What should be a formality has turned into a complicated situation for our neighbor to the south.
The marijuana industry has been hitting milestones and breaking down barriers throughout North America with regularity in recent years. To our north, Canada became the first industrialized country to give recreational marijuana the green light on Oct. 17, 2018. More recently, on the one-year anniversary date of this adult-use legalization, it officially implemented the rules and regulations that pertain to the sale of cannabis derivatives (e.g., edibles, vapes, infused beverages, concentrates, and topicals).
In the United States, the U.S. Food and Drug Administration approved its very first cannabis-derived drug in June 2018. A year later, we saw Illinois become the first state to legalize adult-use cannabis and the sale of recreational weed entirely through the legislative process.
And then there’s Mexico, which gave the green light to medical marijuana in June 2017 and looked poised to legalize adult-use marijuana this past week. Unfortunately, plans for the latter have hit a snag.
Mexico’s recreational cannabis bill won’t be passed on time
As reported by online cannabis journal Marijuana Business Daily on Monday, Oct. 28, Mexico’s lawmakers will not meet a Supreme Court-imposed deadline to pass legislation that legalizes recreational marijuana before the end of October.
For those of you unfamiliar with what’s been going on in our neighbor to the south, Mexico’s Supreme Court ruled on Halloween 2018 that it was unconstitutional to ban the recreational use and possession of cannabis. This was the fifth such time that Mexico’s highest court had reached a similar decision, which in Mexico means that this ruling made recreational cannabis legalization the set standard. In response, the Supreme Court gave lawmakers exactly one year to draft legislation that would govern a commercial marijuana market.
On Oct. 17, 2019, with time winding down, the world got its first look at what that legislation would entail. Though you can read about this draft legislation in greater detail, here’s a brief summary:
- The age of purchase and possession will be set to 18.
- Consumption is only to occur in private.
- Packaging regulations will be strict and are designed to discourage adolescents from trying cannabis products.
- Edibles and infused beverages will only remain available for medical pot patients.
- The Cannabis Institute will oversee Mexico’s legalized weed industry
- Big businesses won’t have priority when it comes to acquiring growing, processing, or retail licenses.
Per Marijuana Business Daily and via numerous media reports, one of the key holdups to passing this legislation has been external pressures from businesses that want in on this space. With Mexico aiming to give licensing preference to low-income individuals, small farmers, and indigenous people, it’s left major public and private companies wondering how they’ll get a piece of the pie. Senate leader Ricardo Monreal of the Morena Party has pledged to keep these outside businesses from influencing the vote or legislation.
What happens now?
The big question is: With Mexico’s lawmakers missing the deadline to pass recreational pot legislation, what happens now?
We know that lawmakers have requested an extension to the Supreme Court’s deadline to legalize adult-use marijuana beyond October. According to Monreal, lawmakers have every intention of discussing, debating, and passing the framework legislation that’s in place within the first couple of weeks of November. If this extension is granted, there doesn’t appear to be much standing in the way of passing this bill.
However, there’s no guarantee that the Supreme Court will be amicable to lawmakers’ request for an extension. When the Supreme Court effectively legalized adult-use cannabis last Halloween, it gave Mexico’s politicians a year to sort out the details, and might be less than forgiving to see its legislative action delayed even further.
According to online publication Excelsior, the Supreme Court has the authority to simply remove any parts of existing Mexican cannabis law that it deems as unconstitutional and thereby legalize recreational marijuana without any true market oversight. It’s unclear if the nation’s high court would consider such drastic action, but the possibility of this happening certainly isn’t zero. The question is whether or not there would be enough justices on the Supreme Court who would vote in favor of such action.
The point is that Mexico is steamrolling toward legalization of recreational marijuana, but things aren’t going to be as cut-and-dried as first imagined.
This legalization story should fade for investors for the time being
On one hand, Mexico offers a seemingly intriguing investment opportunity, given that its population is close to four times larger than Canada’s. Add in the fact that consumers can be three years younger than in Canada or select legalized states, and it would appear that Mexico could be a serious cannabis player.
But looks can be deceiving.
For one thing, Mexico is dealing with an illicit market like no other in North America. It’s no secret that drug cartels in Mexico control a significant amount of illegal substances, and it’s unclear how successful businesses and the government will be in introducing a tightly regulated adult-use weed market.
Another concern is Mexico’s focus on limiting licenses to big businesses. While I can fully understand the Mexican government’s desire to keep cannabis dollars earned within the country, bigger businesses bring scalability to the table that helps to keep production costs down. These lower costs are what encourage consumers to buy from legal retailers as opposed to the black market.
Right now, the only major player that has a presence in Mexico is Aurora Cannabis (NYSE:ACB). That’s probably not a surprise, given that Aurora operates in 25 countries, in some capacity.
When Aurora acquired Farmacias Magistrales last December, it effectively purchased access to more than 500 pharmacies and hospitals in Mexico. This jibes with the company’s focus on higher margin medical marijuana patients. Farmacias is also the only company in Mexico licensed to import raw materials containing more than 1% tetrahydrocannabinol (THC), the cannabinoid that gets users high.
This would appear to place Aurora in pole position to succeed, but the presence of cartels and the anti-big-business legislation being considered make this legalization more of a watch-and-wait event than something actionable for investors.
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