This year looks set to be a watershed 12 months in the rapidly growing global cannabis market. After Canada legalized cannabis for recreational use in October 2018, attention quickly turned to which country would be the next to follow suit. While pot is legal for either medical or recreational use in 34 US states, legalization at the federal level remains just a pipe dream for now (although several 2020 candidates may have differing opinions). Now, after months of debating and refining the details, Mexico looks set to be the next nation to follow in Canada's footsteps.
Long Journey to Legalization
It hasn't been an easy journey to this point. Cannabis has been illegal in Mexico since 1920 until the possession of small amounts was decriminalized in 2009, with anyone caught with up to five grams advised to seek a drug rehabilitation center rather than be arrested or fined. This remained the status quo until 2015 when the Mexican Supreme Court ruled that four individuals from the Mexican Society for Responsible and Tolerant Personal Use (SMART) would be permitted to grow and consume their own cannabis.
In that same case, Mexico's top court voted 4-1 in ruling that the prohibition of cannabis cultivation or consumption was actually unconstitutional. This was a landmark moment in the fight for legal pot in Mexico and led to President Enrique Peña Nieto signing a 2017 bill to allow the medical use of cannabis products containing less than one percent THC. The bill eased through the senate by a vote of 98-7 and was even more resoundingly approved in the Congress by 371 votes in favor versus just 19 against.
However, anyone familiar with cannabis consumption will know that less than one percent THC content is a very small concession to give. The legal status of pot in Mexico took its biggest step forward in October 2018, just weeks after Canada legalized when the Supreme Court ruled for the fifth time that cannabis prohibition was unconstitutional. Mexican law dictates that should the country's Supreme Court reach the same ruling five times, it should set a precedent and therefore become law.
While that ruling mandated that Mexico had 90 days to implement the necessary legislation, the Supreme Court granted the government several extensions in order to perfect the regulatory framework, perhaps learning lessons from the struggles seen in Canada. However, lawmakers didn't really get into the weeds of discussing this framework until October 2019, leaving little time to spare or room for compromise. This ultimately led to one last extension, giving Mexico until this April to implement cannabis legislation.
Last week, it was reported that a top Mexican lawmaker said Congress would vote on the bill this month, although the exact details of that bill are yet to be released. However, a look at the previous draft, prior to the last extension, is an indication of what we can expect from Mexico's cannabis laws. That draft outlines some of the following proposals:
- The legal age for consumption is 18 and over.
- Consumption is to occur in private.
- Strict packaging regulations designed to deter adolescent usage.
- Edibles and infused beverages to be off-limits for recreational users.
- The creation of The Cannabis Institute to oversee the industry
While there was virtually no pushback on those provisions, the real sticking point and source of several delays is a social equity provision. Some lawmakers have called for low-income individuals, small farmers, indigenous peoples, and those most impacted by the War on Drugs in Mexico to be first in line to receive licenses, in an effort to keep the industry out of the hands of big business.
Mexico had been forecast by the State of the Legal Cannabis Markets report to top $1 billion in annual sales by 2024, making it one of the highest revenue-generating marijuana markets in the world. However, should that social equity provision make it into the final bill, it will make it more difficult for international cannabis firms to break into the market. Even worse is the restrictions on cannabis derivatives, which are higher-margin products, meaning the trend of dried flower being oversupplied and commoditized in Canada could see investors back quantity over quality.
So there may be some difficulty in trying to invest in the Mexican cannabis market, but that hasn't stopped several firms from already making inroads south of the border. Aurora Cannabis (TSX:ACB) (NYSE:ACB) has a presence in the country through its ownership of Farmacias Magistrales, although most are well aware that Aurora isn't in the best position at the moment.
Elsewhere, CannaOne Technologies (CSE:CNNA) (OTCPK:CNONF) has an agreement with Manna Health Services to launch an online CBD marketplace. Manna is a hugely respected cannabis firm in Mexico and is approved by the Mexican government to buy, sell, lease, distribute, import, or export any products related to health and wellness.
So, cannabis will be legalized in Mexico one way or another by April at the latest. While we currently have no guarantees of how the market might shape up, both companies and regulators alike are likely to learn lessons from the issues that troubled the launch of the Canadian market.
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