This week the Mexican Senate passed a bill containing a draft federal law regulating cannabis (the “Cannabis Act”). The draft law contains changes to the General Health Act and federal criminal law and is amended by a helpful appendix. The cannabis law will be sent to the Mexican Lower Chamber (Cámara de Diputados) for discussion and hopefully for approval. This is very big news for the Mexican cannabis industry.
While the bill, which was originally put for Senate approval, has features that we expected (and possibly some other, more disturbing restrictions), the appendix was really encouraging. If the cannabis law is passed in the lower chamber, we expect it to be published along with the medical regulations discussed below, legalizing the entire cannabis market for all uses in a single coup in Mexico.
A bit of context here: As we reported earlier on this blog, 2017 changes to the General Health Act and federal criminal law allowed: 1) limited cannabis use and use for qualified patients, 2) possessions for conducting medical research, and 3) import and export of medicinal cannabis products. In 2018, the Mexican Supreme Court ruled Mexico’s general ban on adult cannabis use unconstitutional and also urged the Ministry of Health, COFEPRIS (Federal Commission for the Protection against Health Risks) and various other Mexican government agencies to impose regulations on building a commercial cannabis chain enacted for the distribution of cannabis.
A Supreme Court ruling last year mandated the Department of Health to publish regulations for medical purposes for the changes to take effect from 2017 to September 2020. However, this has not yet happened. On the positive side, however, the bill, which has just been approved by the Mexican Senate, is set to match the 2018 mandate, the publication deadline of which has now been postponed a few times and is now set to December 15.
The Cannabis Act regulates recreational and industrial use (hemp). However, medical use is explicitly disregarded because: 1) such use is already legal after the 2017 changes mentioned above, and 2) it is governed by another set of draft medical regulations that we hear about finished and which we expect to be published in the Federation Gazette at or about the same time as the law, if approved.
That said, here are the game changers included in the cannabis law:
- The THC levels of 1% and more to consider cannabis as psychoactive will be further solidified so that Mexico will follow the international and not the American / Canadian standard. Cannabis use in adults is legal from the age of 18, and possession of up to 28 grams is completely legal, which was previously only allowed by binding precedents (jurisprudencia).
- Individuals can finally apply for cultivation and consumption permits for adults: up to 6 plants per owner or 8 plants if more than one owner lives in the same apartment. No need to install physical barriers at home to consume: it is enough to ensure that smoke does not reach minors or passive smokers.
- The concept of “consumer associations” (asociaciones de consumero) is introduced: a non-profit organization in which a group of individual license holders can, under certain conditions, jointly carry out activities related to the consumption of cannabis for adults, provided that it is located at least 500 m away from them are recreation areas, schools, smoke-free areas, etc.
- The law provides for licenses to be issued for the following activities related to cannabis: cultivation, processing, merchandising, import / export (although these two are not intended for psychoactive cannabis) and research. The licenses include the authorization for secondary activities: transport, storage and, in the case of cultivation and processing, sale to the next link in the production chain, provided the buyer is also the license holder.
- The verticality of the licenses is allowed, and there are no restrictions on related parties to apply for other licensesThis opens up the possibility of creating partnerships that cover the entire production chain, although this may be restricted by the Ministry of Health or the Federal Economic Competition Commission for social and antitrust reasons. This should be handled on a case-by-case basis by the authorities.
- In terms of cultivation licenses, each license covers 1 acre for free range and 1000 m² for indoor use. However, the license limit per owner has been set at 8 for free range and 2 for indoor construction. The exhibition gives preference to those population groups who are considered to be at risk or dissatisfied with the war on drugs (indigenous peoples, farmers, etc.). However, if a member of these groups wants to apply for a license, they must first obtain approval from the ejido authorities (common land).
- Foreign nationals can form a Mexican company to apply for licenses under Mexican capital restrictions already in place under the Foreign Investment Act.
- A decentralized body of the Ministry of Health, the Mexican Institute for the Regulation and Control of Cannabis (the “Institute”), is being created to oversee everything about the control of the industry. This includes defining policies and guidelines for licensing.
- Hemp is regulatedThe cannabis law contained in the bill provides, albeit superficially, a definition of hemp and activities that can be carried out with the plant.
As we can see, the bill and its contents are very good news and, if not thoroughly amended by the lower chamber, could, thanks to its geographic location (alongside the two largest cannabis markets in the world, pave the way for Mexico) and that Climate – an industrial powerhouse and a global market for cannabis.
Still, it’s important to understand three things: 1) cannabis use is already legal thanks to the 2017 changes and recent Supreme Court binding precedents (it’s just unregulated, which keeps the industry in a legal gray area); 2) Regulations in and of themselves always include more restrictions than no regulations, and 3) although cannabis is completely legal after the cannabis law and medical regulations are published, it does not mean that you can apply for licenses immediately after they come into effect. The institute must first be created and fully functional. A full 90 days after that, you can apply for a research license while waiting 6 months for licenses for non-psychoactive cannabis activities and 18 months for permits and licenses for adult use. Finally, for cultivation licenses, you cannot apply for them until the testing and traceability guidelines have been published.
The foregoing highlights the convenience of applying for cannabis licenses before legalization. Granted, licenses may be more difficult to obtain, but when issued they are necessarily broader than licenses issued after the cannabis law and medical regulations come into effect. As I wrote earlier, you may be able to bypass foreign investment restrictions, as well as future restrictions on verticality, scope of business issues, and location restrictions. You are also one step ahead in terms of market knowledge and business acumen.
All of this makes it useful to apply in advance and contest any rejection or rejection of your license application. Finally, the law contained in the bill itself provides that any administrative or judicial remedies submitted before the law came into force will be processed and resolved in accordance with the law in force at the time of submission.
So now you know: a market boom is coming, but apply TODAY.
Editor’s Note: We’ll be releasing a version of this post in Spanish later this week. Until then, please see the following sections for more information on cannabis in Mexico: