Six weeks ago the cultivation, processing, merchandising and import/export of medical cannabis was regulated in Mexico, making 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) about the new Regulations on Sanitary Control for the Production, Research and Medical Use of Cannabis and Its Pharmacological Derivatives (the “Medical Regulations”). We also conducted a webinar for interested parties (replay here) that was so popular we are conducting a follow-up online Q&A webinar this Thursday, March 4th (register here! And be sure to submit your questions when you do.)
In advance of the next webinar and perhaps to guide or pre-empt your questions if you plan to participate, I want to highlight some of the things I think cannabis businesses interested in Mexico should be doing right now. These steps can and should be taken in advance of the Mexican government’s full implementation of the Medical Regulations, which will permit businesses to secure licenses and commence operations.
Implications of full legalization of medical cannabis
As background, Mexico’s $1.3 trillion economy is the second-largest in Latin America and 15th-largest in the world. Mexico has a population of nearly 130 million, and a fast-growing middle class with increasing purchasing power. In addition, Mexico is the second-largest pharmaceutical market in Latin America and the 11th largest on earth, with revenues of over $10 billion.
The significance of the legalization of the cultivation, processing, merchandising and import/export of medical cannabis is three-fold:
One, legalization will strike a strong blow against illegal cannabis activities in Mexico and propel Mexico as an exporter of cannabis products to markets to which it already sells medicines, such as South America, Europe, and the United States.
Two, legalization provides cannabis businesses with an opportunity to serve and grow the sizable Mexican market.
And three, legalization offers international cannabis businesses an opportunity to establish manufacturing operations in Mexico to leverage the country’s significantly lower costs.
Next steps for interested cannabis businesses
What steps should cannabis businesses be taking right now?
The passage of the Regulations on January 12th marked the start of a phased implementation of permitted business activities in order to facilitate coordination among the government agencies in charge of interpreting and administering the Regulations.
It is expected that licensing will be generally available on May 23, 2021, and companies interested in applying for licenses should be preparing the appropriate documentation now. In addition, of course, businesses should be deciding exactly what licenses they want and need, structuring their businesses accordingly. This means looking at entity formation, real estate requirements, employment laws and regulations, and supply chain/service provider considerations. All of these have regulatory implications and requirements.
The road map to establishing a cannabis business in Mexico has been drawn in other countries and jurisdictions; as elsewhere, businesses will have to determine the precise regulatory requirements relevant to their operational model and be careful to dot their “i’s” and cross their “t’s.” It goes without saying, I hope, that obtaining sound legal advice is a must.
What about the legalization of cannabis for non-medical use?
Another question that many cannabis businesses have posed to us following the full legalization of medical cannabis in Mexico has been: when can we expect the legalization of cannabis for non-medical use?
There are several factors at play, not least that 2021 is an election year in Mexico and politics are a consideration; however, my colleagues and I believe something will happen before the end of this year. Legislation to legalize cannabis for non-medical uses is working its way through the Mexican Congress, and approvals are traveling from the Senate to the Lower Chamber to the office of the President.
We expect that if we do see the legalization of cannabis for non-medical uses this year, the process of implementation will split into two tracks: one for products with less than one percent (1.0%) THC and one for products with greater than one percent (1.0%) THC. We expect the lower THC content product track to take around six months to implement and that the higher THC content track will require up to 18 months to implement.
We have seen in other jurisdictions that the companies that are ahead in medical cannabis applications are usually the first (permitted) to move in non-medical applications. Full legalization of cannabis for medical use is a way to provide reassurance to socio-politically conservative stakeholders that cannabis-derived products can make a positive contribution to society. Companies that have gained the trust of regulators, legislators, and the general public have clear advantages as markets open further. As a result, now is a good time for interested parties to think about moving forward.
From a market perspective, the legalization of cannabis for medical uses will strike a blow against illegal cannabis activities, but undoubtedly some of the organizations in that space will make efforts to legitimize themselves. The quality of their products might initially be low in some cases, but they will acquire expertise and they will become more competitive. Established businesses will bring expertise and quality to the Mexican market, which for medical cannabis products along is forecast to reach $2 billion by 2025.
These are exciting times! Please do join us if you can for the Q&A webinar this Thursday, March 4th!
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