The Mexican Senate Disappointed Us By Refusing to Consider Recreational Cannabis Legislation: Here’s What Cannabis Businesses Should Do Now

In my last post I reported the Mexican Senate’s refusal in its just-ended legislative session to address the Supreme Court’s 2018 directive to pass reforms legalizing recreational use of cannabis.

Unless you are a Mexican Senator or Supreme Court Justice, you probably don’t have too many levers you can pull to speed the implementation of legislation that will underpin the development of a legal cannabis industry. However, there are things you can do to put yourself in position to take advantage when cannabis is finally fully legalized.

Remember, medical cannabis is already fully legal (i.e., not only provided for in a general statute, but accompanied by implementing regulations) in Mexico. As we reported here, Mexico’s Medical Regulations deal with:

  • the control, promotion and sanitary supervision of cannabis raw materials, pharmacological derivatives and medicines, governing activities including primary production for manufacturing supply;
  • raw material generation for research and seed production;
  • health and pharmacological research; manufacturing of pharmacological derivatives and medicines;
  • medical activities related to diagnoses, therapeutic care, rehabilitation and palliative care, and;
  • importation, exportation and marketing of medical cannabis products.

Individuals and companies can conduct all these activities with the relevant licenses or permits.

And yet, regulatory agencies have not quite caught up to the law. The Medical Regulations provide for the issuance by incumbent agencies of implementing guidelines, but this has not yet happened. Though as we mentioned here, it is not only legally possible, but your right to apply for a permit/license in any of the areas already provided for and for which the incumbent agency has not been granted a grace period to issue guidelines. There are a number of avenues through which we have seen businesses obtain licenses. [A note: cannabis supplements are unlikely to be considered medicine by COFEPRIS, and therefore businesses are unlikely to be able to obtain the health registration authorization necessary for their import and merchandising in Mexico.]

Another avenue I favor is industrial hemp, which is less politically charged than recreational use cannabis. As I reported here, Mexico’s General Health Law now provides that any product containing cannabis derivatives in concentrations of 1% or less of THC, with ample industrial uses, can be merchandised, exported and imported “pursuant to the requirements set forth by applicable health regulations.” These regulations were supposed to be included in the Cannabis Law, but obviously are not. As a result, hemp continues to be a legal, but unregulated industry in Mexico, which in turn, means hemp-related activities (merchandising, import and export, and production and processing) are lawful in Mexico — even though there are neither hemp regulations nor hemp-specific licenses. Nonetheless, I recommend applying to COFEPRIS for a general authorization to conduct these activities.

Finally, consumers can also apply with COFEPRIS for a cannabis cultivation/consumption permit for personal use through an amparo action (i.e. a lawsuit in federal court that requires the government to defend its actions) in case of non-response or denial to your initial license application(s). By filing an amparo action, you argue before a Mexican federal court that Mexico’s Supreme Court has already declared the prohibition of personal cannabis use unconstitutional, and therefore COFEPRIS’ failure to issue a cannabis cultivation/consumption permit for personal use violates your constitutional rights.

My bottom line: if you are interested in getting a head start in Mexico’s cannabis industry, medical cannabis presents a completely legal, regulated opportunity that is available to you immediately. Establishing a medical cannabis business will allow you develop your operating infrastructure, secure capital, if required, and position yourself as an insider when Mexico does finally fully open its cannabis industry. Another good opportunity, which nonetheless requires careful legal preparations, is industrial hemp.

As I wrote in my previous post, Mexican state legislators have a different view to their federal counterparts on the cannabis issue, and legislators in many states are said to be drafting legislation that would pave the way for the establishment of a legal industrial hemp industry. As in the United States, the full legalization of cannabis cultivation and distribution seems inevitable, and interested stakeholders understandably want to be prepared when the doors do swing open. So what should you do?

Set up your company in Mexico

How do you start? Beyond a simple business registration, you should register your brand names and logos as Mexican trademarks as soon as possible. I urge you not to delay with either of these things because most government agencies in Mexico are understaffed and underfunded and response times are slow these days. You also need to consider the time it will take to translate and legalize the documents you will need. Since cannabis permits/licenses are not transferrable, it will nearly always make sense for you to have your Mexican company formed before you apply for any cannabis permit or license.

Draft a business plan

I know this sounds like a truism, but I cannot tell you how many times we have dealt with actual or prospective clients that “just want to do something with cannabis now that it’s going to get legalized”. It is important that your Mexico cannabis business plan account for what is actually legal in Mexico, and for your actual resources and capabilities.

Consider hemp

With this I am referring to more than just supplements, edibles and the like (which will not be legal in Mexico until the Cannabis Law bill is passed). Think of an actual manufacturing industry: unlike the medical or adult cannabis use industries, industrial hemp is far less politicized in Mexico and it is relatively easy to form a Mexican hemp company and get that inserted into existing value chains in Mexico.

Do not forget, the lack of Mexican regulation can be a blessing in disguise if you know how to make it work for you. Mexico’s dearth of cannabis regulations means lower or non-existent application fees, and few government requirements that must be satisfied. No regulation also means no foreign investment caps.

As always, I am very happy to answer questions or discuss specifics if you reach out to me directly.

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