Mexican Cannabis: Legalization is Happening! Are you Ready?

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This week the Mexican Senate passed a bill containing a draft federal law for the regulation of cannabis (the “Cannabis Law”). The bill includes amendments to the General Health Law and the Federal Criminal Code and is amended by a helpful Annex. The Cannabis Law is being sent to the Mexican Lower Chamber (Cámara de Diputados) for discussion and hopefully, approval. This is very big news for the Mexican cannabis industry.

While the bill originally put on the floor for Senate approval has features we had seen coming (and perhaps some other, more disquieting, restrictions), the Annex was truly encouraging. If the Cannabis Law passes in the Lower Chamber we expect it to be published in tandem with the Medical Regulations discussed below, thereby legalizing the whole cannabis market for all uses in a single coup in Mexico.

A bit of context here: as we have previously reported on this blog, in 2017 amendments to the General Health Law and the Federal Criminal Code allowed: 1) limited cannabis use and consumption for qualified patients, 2) possession for undertaking medical research, and 3) import and export of medical cannabis products. In 2018, Mexico’s Supreme Court declared Mexico’s general prohibition against adult use cannabis unconstitutional and also mandated that the Ministry of Health, COFEPRIS (Federal Commission for the Protection against Sanitary Risks), and various other Mexican governmental agencies issue regulations to establish a commercial cannabis chain for cannabis distribution.

A Supreme Court ruling last year mandated the Ministry of Health to publish regulations for medical use to make 2017 amendments effective by September 2020. However, this has not happened so far. But on the upside, the bill that has just been approved by the Mexican Senate does seek to comply with the 2018 mandate, whose deadline for publication has been pushed back a few times now and is now set at December 15th.

The Cannabis Law regulates recreational and industrial (hemp) use. However, it expressly leaves aside medical use, because: 1) such use is already legal, following 2017 amendments mentioned above and 2) it will be regulated by another set of draft Medical Regulations which we hear are ready, and which we expect will be published in the Federation Official Gazette at or around the same time as the Law if approved.

That said, here are the game changers contained in the Cannabis Law:

  • The 1% and above THC content standard to deem cannabis as psychoactive is further cemented, so Mexico will follow the international and not the American/Canadian standard. Adult cannabis use will be legal for 18 years and older andpossession of up to 28 grams will be fully legal, something that before was only allowed by binding precedent (jurisprudencia).
  • Individuals will finally be able to apply for growing and consumption permits for adult use: up to 6 plants per holder or 8 plants when more than one holder live in the same dwelling. No need to install physical barriers at home to consume: it is enough to ensure that smoke does not reach minors or passive smokers.
  • The concept of “consumption associations” (asociaciones de consumo), is introduced: a non-profit where a group of individual permit holders can conduct cannabis adult use-related activities together, under specific requirements and provided they are established at least 500m away from any recreational area, school, smoke-free area, etc.
  • The law will provide the issuance of licenses for the following cannabis-related activities: cultivation, processing, merchandising, import/export (though these two not for psychoactive cannabis) and research. Licenses will include authorization for ancillary activities: transport, storage and, in the case of cultivation and processing, sale to the next link down the production chain, provided buyer is a license holder, as well.
  • License verticality is allowed and there will be no restrictions for related parties to apply for other licenses, which opens the possibility of creating partnerships that cover the whole productive chain, though it may be restricted by the Ministry of Health or the Federal Economic Competition Commission on social and antirust considerations. This should be dealt with by authorities on a case-to-case basis.
  • Regarding cultivation licenses, each license will cover 1 acre for open-air farming and 1000 sqm indoors, but the limit of licenses per holder has been set at 8 for open air farming and 2 indoor. As for issuance, preference will be given to those population groups deemed vulnerable or disaffected by the war against drugs (indigenous peoples, farmers, etc.). Still, if a member of those groups wants to apply for a license, s/he has to obtain prior authorization from ejido (communal land) authorities.
  • Foreigners, under foreign capital amount restrictions already in place under the Foreign Investment Law, can set up a Mexican company to apply for licenses.
  • A decentralized organ stemming from the Ministry of Health, the Mexican Institute for the Regulation and Control of Cannabis (the “Institute”), will be created tooversee everything regarding control of the industry. This includes defining license issuance policies and guidelines.
  • Hemp will be regulated, albeit superficially, the Cannabis Law contained in the bill does provide for a definition of hemp and for activities that can be conducted with the plant.

As we can see, the bill and its contents are very good news and, if not thoroughly modified by the Lower Chamber, could very well pave the way for Mexico to become–thanks to its geographic location (next to the two largest cannabis markets in the world) and climate–an industrial powerhouse and global market for cannabis.

Still, it is important to understand three things: 1) cannabis use is already legal, thanks to the 2017 amendments and the recent Supreme Court binding precedents (it is just unregulated, which keeps the industry in a legal gray area); 2) regulation in and of itself will always involve more restrictions than no regulation at all, and 3) although cannabis will be fully legal once the Cannabis Law and the Medical Regulations are published, that does not mean that you will be able to apply for licenses immediately upon entry into force. The Institute must first be created and be fully operational. A full 90 days after that happens, you will be able to apply for a research license, whereas you will have to wait 6 months for licenses for activities involving non-psychoactive cannabis and 18 months for adult use permits and licenses. Finally, for cultivation licenses, you may only apply for them once testing and traceability guidelines are published.

The aforesaid highlights the convenience to apply for cannabis licenses before legalization takes place. Granted, licenses might be harder to obtain, but if issued they will necessarily be broader than licenses issued once the Cannabis Law and the Medical Regulations enter into force. Indeed, as I have written previously, you may be able to bypass restrictions on foreign investment, as well as future limitations on verticality, scope of business issues and location strictures. You will also be one step ahead on market knowledge and business acumen.

All of this make it worthwhile to apply beforehand and challenge any rejection or denial of your license application. After all, the law contained in the bill itself provided that any administrative or judicial remedy filed before the law enters into force will be processed and resolved pursuant to the law applicable at the moment of filing.

So now you know: a market boom is coming, but apply TODAY.

Editors’ Note: We will publish a version of this post in Spanish later in the week. Until then, for more on cannabis in Mexico, check out the following: 

 

The post Mexican Cannabis: Legalization is Happening! Are you Ready? appeared first on Harris Bricken.

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Author: Adrián Cisneros Aguilar

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