Mexico Cannabis Legalization is Postponed (And That’s OK)

MEXC
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As I recently reported on this blog, last November the Mexican Senate approved an amended Cannabis Law bill. That bill was sent to the Lower Chamber for discussion and approval. The Lower Chamber duly received the bill on November 24 and has already held public hearings with various stakeholders in the country, which we have been following closely. It really did seem Congress would do its part on cannabis legalization.

We were rather disappointed when we learned about the recent Lower Chamber’s decision to defer discussion of the Cannabis Law to next year and officially ask the Mexican Supreme Court for an extension of the previous December 15 deadline to implement legalization. We were even more disappointed when we learned on December 10 the Supreme Court had granted the extension to April 2021 (the end of the Congress’s Spring Debate Session), citing COVID and “giving Congress due time to exercise its powers”.

The implication of these delays is that discussion will be very close to 2021 congressional elections, which might mean–as was correctly pointed out in Marijuana Business Daily–that “that not only could distract lower house legislators, but it also means some deputies will want to avoid the risk of supporting controversial issues”. Let us not forget that, as any quick glimpse on Mexican media will attest, after decades of prohibition, a vast majority of the average Mexican population is not a big supporter of legalization.

Official reasons for the deferment aside (which to us are not plausible, anyway), timelines and market projections have been moved, not to mention the image of uncertainty Mexico projects on economic agents and markets alike. Nevertheless, we at Harris Bricken think this situation may be a blessing in disguise. Below are five reasons why.

First, we do not foresee substantial changes to what was sent by the Senate, whereas debate in the Lower Chamber still promises to revolve around amendments and new proposals to be included in the bill. Even though we cannot overlook proposals that might pose concern (for example, creating a Government organ that would not only develop policies and write rules, but also act as the sole buyer of cannabis supplies and finished products), we cannot be sure of what will happen until actual debate takes place in the Lower Chamber.

Also, once the Lower Chamber discusses and approves the bill it will go back to the Senate which will debate and readjust the said modifications for passing, so anything like the “single payer” proposal could still get knocked down. The passed version will then be sent to the Executive Power, which can either veto or order publication in the Federation Official Gazette for entry into force. We do not expect such veto power to be exercised.

Second, the Cannabis Law itself will be under discussion in the Lower Chamber. We have mentioned before that this law will regulate adult and industrial hemp uses, as well as associated research. Medical use will be provided for in the Medical Regulations. These regulations are expected to come out at the same time the Cannabis Law does, but are not a matter of congressional approval and certainly have not elicited the same level of controversy as the corresponding adult use statute. In fact, we have heard that a draft has been ready for months now (indeed, it should have been published since last September, per another Supreme Court mandate); and, in any case, medical use has been legal since the 2017 amendments to the general health law.

Third, and related to the point immediately above, the longer it takes Congress to legalize cannabis, the longer it stays unregulated and so the more time companies have to apply for licenses. As we mentioned here, it is expected that the Cannabis Law will provide that any administrative or judicial remedy filed before it enters into force will be processed and resolved pursuant to the law applicable at the moment of filing. Same criterion applies for medical use, and indeed licenses can be applied for as we write this. Remember that medical use is already legal (albeit unregulated), which is not the case with adult use, other than for self-cultivation/self-consumption. The real advantage for any company of applying earlier is that it could potentially obtain a less restrictive license that allows it to do more, whereas application would involve fewer requirements than those we expect to see once the Medical Regulations enter into force.

Fourth, given that discussion on the Cannabis Law will be postponed, it is possible that the Mexican government decides to publish the medical regulations earlier and separately. But regardless of when publication takes place, businesses revolving around medical use will be positioned to enter and establish themselves way earlier than their adult use counterparts. Contrary to what we reported will happen under the Cannabis Law, and with the exception of those related to growing, licenses/permits for medical use will be open for application the day after the Medical Regulations enter into force. There is already demand in Mexico for medical products, so much so that one of the reasons for legalization is to grant patients access to cannabis-based drugs and treatment they need.

Fifth, as the Mexican Federal Commission on Regulatory Improvement noted in its recommendations to the draft Medical Regulations, Mexico has competitive advantages over other more developed economies when it comes to the development and manufacturing of pharmaceutical products. This is due to both overregulation in those economies and a cheaper local labor force. Proximity to the two largest cannabis markets in the world (the United States and Canada) cannot be underrated, either. This reality should prompt foreign companies to seek partnerships with prospective Mexican companies and investors in the process of obtaining cannabis licenses, acquiring land, and taking related steps to allow them to secure their spot in the value chain links they need. This dynamic also paves the way for mutually beneficial transfer of technology and know-how.

Bottom Line: postponement of legalization is not necessarily a setback. Apply NOW and if in line with your business plans, focus on hemp and medical use. That will definitely give you a head start in the Mexican cannabis market. Contact us to get ahead of the crowd!

For more on cannabis in Mexico, please make sure to check the following:

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