We will debunk the various incorrect ideas, impressions, and rumors we continue to hear in the Mexico cannabis practice. As the legalization process draws closer, we deem it important to provide local and foreign readers with a clear understanding of what is really going on with the roll-out of cannabis legalization in Mexico. So without further ado, below are some of the biggest things folks are getting wrong right now.
1. I will be able to do everything as soon as it gets legal.
Although cannabis will be fully legal once the Cannabis Law and the Medical Regulations are published, that does not mean that you will be able to apply for licenses immediately. Regarding adult and industrial use, the Institute must first be established and be fully operational. A full 90 days after that happens, you will be able to apply for a research license, whereas you will have to wait 6 months for licenses for activities involving non-psychoactive cannabis and 18 months for adult use permits and licenses. Finally, as for cultivation licenses, you may only apply for them once testing and traceability guidelines are published. As for medical use, for everything pertaining to seed classification, qualification, or plant growth, it is expected the regulations will provide for a 90-day window after entry into force, to allow the Ministry of Agriculture and relevant agencies to set up the procedures to apply and obtain licenses and permits. All of this said, it is never too early to start! And savvy operators have begun to do exactly that.
2. The Cannabis Law will regulate everything.
Simply not true. The Cannabis Law will only be concerned with adult and industrial use (hemp) and research for those purposes, whereas the Medical Regulations, as the name, might suggest, regulate medical use and research for medical use. Both statutes, alongside 1) amendments to the General Health Law and the Federal Criminal Code and 2) guidelines/internal regulations (or amendments thereof) of the various agencies concerned, will comprise the entire framework of “cannabis legalization” here in Mexico.
3. Mexico is only legalizing marijuana.
This statement is terribly simplistic, as it seems to suggest that legalization is only about allowing people to possess and consume smoke weed in public. Indeed, with notable exceptions, much of the activism in Mexico has had to do with recreational use, while in fact, it concerns itself with everything from hemp, to edibles, to medical products, to research, and of course, the appropriate conditions for cannabis consumption for adult use.
What is more, the Cannabis Law provides for the creation of cannabis policies, with the Cannabis Institute in charge of monitoring implementation. Legalization will have implications ranging from the corporate structuring (there are still Notaries Public out there unwilling to establish companies with a cannabis undertaking), to the trademarks they can acquire. In sum, in our view legalization will entail a substantial change in the Mexican legal system, after decades of prohibition.
4. The market is only open to Mexicans, not foreigners.
Not true! It is expected that although cannabis licenses will be open to Mexican companies only, foreigners will be able to, at the very least, enter the market by either establishing a Mexican company or acquiring participation at an existing one with a cannabis corporate undertaking– subject to the limitations set forth in the Foreign Investment Law (up to 49% ownership). Many of our clients seeking entry into the Mexican cannabis space are not Mexican nationals.
5. Cannabis is only good for recreational and medical use.
As anyone in the industry knows, there is low-THC cannabis (commonly known as hemp, and defined in Mexico as 1% THC or less), and THC-rich cannabis (known as marijuana). It is the latter that has elicited major controversy, given its psychoactive properties. However, hemp is a variant/genre with broad uses and applications from being a remedial plant (yes! It can clean highly polluted soils), to being a substitute to fossil fuels, construction materials, plastics, etc. In fact, as we have mentioned before in this blog, we believe that hemp could very well reboot the Mexican economy in a sustainable manner. Unfortunately, what we have noticed in Mexico so far is that hemp has been neglected by the business community, activists and media alike. This neglect has also led to lighter regulation, and therefore more room to maneuver when establishing a company.
6. Now that the Medical Regulations are official, I can export any type of CBD products to Mexico.
No! We cannot insist enough on this point. We have observed prospective American exporters being misled by potential Mexican distributors that with the proper COFEPRIS approval they can get their products into the country. The reality is that only CBD products that can qualify as medicine (medicamento) per the definition provided for in the General Health Law will get a medical product health registration from COFEPRIS, which is a precondition to obtaining an import permit. This means that under Medical Regulations, CBD edibles, cosmetics, drinks, supplements, etc. cannot be exported at the moment. Everyone else is operating in a VERY legal gray area, to say the least.
7. Narcos will get on board with legalization, using this opportunity to get legal.
This idea is not necessarily a misconception: it presupposes that the illegal market will disappear with legalization. Though we can only speculate here, we think there will be something in Mexico for everyone.
On the one hand, many in Mexico believe that the Government and the cartels have been in close association for decades. If we consider that under a legal framework there will be strong governmental scrutiny (agencies with new powers/transformation of existing ones), it is not hard to imagine that cartels acquiesced and are already planning to go legal. On the other hand, it is known that cartels’ main revenue source nowadays is not necessarily narcotics, but high-impact crimes.
As in the U.S., not everyone will be able to pay the high costs of going legal (permit/license fees, taxes, social security, etc.), or for a product sold by a legal cannabis company. For willing buyers, there will always be someone offering to sell unregulated products. This may not necessarily be someone from a cartel.
Legalization is important, not only because it creates a regulated, taxable industry that can help reactivate the economy. It also facilitates safe access for medical, industrial or recreational consumers to the supplies and products they need. In our view, that offsets any potential setback concerning the illegal market survival post-legalization.
8. Cannabis licenses are enough to start growing, processing, etc.
This is not really true, it is important to clarify a couple of things. First, in order to apply for any cannabis permit/license, you need to comply with a host of prerequisites. For instance, to secure a growing license you must first: a) obtain a research protocol authorized by COFEPRIS if you are growing for research purposes, or b) obtain a medical product health registration if you are growing with mass production in mind.
If the seed you intend to grow is imported, you also need to submit a duly legalized official document certifying that the species/variety of the seed in question corresponds to those authorized in the country of origin. Further, you need to submit a phytosanitary certificate and a transport license, issued by the Ministry of Agriculture and COFEPRIS respectively, to legally move your cannabis to your research or production facilities following harvest. These are just a few examples of the requirements you need to fulfill prior to applying for a growing license. Each permit/license has its own set of requirements to be fulfilled in advance.
Second, in no way are the cannabis permits/licenses alone enough to conduct authorized activities: you also need to obtain the federal or local permits/licenses necessary to operate like any other business. Of course, these permits/licenses vary according to your actual location, the size and undertaking of your business, but they would involve, by way of example, getting registered before the Tax Revenue Administration (the Mexican IRS, or SAT in Spanish) and timely submitting your tax returns. If you are a foreign-invested Mexican company you will have to comply with report obligations before the National Foreign Investment Registry, pay social security fees for your employees, and obtain an operating license. If you intend to sell over the counter, you must be duly licensed to operate as a medical product warehousing facility, pharmacy or drugstore. In the case of a factory or any other similar facility, you may also need to submit an environmental impact assessment for approval of the Ministry of the Environment, etc.
9. The Cannabis Law bill just passed in the Mexican Lower Chamber regulates every cannabis use and so it is not possible to know yet how “legal” cannabis will become in Mexico.
This is simply not true. We believe this misconception stems from the fact that even the media sometimes mistakenly equates cannabis legalization with last week’s passing of the Cannabis Law bill by the Mexican Lower Chamber. Actually, medical cannabis has been fully legal since last January, following the entry into force of the Medical Regulations, with just some aspects pending implementation (see our post on the matter here). It is the Cannabis Law, on the other hand, one that will regulate the adult use and hemp.
The Cannabis Law provides for the ways and means in which both statutes will interact and mandates a 90-day harmonization period, plus further timelines for the creation of guidelines under which licenses will be applied for. Practically speaking, when the Cannabis Law enters into force we will be able to talk about the full legalization of cannabis in Mexico. As of now, one can already conduct medical cannabis activities under the Medical Regulations that are not covered by the implementation grace period granted to certain agencies (discussed here); or file an amparo action to obtain a permit for personal adult use and, at least theoretically, to obtain a hemp growing license.
Finally, the advice for both domestic and international cannabis businesses is that, even if your Mexico project’s ultimate end is adult-use cannabis, you would do better to start focusing on medical use. This will allow you to develop the necessary infrastructure, market insight, awareness of local laws and regulations, production/distribution chains, etc. to succeed in the adult-use marketplace.
10. When cannabis is fully legal, my activities will become automatically legal too.
Absolutely not! And we must add that this is a very common misconception, particularly among those who are interested in personal adult use.
First, neither the General Health Law nor the Medical Regulations provide for the possibility of conducting any cannabis-related activity (or any other health-related activity, for that matter) without the corresponding authorization, permit or license. The Cannabis Law will provide for hemp and adult-use cannabis in the same way.
Second, we have mentioned before that for many cannabis uses (namely, medical, research, hemp, and personal adult use), the issue is not so much that such uses are illegal, but that they remain largely unregulated, thus hindering the exercise of rights. This has made it possible for many people to conduct cannabis activities either thanks to an amparo-fought permit (i.e. personal growing and self-consumption for adult use, or in a few instances, growing or selling medical cannabis) or by operating in a legal gray area (see the first misconception in this post).
Once cannabis becomes fully legal for all uses, this is bound to change. Legalization means that there will be specific formalities you must follow if you want to obtain the permits/licenses that will enable you to carry on with your cannabis business.
11. Legalization is only about allowing people to grow/smoke weed.
Nothing could be further from the truth! Legalization is about creating a full-fledged industry that will span everything from industrial hemp to medical cannabis to adult use. It is meant to regulate every link in the cannabis production and distribution chains so as to ensure the quality and traceability of the products consumers will have access to– whether for medical, industrial, or adult purposes. Much of this misconception is due to media coverage that, until VERY recently, has associated legalization with those who advocate for adult use without restrictions. Granted, adult use activists have been very vocal about their rights, but they are just a fraction of those pushing for the development of an industry for both domestic and international participants.
12. Legalization will corrupt youth.
This is a misconception commonly associated with the Mexican Catholic Church, which perhaps understandably still exerts strong influence in a predominantly Roman Catholic country. However, the Church’s position has been manipulated by some media outlets. The Church has never said that legalization will corrupt youth. The Church is not even against legalization as a whole, but against the legalization of adult-use without a debate that encompasses views from across the spectrum of society. The Church argues that the lack of a broad public debate has prioritized the interests of a few stakeholders over public health and safety issues and that placing limits on the production, distribution, marketing and consumption of a plant that “health professionals and … consumers testify that their use, in any quantity and presentation, significantly reduces the control over one’s actions, and puts the consumer at serious risk to himself and others” does not address the real problem. The Church believes that problem to be “the effects on families, by young people who use drugs, nor does it contribute to inhibiting and reducing exposure to narcotic substances.” As a result, the Church urges both the Government and Church members throughout Mexico not to support legalization without putting campaigns in place on addictions and the consequences of narcotics consumption on human health. The Church has also urged all stakeholders (especially youth) to inform themselves and take responsible action, to avoid “getting carried away by the permissiveness raised by these norms that allow the drugging of citizens.”
One of the tasks of the National Commission Against Addictions to be created by the upcoming Cannabis Law will be monitoring the effects of legalization while creating and supporting education and health promotion policies. Education will help people understand that legalization will not only provide important healthcare support but also boost the Mexican economy.
13. Only companies can apply for permits/licenses.
Not true. Both individuals and legal entities can apply for cannabis permits/licenses and there is no legal requirement to act through intermediaries. The real issue here is that permits/licenses are non-transferrable, so if for any reason you wish to sell your cannabis business, you will be unable to do so unless the license holder is a company, which can be sold along with the license. Companies are advised to set up a Mexican entity that can apply for the licenses; the application requirements for the various cannabis permits/licenses, particularly for medical use, are applicable/can best be fulfilled by entities created under Mexican law.
14. Now that the Medical Regulations are official, I can smoke marijuana, make or consume edibles, or use any kind of ointments or supplements.
Growing and smoking marijuana for individual adult use is indeed legal thanks to a Supreme Court Declaration of Unconstitutionality, but you still need to file for an amparo action to obtain the permits to exercise those rights. The Medical Regulations did not change anything in this regard. As for edibles, ointments, supplements, etc., no cannabis product that fails to qualify as medicine (medicamento) as defined by the General Health Law can be imported into Mexico. At this point, under the Medical Regulations, vapes or anything that involves smoking cannabis cannot be imported into Mexico either, and we do not expect the Cannabis Law to regulate otherwise. The only exception would be devices that enable smoking/inhaling for medical use. The Cannabis Law will also regulate the manufacturing, sale (and therefore consumption) of edibles and drinks with CBD/THC content, but we do not expect those containing THC to be legalized. Per the transition provisions contained in the Cannabis Law bill, prohibition on edibles containing THC might be lifted in three years, once there are more studies on their effect on human health, but as with many other things, we will have to wait for the implementation of the law (and the existence of those studies) to be certain.
15. IMPI, the Mexican Patent and Trademark Office, denies registration of cannabis trademarks.
There is no absolute bar on cannabis trademark registration in Mexico. The legal prohibition was that no trademark was to be granted “when its contents or form are contrary to public order or contravene any legal provision.” Now that the Medical Regulations have entered into force and a General Declaration of Unconstitutionality allowing for individual adult cannabis use has been issued, we believe that prohibition has lost much of its power. True, very few cannabis trademark registrations have been granted to date, but that is more the result of businesses abandoning their applications due to genericity or similarity issues, as well as the COVID pandemic slowing government response times. We expect some examiners to continue to pay extra attention to cannabis trademarks, but now that cannabis is fully legal for medical use, if/when full legalization becomes a reality it will be easier to contest any application objections. There will be a marked increase in trademark registrations granted to cannabis companies at that point.
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