Cannabis in Mexico

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Mexico will soon be the largest country in the world to legalize cannabis and now is the time to start preparing for that.

Harris Bricken discusses cannabis legalization in Mexico and how you can best position yourself to take advantage of it. The panel is moderated by international cannabis and hemp CBD attorney, Nathalie Bougenies with Adrián Cisneros Aguilar, our lead Mexico cannabis law attorney who teams up with Aldo Ricardo Rodríguez Cortés and Roberto Ibarra López to answer your questions.

The panelists answer the following questions during the webinar:

  • What is the current situation concerning cannabis legalization in Mexico?
  • How imminent is legalization?
  • What can be done now (before legalization occurs) and what can be done once the market is fully legal?
  • What are the major business opportunities for domestic and international companies?
  • What links in Mexico’s cannabis supply chain will be best for foreign investment?
  • What are the main issues for domestic and international businesses relating to cannabis imports, sales and marketing?
  • What should you and your company be doing in Mexico NOW to prepare for when legalization takes place?

Nathalie: Hello and Welcome to this Webinar on Mexico’s cannabis law. My name is Nathalie Bougenies and I’m an attorney at Harris Bricken, and chair our domestic and international hemp and CBD group. Today I’m not talking about hemp. Instead, I’ll be moderating our panel of Mexico cannabis legal experts. Joining us are my fellow Harris Bricken colleagues, Adrian Cisneros who chairs the firm’s cannabis practice in Mexico, as well as two of Lawgic’s partners, Roberto Ibarra and Ricardo Rodriguez. Our panel will discuss Mexico’s recent legalization of medical cannabis, which is a significant step in the establishment of the world’s largest legal cannabis market. This is a historic development that has sparked tremendous interest, in fact more than 750 of you signed up for this webinar. So, to best assist our domestic and international clients and turn this emerging market, Harris Bricken and Lawgic have partnered and joined forces to combine our areas of expertise. Before we get started, I want to let you know that, given the huge number of questions received we have slightly modified the format of the webinar to look more like a Q&A. Our goal of course is to answer as many questions as possible, and we will also try to allocate a few minutes at the end of the webinar to answer additional questions you might have throughout the presentation. So without further ado, let’s get started. 

So, I think we’ll first discuss the actual legal status of cannabis in Mexico. 

 

Ricardo: Hi, how are you? I’m very happy to be here. Roberto, Adrian, guys. Well, this is something that we have been waiting for for a long long time, and what happened? Well the health ministry just this January give us the regulation after we have been waiting for this for so so long. The period we have to wait is 90 days, and then we are gonna be applying for licenses, Roberto, and you know a little bit better about how this is going to be changing. Because, we have to wait these 90 days because there are many things that need to change. Regulations and other organizations in the government, they have to put them together to sample and be ready for that. So, by May 23rd, we’re going to be ready to apply for licenses. Roberto? 

 

Adrian: Yes, as you said, the legal framework for medical purposes is complete, but it is yet to be fully enforceable because administrative medical regulations have yet to come into force. We like to use the June of this year as the time frame or the timeline where we can start to ask for those licenses and permits. We’re about to talk about those activities that are regulated in the medical branch of cannabis, which is, let’s be clear, that’s the area that has been opened in Mexico as of right now. We have to distinguish and separate the medical purposes of cannabis from the adult use, because the adult use is still yet to be regulated as we will discuss. 

 

Ricardo: Roberto, I want to let them know that we were doing pretty well about, I mean those two relationships the medical regulation and the adult law, adult cannabis law, we were doing pretty well but they decided to stop this. The lower chamber asked for a petition to stop and pause and continue that this year, and we were waiting, maybe last year will be a good year for us because we were facing both regulation and the law coming up, but right now we have to wait until, well we stop in December and we’re gonna wait until April 30 which is the deadline, and hopefully we’re going to have this and we’re going to talk more about adult use in the follow-up questions. 

 

Roberto: As you said, COVID has been the excuse for procrastinating each and every action regarding cannabis. As you said, Congress has up to April 30th to give us a complete deal regarding our use, so we will be expecting an update. But in the meantime, we won’t be subject to waiting in the screen to see if Congress will pass or won’t pass or what will happen with that law, because as of right now what we do have is the medical regulations and that’s where we think that any person or corporation that wants to get into the industry, cannabis industry in Mexico, that’s the starting point. 

 

Adrian: I’m just gonna make a quick annotation here, this is an election year in Mexico. So it might just be possible that they wanna do even more, we cannot expect that. Because on the other hand, they gave us a really nice surprise with the medical regulations. So we are hopeful that the statute regulating adult use is gonna enter force this year. 

 

Ricardo: Something that’s really important to say is the health ministry were the one putting together this regulation, but there are other ministries that have to make changes. That’s the main reason why we have to wait 90 days. I think we’re pretty much done with this question, anything else to add? 

 

Roberto: No, we can move forward. 

 

Ricardo: Alright. There is something important. Mexico has it really clear that they have an advantage here. Why? Many studies show that the pharmaceutical manufacturing costs is really more efficient in Mexico, like 17% lower than in the United States. This is going to be the opportunity for Mexico in this matter. 

 

Roberto: Ok, so what activities are permitted as of right now? This will answer many questions and concerns, both of the ones we received prior to this webinar and some of the ones already coming in. As we said, we have to think in the medical branch of the industry, and let me start by saying this regarding the various activities for all of them you will need some kind of license or permission. So, there’s no going anywhere from there if you don’t have a license or a permission. If you do anything with a plant without a license or permission, it is still a crime in Mexico. So, taking that into account let’s get on with it. Growing and harvesting activities, all related to medical, not adult use. So, growing and harvesting activities on an industrial scale for medical purposes, in order to supply the medical market, the production, extraction, manufacturing of medicines. But for this particular license, you have to wait 3 months. And for someone asking right now, these 3 months are for the medical regulations to be taken into account by the various agencies, not just health related agencies in the government, but also the equivalent of the growing and sowing agencies that have to adapt to these regulations. So, growing, harvesting, you have to wait 3 months for that. Only 3 months? Yeah, we hope. But for the research licenses, you don’t have to wait, or you can start asking for those licenses as of right now. Manufacturing of concentrated medical cannabinoids for medical purposes and market supply. Also, manufacturing of medical products; medicines in this case. Commercialization is fully and totally related to medical products that will have to be sold in pharmacies and drug stores. You won’t be able to find them out of the medical branch. One important aspect has to do with import and export. Importation of seeds, plants, medical precursors or raw materials, medical products also containing cannabis—it is allowed and you will be able to ask for these permissions. But when it comes to seeds, concretely, seeds and vegetables or plants and flowers, you’ll have to wait the 3 month window time. And in exportation of medical precursors and medical products, it’s allowed. As long as Mexico or Mexico corporations manufacture those medicines in the country, they will be able to export them. There’s an important precision here. Importation of seeds, plants, medical precursors, anything that we want to bring to Mexico can be done only from countries that have already a federal regulation as of that matter, that’s something that has to be taken into account. We can think of Canada, Columbia, Uruguay, and South Africa, which have federal regulations of that regarding the matter. And with other medicines, we can think of homeopathic and allopathic medicines. There’s other secondary activities and ciliary licenses that involve transportation, storage, prescription pads for doctors in order for them to prescribe cannabis medicine, and laboratory licenses for them to work in any aspect of the plant, seeds, or cannabis precursors. That’s it! The universe of activities is open and the essential matter is that it is medical related. 

 

Ricardo: Alright, this question is always related with the last part. Why? Because everybody is asking for the legalization of course because everybody is waiting for that. Not just in Mexico but everywhere else. We’re going to talk about this, and try to explain to you what’s going on there, of course so that you won’t have any doubts. We’re trying to do this as simply as we can. And it’s gonna be really fast. So, what’s going on? As we told you before, we have the two chambers. It started with the Senate, and we did pretty well. They organized themselves to make a really good law or proposal of law, and they passed that to the lower chamber. And then they thought it would be better to wait, because this law is going to change a lot of things. They decide because of the COVID to stop in December, and take up the conversation again in February. So next month, in a couple of days, we’re going to bne watching again all of the debates related with this topic, and we think and believe, Lawgic and myself, that by this year, maybe not by April 30 but by the end of the year, things are going to happen. It doesn’t matter if it happens in April or in July, why? Because the budget has to be.. they have to figure out the budget and the institute, and we’re going to talk about this. Ok Senate, lower chamber, and the president has to say it’s ok, but then after they have a period of time. Everything related to minus 1% THC is going to take at least 6 months. Everything related with more than 1% of THC will take more than 18 months. So at the end, we are figuring anyway this year as Adrian told us, this election year in Mexico which is going to be something that politicians are thinking about, Right, Roberto, Because at the end these kinds of regulations are taboo for some people. So we think by the end of this year we’ll have this regulation coming up. 

 

Roberto: Yeah, it is still a taboo plant, embedded with myths and ideas that don’t go with the general population, but that’s the reason why we’re doing these kinds of panels, to show to the public and world that the medical aspects of the plant regarding and separating anything that has to do with adult use, medical aspects are already there. And when we talk about America, medical and therapeutical uses, I don’t think we should find any stopping us right there. What do you think Adrian? 

 

Adrian: Yes I absolutely agree. I think the industry will find a way of shaping itself despite the fact that Congress is taking its time to amend and eventually pass the cannabis law. The important thing here is setting up a business, which we’ll see in a little while, takes time. Asking for licenses, asking for permits, takes time. So it’s better to start arranging everything just to put yourself in a position to comply with everything that the law will eventually requires, so that everything will go smoothly once the law enters into force. 

 

Roberto: Alright, let’s move forward. Tell us Adrian what should we be doing now? You talked about, we have to be prepared. The mic is yours? What should be doing now in order to be preparing the industry? 

 

Adrian: In that respect, I’m going to ask Ricardo to answer. I think it’s important that we start out with business considerations in this regard. People can see what the opportunities are, and get out there in the work. 

 

Ricardo: This is my favorite question. Tons of people are asking what to do now. You have the regulation, that’s cool, but what to do? We have to wait until, I’m not really sure medical is my topic, I’m more related to adult use, alright, what happened? The path is already mapped. It’s not just for Mexico, it happens everywhere, in Canada, here in the states, where every state put first medical and then adult use, so it’s pretty easy to say. What happened in all of those cases? The ones that were ahead on the medical issues, the ones who were related with all the industry were the ones who were first ahead on adult use. We see that in Canada and we see that in California. So, we think that putting a step ahead is the best thing that you can do in this time because if you are waiting or thinking that waiting is a good strategy, I’m not sure about that. What happened in Mexico is the gap between medical regulation and adult use regulation to be published, I’m not sure it’s going to be more than one year. So it’s a good time to start thinking about moving forward in this topic. There’s a couple of facts that you need to know. Mexico has almost 3-4x more than Canada. That’s a lot of people, and there’s a lot of consumers. We have good ciphers that the consumption is almost even to the cigarette industry, so that’s a market. This is a forecast just for the medical industry, but it says that at 205, the revenue will be around 2 billion dollars. That is a 22% market share of Latin America. So it’s the gate to enter Latin America, and it’s going to be one of the biggest markets in Latin America. Guys, I know you know a lot of this too, so if it’s a good time, I would like to hear from you Roberto and Adrian. 

 

Roberto: Well, I’d like to say that we have the historical and practical expertise in other countries. In Canada, where the ones that waited are the ones that right now are still waiting to get a license. Because one of the forecasts in the adult use in Mexico tends to be, for example, limiting the number of licenses per state. This has been happening in other countries, so many people who waited for the regulations to be enforced were already late and waiting in line, waiting for the licenses to open. That’s just one of the aspects that we have had in the past in other countries. So Mexico, the time to start is now. That’s why I pass the mic to you Adrian, so you can tell us what are the legal and business considerations when entering the Mexican market. 

 

Adrian: Thank you. A very quick comment following up on your thoughts. Another thing that the business people have to take into account is that we are in the middle of a pandemic, okay? So that considerably increases the time taken for authorities to process applications, to set up new formalities, in case you have to file actions to challenge any resolution from the Mexican health or now any sort of other authorities, customs for instance, it will take longer for courts to process these actions, award resolutions, so on and so forth. You have to factor that into your business and your forecast and that leads me to this question. Now my colleagues have made it clear with hard numbers why we think that Mexico is going to be the hot market for this in decades to come. But how do you take advantage of these opportunities, not only the business- wise but legally-wise, what are the vehicles out there, what are the considerations to be mindful of to enter into the Mexican markets. Generally, when international cannabis companies come to us, they either want to partner with a Mexican company or they want to enter the market directly, as independent companies. Those two options entail different legal means available to foreign investors. When you want to enter the market directly, you usually sign a distribution or an agency agreement, or perhaps more common in the case of the cannabis industry, a joint venture agreement. Either to form an entity or marry a contractual joint venture. When you want to enter directly, the question is what type of entity you want to for, is it warranted to set up an entity in the first place? I say yes, Why? Because licenses and permits are not going to be transferable. So if you as an individual apply for a license, you are the only one who can use the license, and therefore it’s virtually legally impossible to solve your business afterwards, whereas if you form a company and you have that company apply for those licenses, those licenses become part of the assets of the company in order for transfer. That said, usually an international cannabis company enters the country in one of three forms. Either they set up a corporation or a limited liability company, Or more recently, particularly when it comes to cannabis, what we call in Spanish a “sapi,” a private equity firm. Both my colleagues in Lawgic are in agreement in this regard, we believe that sapi is the way to go. Why? Because it puts you in a better position to apply for rounds of investment, it allows you to go public more easily, and that’s important in breakthrough industries such as this one. That aside, you also have to decide that the location of your corporate city doesn’t necessarily mean it’s the same place where you conduct business. 

Deciding where to conduct business opens mostly to business and perhaps tax considerations rather than legal considerations themselves. Because the law applicable to matters like employment or entity formation perhaps operation are mostly of a federal nature. It’s the same law everywhere. So you have to consider whether you’re a grower, a processer, whether you’re going to be selling to final consumers ,because in that respect, if you’re a grower, you might be located close to distribution centers. If you are a retailer, be close to where the consumer base is. So that said, see which states in Mexico are more international business friendly. Which have local laws and formalities that are understandable to you regardless of your place of origin. You have to consider what my colleague Roberto has just said about where you can source product from when setting up supply chains. I cannot insist enough on having cannabis friendly providers, lawyers, banks that understand the difference between a legal business from a business that is not. Hemp business and marijuana businesses are perfectly legal in Mexico and there shouldn’t be any bar anymore, more so once the market becomes fully legal. 

Now, you have decided to invest in a Mexican company, so FDI considerations come into play. The main goal for the Mexican government is to ensure transfer of what we call productive investment. That means not just money. The country is prone to that because of geographic location and because Mexico has one of the largest commercial trading networks in force. That allows you to expand regionally, to find the right partner, paves the way for different schemes of foreign investment and taking into account tax considerations as well. So, for medical use you can have a wholly foreign owned entity. There is no FDI cap for companies devoted to medical use. We expect that to be different for companies that intend to acquire land for growing purposes. We are expecting that the cannabis law will contain a 49% capital foreign investment but you can work around that through neutral investment. You can invest more money, have majority, and that neutral investment is not counted when determining whether a foreign invested company has served past the threshold to participate in the cannabis business. That said, if you are growing a supporting company or are going to spend time, money, and networking to tapping into a Mexican market, it’s better to take advantage of all the means necessary to protect that investment in advance, and that includes looking for a way to secure from the Meixcan government the agreement, the consent that any differences pertaining your investment are going to be settled by an independent arbitral body, such as ICSID, the international center for settlement of investment disputes, belonging to the World Bank. Finally, another thing that I can’t insist enough of, companies particularly those coming from the US tend to disregard early trademark registration, and that is because they follow a first-to-use principle Here in Mexico, just as many other civil jurisdiction, like China, any of those in continental Europe, we follow our first-to-file principle. This is important because if you don’t register on time, you expose yourself to what we call trademark squatters. Someone else who found your brand on the web goes to the Mexican trademark agency and registers the trademark for him or herself, and then asks you for money for it. You only find out when you export and you find your product detained in customs, so it’s not the end of the world, you can call action for that, but if you register early that can save you one to two years, I don’t know. My colleagues have a better idea of that. 

 

Ricardo: It could take two to three years. But if you try mess the case you could take seven years. So that’s important matter. 

 

Adrian: So if you have the budget for it, go for it. Nowadays there is absolutely no bar anymore to register a cannabis trademark, even though the trademark agency continues to have ample leeway in interpreting and applying the intellectual property law, that means that any trademark containing the words cannabis or marijuana can still be considered, even if legal for medical use, can still be considered to run against public order. Because those words in the view of certain examiners seem to think that they promote consumption of what they used to consider to be a drug. So, the more you apply the more we will force them to change their criteria. And that will change with legalization. So early bird catches the worm. 

 

Roberto: I’d like to answer a question. Because the public is asking only Mexican individuals or corporations will be able to apply for a license? The answer is no. In the medical branch, there is not any prohibition or issue regarding that matter. But in the adult use bill that is as of right now being discussed in Congress, one of the requisites is that the corporation, the individual has its base on Mexican territory. So, you’ll have to take that into account, because not only for tax purposes but also for applying for the licenses. You can be a foreign company, but you have to apply for the 49% and also have your home address based here in Mexico. That should be said. 

So what would we be able to do once the market is fully legal? When we refer to the phrase fully legal, we’re talking about the adult use, which is the biggest market share interest. So edibles, go for it. Only with CBD, not with THC. Drinks, go for it. Also only with CBD. Someone asked if CBD is considered only for as a medical precursor, No. CBD is considered a raw material that can be used for medical purposes but also adult use. We tend to correlate adult use only with THC, but in this case CBD can and will be allowed in edibles, drinks, vapes, and we can talk about THC. It will be allowed. Dispensaries with three maximum dispensary permit per license, cannabis clubs, growing and sowing of the plant for adult purposes, factories regarding CBD, THC or other non medical products, and we’ll talk about hemp in a specific and particular chapter of this presentation, but you will be able to do almost anything and everything with a permit or a license. That won’t change, we don’t expect it to change. But if you don’t have a permit of a license, then you are off the legal market. 

 

Ricardo: What about hemp? I would like to introduce this question because Adrian has been particularly interested in this topic, about hemp. So Adrian please tell us a bit more of what’s going on with Hemp. 

 

Adrian: Yes, this is a question very dear to me because hemp is like my little baby. Personally I devoted myself to pursuing hemp related businesses. And this is why this slide really gets under my skin, because hemp has been utterly ignored. Both in the medical regulations and so far in the cannabis bill currently under discussion in the Mexican Congress, ok. However, there were good news just last Monday. The Minister of the Interior, Olga Sanchez Cordero, announced that cannabis for industrial uses specifically hemp fibers, will be authorized. IF that is the case, that means that the current cannabis law bill that we know of will be amended and if that happens and the law passes with that modification, it will be a great breakthrough. Why is that important? 

Because it’s not that hemp is illegal. If you look at the general health law, you can use cannabis with less than one percent for industrial purposes and uses. You have the right to do that. The problem is that you are unable to exercise that right because that right is not regulated. That’s the difference, and this is very private to civil law countries. You have the law, and you have your right, but you have to implement that right the ancillary regulations. So, you apply for a hemp license and you don’t know what requisites you have to fulfill. You don’t know what documentary materials you have to submit, but you do it anyway because you have the right. 

And that should change because of the new cannabis law. Economically speaking, business-wise speaking, this could be one of the elements for (35:47) of the Mexican economy. 

Those who written the canna lobby have already seen that’s my opinion, because hemp can allow industrial companies to insert themselves in industrial sectors in which Mexico is already successful, such as the automobile industry or the electronics industry. 

 

Roberto: Ok, so the main issues with domestic and international businesses relating to cannabis imports, sales, and marketing. We have to take into account that exporting from Mexico of vegetable materials is utterly prohibited in the medical regulations. It is expected to keep being prohibited for the adult use when the bill is issued and enforced. So exporting from Mexico vegetative materials won’t be allowed. What will be allowed to be exported? Everything else. As of right now, medicine and raw materials as CBD and THC and advertising is another issue that is utterly prohibited in advertisement in the medical industry is only allowed between doctors and manufacturers or commercializes. The one that is going to sell the medicine can advertise for doctors to know the brand, trademark, the effects and formula for the doctors to prescribe the medicine. But you won’t be able to advertise or market it to the general public, in both branches, medical and adult use branches. We have to talk about the fact that the nature of both regulations, medical and adult use bills or regulations are federal laws, so states don’t interfere in this matter. Every license or permit has a federal nature, so you will be able to either obtain it from anywhere in the Mexican territory and use it or exercise it anywhere in the Mexican republic, but if it’s a license for growing of sewing or manufacturing, then you will only be able to use it in the place and the address that it was issued for . Mandatory licenses, we already talked about that. You cannot do any and every activity regarding cannabis without a license or permit. About foreign investment quotas, Adrian told us about them. For medical use we don’t have a maximum limit, foreign companies can invest or even come to Mexico and do business in the medical industry. In the adult use, we expect 49%, and you already talked about neutral investment, which is the way to go. It’s the way to surround these limits or these maximum limits. That’s it. Those are some of the main issues that should be taken into account, so as to know where and when these particular matters regarding imports and exports, sales and marketing. 

Adrian, what can we bring to Mexico from the US? 

 

Adrian: Well, can you hear me? Here basically as Roberto recognized, the rule is, this is important, under Mexican law you can only import from countries from which the specific product or item you’re importing, its export is not prohibited. For instance, in the US where you find that a export of raw materials is prohibited, you cannot bring it into the country. The difference is the case of what locals finished product, or end product, such as medicines containing CBD, that are already FDA approved. IN this case, we expect this to change in the US or at least in Mexico, around 2023 when cannabis gets regulated at the federal level. This is important in Mexico and important when designing your supply chains within your international companies, because 2023 is also the year that we expect that cannabis laws passed this year are gonna be fully implemented. This means that, usually laws come with a final section called transitory articles, that explain to you when specific prohibitions will enter into force, or how they are going to be implemented particularly when the law is going to be applied by several Mexican agencies in coordination such as when you can in the American regulations. In the case of the cannabis law as Ricardo mentioned a few moments ago, you’re not going to be able to apply for everything all at once, but by 2023, everything is going to be open. The market is going to be fully legal, and that’s gonna coincide with what we’re expecting will be the federal legalization of cannabis in the US. In the meantime, find alternate countries as Roberto mentioned, but start preparing yourself for sourcing the nearest country. 

 

Roberto: A question that keeps popping up is, I think Richard is the best equipped to answer. What are the major business opportunities for domestic and international companies today. Richard, what would be those opportunities both international and domestic? 

 

Ricardo: That’s an excellent question. We were talking about this with many people in the last few days. We have to figure out how everything is going on. At the beginning, growing will have delays for, I don’t know, six months. You have to apply and see how the government is to answer you. It’s going to take a while. For now, there is open market, the best thing to do is start bringing medicine, trying to start open the chains, try to make the business, and go to pharmacies, go to drug stores, start rolling the chains, because that’s the way you have to do it, there’s too many people right now just waiting to have this connection and opportunity to do so. The first thing I think is the best to take in mind is start bringing in brands, products, trying to open the market. Because national products take at least I think 1 year to start being part of the ecosystem, so for now, legal products from everywhere else, like Canada, Columbia, right now the US is not an option, but there’s many other places where you can start linking. More important than that, start having a market share. Right now, this is a bulging place, where if you are smart enough, that’s a place where you want to be, in my opinion. 

 

Roberto: Thanks Richard. A lot of questions regarding security, regarding cartels and government involvement in that matter. Let me start by saying it is not that we don’t want to address that topic, it’s just that there’s two issues. First, they exist and it is something that any and every businessman who wants to come to Mexico to do business has to take into account, as he should take into account taxation, licensing permits, and where to establish in order to start the business. It is one of the issues that has to be addressed, but definitely it’s not the main issue, because if it is your main issue, you won’t come to Mexico, and as we know, Mexico is a great country to do business. It is something that has to be taken into account. 

 

Adrian: I have a comment in that regard. It is very true that people tend to think that organized crime issues are only private to the cannabis industry, and if you look at the analysis published yearly by Amcham, the American Chamber of Commerce in Mexico, every single company regardless of the industry, takes this into account. So once this becomes legal, these issues are gonna be shared with, these security issues are going to be shared any other industry, and yet, all those other industries are in full fledge in Mexico. The same thing will happen to you, you just have to take other adequate measures to factor that into your forecast and business plans, and well, the show must go on because the law has to be applied. 

 

Ricardo: Something that I’d like to add is what happened in Canada. There’s a lot of studies in Canada where it shows that 90% of the market’s still in the dark side. So it still coexists, even though there is business growing. I think this is something that we can’t be waiting for something really bad to happen. It’s not gonna happen, right now the country is moving forward and there is a lot of businesses growing there. Yes, it’s part of the ecosystem, we have talked a lot about this. Maybe you guys remember, we had this interview with a former Congressman. He said, well what happened to guys growing avocados, it will happen to this institute, in a good and a bad way. So, it’s an externality that you have to think about. In our position, we think that it’s something that will come up, but you’re gonna do fine. Don’t really worry about it. 

 

Roberto: There’s another question that I think we should address. Currently you can find CBD products in Mexico. Much of these products are not directly for medical purposes or medicinal uses, it is actually sold online. They’re asking us if there’s a permit to do that. Do you want to answer Richard? 

 

Ricardo: The answer is pretty easy. All of those products are illegal, and I think that at a certain point, they’re going to take a serious matter about these kinds of things, and the thing here is that those products which are not medical, you put yourself at risk. People will start knowing this, there is a lot of information to take and I’m pretty sure they will start differentiating between good products and bad products, and those are the products that can damage yourself, and that’s my answer for now. What do you think? 

difference, great advantage of being in a regulated market. The quality of the products, the medicines, and that’s why Mexican market is about to explode regarding this matter, because people do want to buy fully legal products because it’s not only not a crime anymore, but because of the quality of the product and the processes and what it entails regarding testing and traceability. There are irregular products, but the market is ready to embrace fully legal products and the great quality price. 

 

Ricardo: That’s proof that the market is ready. The are already consuming. 

 

Nathalie: I have a question for you as somebody who’s been practicing in this space for a while, and also from people who are watching this Webinar. A Hot topic in cannabis is banking. And I’m curious to know whether banks in Mexico will be servicing the industry? What is the plan there, if any? 

 

Adrian: In this case, I believe that you’re better because it has to do with regulatory. 

 

Roberto: We have to make a distinction here. Banks don’t have an issue working with any legal corporation. For a corporation to be legal, it has to be fully incorporated here in Mexico, by another republic or a public corridor etc. It has to be registered in the public commerce chamber or registry. The most important and difficult step right now is to have its IRS number. With these prerequisites, there’s no problem regarding the opening and operating in any bank here in Mexico. The problem will be obtaining credit. Because banks go a little slower there. 

 

Ricardo: I think the question is, because in the united states there’s a lot of federally, not federally related, you’re having a lot of troubles banking the money. Mexico is something that we’re not going to have that problem. 

 

Adrian: In our experience here at our firm, the issue has mostly to do with not banks themselves but with certain branches of certain banks. I can say that personally because for instance with the company I started, I didn’t have a problem with “Santander Banks,” it’s a Spanish bank, I didn’t have a problem at all with my branch, with my documents, my corporate bylaws, my Tax ID, everything just as if I specified was any other company, and I have a corporate undertaking that explicitly mentioned cannabis. But I know that Roberto and Ricardo know these cases—people who have opened companies who have that very problem, with the same banks in another branch in a different state. As I mentioned before, there is no legal reason for them to bar you from conducting financial operations if you are a legal company. If they don’t want to understand it, just take your business somewhere else. 

 

Nathalie: Thank you. We have quite a few American attendees, and they’ll be treated as foreign investors. They’re wondering the process they would need to follow, specifically, would they have to establish or create some sort of business entity in the company, then apply for a license? Is there a particular order they need to follow? 

 

Ricardo: No, not really. You form your entity depends on what kind of process. Right now, with medical, there is no limitation. If there is adult use, you will have limitation but we were talking about that. No, it’s start, build a company, form the company now, it will take some time because 

 

Roberto: That being said, we also have to take into account that there are a small portion of a few products that are legal in Mexico, although the regulation just opened the medical market, both for sowing and growing, manufacturing and for selling and commercializing, there are a few products because Mexican law allows for these products to be registered and commercialized since 2017. It’s just right now that it has fully opened the legal medical market. That’s the great difference, great advantage of being in a regulated market. The quality of the products, the medicines, and that’s why Mexican market is about to explode regarding this matter, because people do want to buy fully legal products because it’s not only not a crime anymore, but because of the quality of the product and the processes and what it entails regarding testing and traceability. There are irregular products, but the market is ready to embrace fully legal products and the great quality price. 

 

Ricardo: That’s proof that the market is ready. The are already consuming. 

 

Nathalie: I have a question for you as somebody who’s been practicing in this space for a while, and also from people who are watching this Webinar. A Hot topic in cannabis is banking. And I’m curious to know whether banks in Mexico will be servicing the industry? What is the plan there, if any? 

 

Adrian: In this case, I believe that you’re better because it has to do with regulatory. 

 

Roberto: We have to make a distinction here. Banks don’t have an issue working with any legal corporation. For a corporation to be legal, it has to be fully incorporated here in Mexico, by another republic or a public corridor etc. It has to be registered in the public commerce chamber or registry. The most important and difficult step right now is to have its IRS number. With these prerequisites, there’s no problem regarding the opening and operating in any bank here in Mexico. The problem will be obtaining credit. Because banks go a little slower there. 

 

Ricardo: I think the question is, because in the united states there’s a lot of federally, not federally related, you’re having a lot of troubles banking the money. Mexico is something that we’re not going to have that problem. 

 

Adrian: In our experience here at our firm, the issue has mostly to do with not banks themselves but with certain branches of certain banks. I can say that personally because for instance with the company I started, I didn’t have a problem with “Santander Banks,” it’s a Spanish bank, I didn’t have a problem at all with my branch, with my documents, my corporate bylaws, my Tax ID, everything just as if I specified was any other company, and I have a corporate undertaking that explicitly mentioned cannabis. But I know that Roberto and Ricardo know these cases—people who have opened companies who have that very problem, with the same banks in another branch in a different state. As I mentioned before, there is no legal reason for them to bar you from conducting financial operations if you are a legal company. If they don’t want to understand it, just take your business somewhere else. 

 

Nathalie: Thank you. We have quite a few American attendees, and they’ll be treated as foreign investors. They’re wondering the process they would need to follow, specifically, would they have to establish or create some sort of business entity in the company, then apply for a license? Is there a particular order they need to follow? 

 

Ricardo: No, not really. You form your entity depends on what kind of process. Right now, with medical, there is no limitation. If there is adult use, you will have limitation but we were talking about that. No, it’s start, build a company, form the company now, it will take some time because of COVID right now, some things are a little bit slow, it’s not like in the US or Canada where you can have your company in one day, or just with a click. Filling the trademark, you can fill the trademark on your own then transfer to the company no problem. 

 

Nathalie: I think we have quite a few people who are wondering about any restrictions as to where medical cannabis can be grown, can you expand on that? 

 

Roberto: I’ll take the question. Anywhere there’s farming land that’s adequate for cannabis, you can grow. Anywhere in the country you will be able to apply for a license. There’s no local restrictions regarding the matter in the medical branch, so long as the land is, let’s put it this way, far from the cities. We don’t know how far, because there’s still some regulations to be issued, but as long as you comply with that specific regulation, you can grow anywhere in the country, anywhere where there is adequate climate in the country. There’s something else to be said—in the medical branch, you will be able to grow only in greenhouses or similar compounds. In regard to adult use, you will be able to grow fully open in the fields, not only in greenhouses. 

That’s an important distinction when you’re preparing your business plan. 

 

Adrian: I think it will be useful at this point to tell our viewers about the fact that growing licenses are attached to the land. Therefore, if you have several growing sites, you have to apply for a license for organizers for each one of them. 

 

Roberto: That’s a great observation. One license as per land, per parcel. That’s important to know. 

 

Nathalie: And you also mentioned that there are multiple government agencies that will be regulating this industry. We know that the ministry of health has released regulations, now how about the other government agencies that will be playing a role in this? 

 

Roberto: Great question, thank you Nathalie. When we’re talking about any step of the process that involves working with a vegetable, seeds, plants, leaves, flowers, then there’s another government agency that is called Senecica, the agriculture ministry. That’s the specific industry that will be issuing growing and sowing licenses. Also, the one that that will be inspecting quality and processes, testing and traceability of the plant. Any other license will be issued by the ministry of health, regarding both medical and adult uses, either through (54:24), which is the equivalent of the FDA in the US, and once the federal cannabis deal is issued by Congress, there will be a cannabis institute that will take the burden of issuing the other licenses for adult use, and those are three agencies that will be involved in this process. We’ll have to deal with them, as of now we didn’t deal with agricultural ministry, but we’ll have to do it starting 3 months from now. 

 

Nathalie: I think we have time for one last question. Let me see what we haven’t’ covered yet. I am seeing a lot of questions from foreign investors wondering about the cap or the limit there for them to be able to enter the market. Can you quickly touch on that? 

 

Adrian: You mean foreign investment? 

 

Nathalie: they’re wondering if there’s a limit on foreign investment, specifically people mentioning 42% limit on foreign investors, and whether or not that’s an accurate expectation. 

 

Adrian: Happy to mention it again, like I said before, for medical use, the medical regulations thankfully didn’t provide for a cap on foreign investment. You, as a foreign company, can set up a Mexican entity and it can be wholly foreign owned. When it comes for adult use, we are expecting, it’s not the law yet because it’s under discussion in Congress, we are expecting it to contain a 49% cap. For all those companies that apply for growing licenses, why? Because they need to acquire land for growing purposes. But even in that case, that is not set in stone. You can work around that thanks to neutral investment. 

 

Nathalie: Perfect. Unfortunately, we are at the end of this webinar. Ricardo, Adrian, Roberto, thank you so much, this has been so informative. We’ve received a lot of requests to have this webinar in Spanish, and that’s something we’ll do, and we’ll keep you posted very shortly about when we’ll have it. Thank you for joining us today, don’t hesitate to contact our firm if you have any follow-up questions.