Six weeks ago, the cultivation, processing, merchandising and import / export of medical cannabis in Mexico was regulated. This makes the country one of the largest in the world to have fully legalized medical cannabis.
We have written several blog posts (see here and here) on the new sanitary control regulations for the manufacture, research and medical use of cannabis and its pharmacological derivatives (the “Medical Regulations”). We also ran a prospectus webinar (retry here) that was so popular that we’re running an online Q&A webinar this Thursday, March 4th (register here! And ask your questions if You do this.)
Before the next webinar, and perhaps to answer your questions or anticipate if you’d like to attend, I’d like to highlight some of the things I think cannabis companies interested in Mexico should be doing now. These steps can and should be taken prior to the Mexican government’s full implementation of medical regulations that allow companies to secure licenses and become operational.
Effects of full legalization of medical cannabis
As a backdrop, Mexico’s $ 1.3 trillion economy is the second largest in Latin America and the 15th largest in the world. Mexico has a population of nearly 130 million and a rapidly growing middle class with increasing purchasing power. In addition, Mexico is the second largest pharmaceutical market in Latin America and the eleventh largest in the world with sales exceeding $ 10 billion.
Legalizing the cultivation, processing, merchandising, and import / export of medical cannabis has three meanings:
First, legalization will deal a severe blow to illegal cannabis activities in Mexico, and push Mexico, as an exporter of cannabis products, into markets to which it already sells drugs, such as South America, Europe and the United States.
Second, legalization gives cannabis companies the opportunity to serve and grow the sizable Mexican market.
And third, legalization gives international cannabis companies the opportunity to set up manufacturing facilities in Mexico to take advantage of the country’s significantly lower costs.
Next steps for interested cannabis companies
What steps should cannabis companies take right now?
With the adoption of the Regulations on January 12th, a gradual implementation of the permitted business activities began to facilitate coordination between the government agencies responsible for interpreting and administering the Regulations.
Licensing is expected to be generally available on May 23, 2021, and companies interested in applying for licenses should prepare the appropriate documentation now. In addition, companies should of course decide exactly which licenses they want and need and structure their business accordingly. This means considering the business formation, real estate requirements, labor laws and regulations, and supply chain / service provider considerations. All of this has regulatory implications and requirements.
The roadmap for starting a cannabis business in Mexico has been drawn up in other countries and jurisdictions. As everywhere, companies need to determine the exact regulatory requirements that are relevant to their operating model and be careful to mark their “i” and cross their “t”. I hope it goes without saying that sound legal advice is a must.
What about legalizing cannabis for non-medical purposes?
Another question that many cannabis companies asked us after medical cannabis was fully legalized in Mexico was: When can we expect non-medical cannabis legalization?
There are several factors, not the least of which is that 2021 is an election year in Mexico and that politics play a role. However, my colleagues and I believe that something will happen before the end of this year. Legislation to legalize cannabis for non-medical uses works its way through Congress of Mexico, and approvals go from the Senate to the lower chamber to the President’s office.
We believe that when we see the legalization of cannabis for non-medical purposes this year, the implementation process will be broken down into two areas: one for products with less than one percent (1.0%) THC and one for products with more than one percent percent (1.0%) THC. We assume that the implementation of the product lane for lower THC contents will take about six months and that the implementation of the product lane for higher THC contents will take up to 18 months.
We have seen in other countries that the companies that are ahead in medical cannabis applications are usually the first (licensed) to move into non-medical applications. Full legalization of cannabis for medical purposes is one way of reassuring sociopolitical conservative interest groups that cannabis-derived products can make a positive contribution to society. Companies that have won the trust of regulators, lawmakers and the general public have clear advantages as markets open further. Therefore, now is a good time for those interested to consider further progress.
From a market perspective, legalizing cannabis for medical purposes will be a blow to illegal cannabis activities, but no doubt some of the organizations in this area will make efforts to legitimize themselves. The quality of their products may be low at first in some cases, but they will gain expertise and become more competitive. Established companies will bring expertise and quality to the Mexican market, which is projected to reach $ 2 billion for medical cannabis products by 2025.
These are exciting times! Please join this Thursday March 4th if you can attend the Q&A webinar!