic Vision" report projects that legalizing cannabis would increase cultivation from zero hectares in 2017 to 1,000 hectares in 2025. It is unclear what data the authors used to make this projection, particularly as Lebanon has cultivated cannabis for at least 100 years and produces sizeable amounts of hashish. It is understandable that, by definition, legal cannabis cultivation cannot exist without legalization. However, absent a methodology or access to the data set(s), projections about future crop yields are questionable. 

Second, the report assumes that controlled areas can be established by 2025, on which legal cannabis can be legally cultivated for export, specifically for medical purposes. The authors forecasted the near elimination of illegal cannabis cultivation, with most growers being licensed and regulated by the government by 2035. The report, however, offers no information about the assumptions undergirding these projections. It is uncertain whether cannabis growers would prefer to move to the formal sector from the informal sector, particularly given the constraints that would be imposed on them in the formal sector. Recently, efforts to provide alternative crop options to cannabis growers – including a UN campaign in the 1990s – have failed, in part due to the low production cost and high profitability of cannabis. Moreover, eradication campaigns, led by local security forces, have also been unable to prevent cannabis production. Consequently, it is necessary to consider the interests of family and commercial farmers, specifically whether it makes financial sense for them to enter the formal sector. 

Many cannabis importers in European or other markets have their own standards to guarantee quality, which may require growers to use seeds provided by importers. In this case, importers would be employing the factors of production, i.e. labor and fertile land, while growers would become dependent on importers. In other words, enterprises would provide certified seeds, and if a conflict emerges between an entity in Lebanon and a seed enterprise, growers may not be able to produce cannabis for use in export products due to a lack of certified seeds. If importers decide to cut a certain grower off from seeds – for any reason – growers could be left worse off, as they would not have access to seeds unless they planted cannabis informally. Thus, even if importers may be willing to pay a higher price, growers may not be willing to trade their long-term independence for short-term, high export prices. While this is but one example – which potentially could be addressed by locally producing seeds and fixing the price of export cannabis to the informal market before the beginning of each cultivation season – it is illustrative of the many factors which farmers would need to consider before entering the formal sector.  

Third, the report highlights the importance of prioritizing (and focusing government intervention efforts on) high-potential subsectors, which capitalize on Lebanon’s strengths. These subsectors include those in healthcare-related fields with a focus on pharmaceuticals and cannabis-based medical products. According to the report, by prioritizing these subsectors, exports of prioritized subgroups could increase from USD 828 million in 2017 to USD 1.79 billion by 2025. However, it is unclear how these numbers were calculated, especially as the value of Lebanon's cannabis production is difficult to estimate. Exports of cannabis-based medical products depend on production capacity, trade agreements, and patents. It is therefore necessary to consider whether necessary productive capacity exists in Lebanon, which foreign countries may be willing to import cannabis products from Lebanon, and if so, under which terms. Notably, the law legalizing the medical and industrial use of cannabis is silent on intellectual property rights. 

Fourth, the international market for medical cannabis is rapidly growing, with several countries already claiming a first-mover export advantage. For instance, Canada is exporting to Germany, Croatia, New Zealand, Brazil, and Chile. The Netherlands is exporting to Australia, and various EU countries including Italy, Germany, and Finland. In 2017, Uruguay announced plans to begin exporting medical cannabis oil to Canada and Mexico while in 2018, Australia approved the export of medical cannabis products. Put more succinctly, other countries are quickly capturing export potential. Thus, the extent to which Lebanon may be able to reserve a market share deserves further scrutiny, in addition to whether Lebanon would significantly benefit from legalizing cannabis versus maintaining the status quo.1

The goal of becoming a regional leader in creative and high-value industries and a hub for regional processing in pharmaceuticals (including medical cannabis products) is inspiring and should be welcome. Nevertheless, before drawing conclusions about the economic potential of cannabis cultivation in Lebanon, more analysis is needed on how to incentivize producers to move to the formal sector, as well as regulate production and consumption of cannabis. Moreover, it is necessary to develop a comprehensive regulatory framework for cannabis covering the licensing and controls of production, processing, export infrastructure for inspection and processing of cannabis-based products, local sales, consumption, and governance and institutional mechanisms.

1. In 2020, following the publishing of the McKinsey report, Lebanon was the first Arab country to legalize the cultivation of cannabis plants for medical and industrial use. As per Article 3 of the Law No. 178/2020, it is now possible for the Regulatory Authority for Cannabis Cultivation for Medical and Industrial Use to legally authorize the cultivation of cannabis plants. This includes seeds or seedlings to develop products including fibers for industrial use, cosmetic products, oils, extracts, and compounds used for medical, pharmaceutical, and industrial purposes. 

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