Mexico is potentially on track to become the third country in the world to legalize recreational-use cannabis. New laws currently under discussion might make Mexico the world’s largest legal market for marijuana. Following the examples set by Uruguay and Canada, Mexico’s Senate has already voted to approve a bill that would start the process for creating a legal framework for a licit market for marijuana. Up until now, the driving force behind the push to legalize marijuana in Mexico has been the Supreme Court, which ruled that marijuana use falls under protected modes of individual self-expression.
Support from the MORENA party of President Andres Manuel Lopez Obrador was essential for passing a legalization bill in Mexico’s Senate. President Lopez Obrador, a perplexing politician who promotes the values of individual liberty, rails against “conservatives” and yet also promotes traditional, family values and has strong ties to Mexico’s conservative religious groups, has not talked much about the issue of legalization. Up until now he has mostly stayed on the sidelines, letting Mexico’s courts interact with the legislative branch.
Overall, the potential opportunity to create a legal market for recreational-use marijuana is an important development in Mexico. Marijuana was once at the center of the business model for many organized crime groups in Mexico. But, with U.S. states such as California and Colorado now operating legal markets for locally-produced marijuana, Mexico’s cartels have already diversified into producing crystal meth and fentanyl and into other rackets such as extortion. It’s still not totally clear what effect marijuana legalization would have on organized crime and violence in Mexico. The U.S. has long backed marijuana eradication efforts in Mexico, but it’s unclear how the incoming Biden administration would react to Mexico creating a legal, nation-wide marketplace for marijuana.
The legislation is still be written and debated in Mexico, and lawmakers still have a lot of work to do to create a clear set of rules that will allow companies to invest and start operating cannabis-producing operations in Mexico. Provisions requiring market participants to implement rigorous seed-to-sale tracking protocols might create hurdles for small companies and rural growers. But, in the near future it could be possible for cannabis companies operating in Mexico to send legal exports to the U.S. and Canada.
While Mexico does appear to be moving towards legalizing marijuana, potential investors in the sector still need to wait to see the details of pending legislation and look at the structure and design of the institutions that will regulate the sector. Investors need a clear regulatory framework in place and will need to do serious due diligence and political risk analysis before financing projects in Mexico’s nascent legal cannabis sector.
The details of the pending legislation are very important. Investors need to understand potential risks from any ambiguities in the regulatory code and also need to analyze security issues and political dynamics in the specific areas where they are considering operating.
Source: Forbes Mexico