2021 might be the year when Mexico becomes the largest country in the world to legalize cannabis. That’s good news for millions of Mexicans. Legalization could help quell the nation’s narco-violence and open opportunities for startup companies both at home and abroad.
While Mexico opens opportunities at home and abroad, US companies remain restricted by federal prohibition.
That pace is likely to speed up in the new year. On Tuesday, the nation’s health ministry published new rules regarding the legal use of medicinal cannabis. The new regulations were reportedly agreed to by Mexican President Andrés Manuel López Obrador. They establish regulations for the study and cultivation of medical cannabis. They also set up quality control and manufacturing standards.
Law must be passed by April 30, 2021
Here’s where we are right now with legalization in Mexico.
In Nov. 2020, Mexico’s Senate approved the decriminalization of marijuana. That measure allowed individuals to grow four plants at home and to possess up to 28 grams (one ounce) of cannabis. It also gave permission for the government to proceed with cannabis licensing and sales, while creating a legal regulatory framework.
The legalization measure was originally scheduled for a vote in December by the Chamber of Deputies, the lower house of Mexico’s Congress, but the Chamber asked for an extension until April 2021, with discussion on the issue expected to restart in February.
“They asked the (Mexican) Supreme Court for an extension because the two chambers could not come to an agreement and they were running out of time to make revisions,” President López Obrador said in a December press conference. “But it’s an issue of form, not substance.” According to local media, Mexico’s Supreme Court has set a new deadline of April 30, 2021, for the law to be passed.
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Mexico’s effect on the global market
Uruguay legalized cannabis in 2013. Canada became the first North American nation to legalize in 2018. If Mexico becomes the third country to legalize the recreational use of marijuana, some observers believe it will create a tipping point for other nations.
Mexican legalization “will accelerate legalization efforts throughout Latin America and the rest of the world.”
– Jordan Lewis, Uruguayan cannabis executive
“In many ways Mexico is sort of a bellwether for Latin American countries,” said Jordan Lewis, CEO of Fotmer Life Sciences, a Uruguay-based, international cultivator and processor of medical-grade cannabis flower and pharmaceutical products. “If Mexico is implementing a legalization program, sharing such a vast border with the United States, it signals the end of an era, I believe,” he told Leafly. “And I think that the other Latin American countries are going to take note. It will accelerate the acceptance of legalization efforts throughout Latin America and throughout the rest of the world.”
Legalization in Mexico, if and when it happens, would also coincide with another evolution in the way many countries now consider cannabis. In early December, the United Nations’ Commission on Narcotic Drugs voted to remove medicinal cannabis—which is currently on the same schedule as heroin—from its nearly 60-year classification as a dangerous narcotic.
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The big unknown: How cartels will react
A highly-charged issue for many proponents of cannabis legalization is what impact Mexican legalization might have on the nation’s brutal drug trafficking organizations (DTOs). At least 150,000 people have been murdered since 2006, when the Mexican government began its war on the cartels—and that figure does not include the tens of thousands who have gone missing and are presumed victims of the violence.
Gary J. Hale is a nonresident fellow in drug policy and Mexico studies at the Baker Institute for Public Policy at Rice University. From 2000 to 2010, he was chief of intelligence in the Houston office of the Drug Enforcement Administration (DEA). He believes that legalized cannabis in Mexico will, at first, have minimal impact on the cartels’ cannabis business in the U.S.
“There was a time in the 1980s when we imported Mexican, Columbian, and Jamaican weed because there wasn’t good quality in the US,” he said. “Now entrepreneurs have excelled in cultivation and/or grows here, increased the THC content. [US-grown cannabis] is now the best in the world, with many varieties, many prices. Quality outdoes quantity.”
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Will cartels start competing on quality?
That being said, however, Hale expects the Mexican cartels to rapidly improve their cannabis cultivation following legalization in Mexico, with the goal of having their illicit marijuana compete against legal US markets within several years after Mexican legalization. “They’re very good at what they do,” he said, referring to the cartels. “Once they have a target, they’re on it. It’s going to be smuggled into the United States in the beginning, even though it’s not a higher quality product.”
Duncan Wood, Director of the Mexico Institute at the Woodrow Wilson International Center for Scholars in Washington, D.C., thinks legalization will have a minimal financial impact on Mexico’s DTOs.
“Legalization in the United States was obviously a lot more important in terms of having an impact upon the business model of the cartels,” he told Leafly. “What they simply did was, they diversified. Marijuana still plays a role in their income streams, but it’s a relatively minor role. But to be fair, it wasn’t the largest component of their income, anyway.”
Wood does believe, however, that legalization in Mexico will impact the cartels by diminishing the number of young men in Mexican prisons for marijuana possession, who often end up being recruited into the DTOs. “By keeping those people out of the prisons,” he noted, “you reduce source of the human capital for the organized crime groups.”
Canadian companies see opportunity down south
Many cannabis businesses in Canada, with their well-established supply chains but limited local market, see Mexico as a land of cannabis opportunity once legalization takes place there. Mexico offers a large population base—126 million people, about three times the size of Canada—as well as good growing weather, a relatively inexpensive work force, and cheap real estate.
“Mexico’s location in the world is perfect, the labor costs are perfect, its climate is perfect,” Spain’s El Pais newspaper quoted Erick Factor, founder of the Canadian-based cannabis company MYM Neutraceuticals, as telling Mexican lawmakers in late 2019. “Let the private companies expand their business, and do what they know how to do.”
The newspaper also quotes data from the Vancouver, B.C.-based consulting firm Cannacord Genuity, which sees a potential $2.25 billion cannabis market in Mexico, should Mexico legalize the recreational use of the plant.
Meanwhile officials at Canadian-based Canopy Growth recently told Reuters that Canopy plans to take part in “the responsible development of this new market” in Mexico.
What about free trade agreements?
Given the reality of legal cannabis in Canada and the potential for legalized cannabis in both Mexico and the United States, some observers wonder if the product might eventually become a commodity that falls under the United States-Mexico-Canada Agreement (USMCA), the trade accord that went into effect this past July, replacing the earlier North American Free Trade Agreement (NAFTA).
Duncan Wood, with the Wilson Center, noted that the population living under USMCA is a huge economic market of around 500 million people. However, he told Leafly, the most important factor in creating a single North American cannabis market remains national cannabis legalization in the United States, which has yet to occur.
For his part, Gary J. Hale believes there would be little to no impact to the US cannabis market from Mexican legalization, at least in the short term.
“It will take the Mexicans a couple of years to ramp up their quality control of marijuana, and then they’ll start importing high-quality marijuana,” he said. “At the same time they will be pushing their government to add cannabis to the list of things to be imported into the United States under the USMCA agreement. So when it happens—boom, then the flood gates are open and the US market share will be reduced and the Mexican market share will be increased. You’re going to have a leveling of quality and quantity that could become a problem for the American producer.”
The global market is getting ahead of the USA
Morgan Fox, spokesperson for the National Cannabis Industry Association (NCIA), noted that Mexican legalization should already be on the minds of U.S. lawmakers.
Mexican farmers can grow outdoor cannabis in every season. “They can have seven harvests a year,” says one drug policy expert.
“It’s something that we’re trying to let them know about,” he told Leafly. “This is a situation where the global market is really surpassing the US in terms of policy. And it’s going to affect the ability of US businesses to take part. If the global (cannabis) market gets entrenched without a US presence, US companies will find themselves in an unfortunate position where non-United States businesses dominate.”
Jordan Lewis with Fotmer Life Sciences believes the probability of Mexican legalization is already forcing US lawmakers into considering national legalization. “It’s hard to maintain a prohibitionist policy towards cannabis when not only the majority of states have legal programs, but when the north and south neighboring countries will soon have cannabis legalization as well,” he noted. “So I think it creates a stark reality that the US is going to have to deal with.”
Gary J. Hale notes that, if and when both Mexico and the US have nationally legalized cannabis, consumers and businesses should expect the same trade disputes and issues that are typically seen with other produce coming into the US from Mexico.
“There was a big tomato war between the US and Mexico, because Mexico was dumping tomatoes in the US, and American farmers were really P.O.’d about it,” he recalled. “It could happen with marijuana. There are no growing seasons. [Mexican cultivators] can grow marijuana all day long; they might have seven harvests per year.”