Last night, by a considerable majority (310 ayes; 210 nays and 20 abstentions), Mexico’s Lower Chamber approved the Cannabis Law bill sent to it by the Mexican Senate last November. The Cannabis Law was heavily amended prior to passage.
As expected, the Law regulates production and merchandising of cannabis and its derivatives for adult (now openly called “recreational”), research and industrial use. It states that medical use is beyond the scope of the Law, along with cosmetic applications. So what does the Cannabis Law do?
First and foremost, it defines many terms that are key for the development of the nascent Mexican cannabis industry: e.g., “psychoactive cannabis”, “cannabis production for merchandising”, “recreational (adult) use”, “production for industrial purposes”, “self-consumption” and “hemp”. These definitions draw crucial parameters around permitted concepts and activities, and will flow throughout Mexico’s entire regulatory structure.
Phased implementation is greatly accelerated, as the transitory provisions of the amended bill provide that 90 days after entry into force all relevant legislation shall be harmonized. Another 90 days after that, the National Commission against Addictions (the “Commission”) shall be fully operational. And yet another 90 days later, the Commission must issue relevant monitoring programs. Finally, 60 days after that, the Commission should have issued all necessary rules and guidelines for issuance of permits and licenses in 2022. Our early prediction here is that, if correctly carried out, Mexico’s cannabis market should be completely open by mid to late next year.
Foreign Investment Allowance
As we have been predicting, there will be no cap on foreign investment under the Foreign Investment Law for adult use and hemp-related activities. I repeat: there will be no cap on foreign investment. What is more, applicants apparently do not have to be Mexican companies. Nor will there be any residency requirements.
Personal Use Rules and Permits
Though the Cannabis Law legalizes possession of up to 28 grams of marijuana and provides that activities involving cannabis will not be subject to criminal prosecution, it does require adult users intending to grow cannabis for personal use to obtain a permit. These permits will allow for growing up to eight plants per dwelling. Cannabis consumption will be limited to those over 18 years old and consuming cannabis in spaces already defined as “tobacco smoke free” or near schools will be prohibited.
License / Permit Distinction
The Cannabis Law distinguishes between “licenses” and “permits”. A “license” authorizes activities with commercial or research purposes, whereas a “permit” authorizes activities concerning personal adult use. The Commission will determine the number of licenses to be issued to a single applicant, the maximum number of establishments authorized to sell to end consumers and the permits issued to cannabis associations (see below).
There are now the following six license types:
1. Integrated (i.e. vertical) licenses. These will cover all activities in the cannabis/derivatives supply chain, from seed to sale.
2. Production licenses. These licenses will authorize cannabis cultivation.
3. Distribution licenses. These licenses will authorize the acquisition of cannabis from licensed suppliers for resale to licensed dealers.
4. Retail sale licenses. These licenses will allow the licensee to acquire cannabis from licensed distributors for sale to end consumers in authorized establishments.
5. Licenses for production/merchandising of cannabis-derived products. These are essentially processing licenses.
6. Research licenses. These will allow production or acquisition of psychoactive cannabis for scientific research and R&D.
The application requirements for these licenses will be detailed in the regulations implementing the Cannabis Law. As expected, vertical, cultivation, distribution and retail sale license holders will also be able to sell cannabis to licensees downstream in the supply chain. All licenses will also cover ancillary activities, such as transportation and warehousing and they will have an expiration date ranging from one to five years, depending on the approved terms of the actual license. The Mexican cannabis authorities will have three months to resolve an application and if they fail to do so, the application will be deemed denied (negativa ficta).
No More Cannabis Institute
The Cannabis Law mandates the transformation of an existing organ (the National Center for Addiction Prevention and Control) into a National Commission Against Addictions (“Cannabis Commission”), belonging to the Ministry of Health. The Commission will be the regulatory entity for all non-medical cannabis.
Notwithstanding the Commission’s monitoring, regulatory and policy-implementing duties–and in contrast to what was originally envisaged for the Cannabis Institute–the Commission will not be all-powerful. For instance, it will have to work jointly with Mexico’s Ministry of Agriculture to issue seed certification and traceability mechanisms.
Concerning verticality, the discarded Cannabis Institute was going to directly refuse issuance/revoke licenses. Now, the Federal Competition Commission has been tasked with imposing measures necessary to prevent issuance of additional licenses that might lead to market concentration. The Cannabis Commission can deny or revoke a license for violations of the Cannabis Law, but not for market concentration.
It will be possible to form “Cannabis Associations” for producing cannabis and its derivatives for the personal adult use of the association’s members. This entity will take the legal form of a non-profit association, governed by the Federal Civil Code and allowed to grow up to four plants per member.
Import and Export Prohibitions
Though hemp can be freely imported and exported, doing so with psychoactive cannabis and its derivatives will be prohibited. Indeed, the Cannabis Law now provides that sale of the latter will only take place in Mexico, in authorized establishments. Any promotion or marketing of cannabis in any of its forms is prohibited.
Flexible Canopy Regulation
The Cannabis Law provides that the Commission will have the power to annually determine (jointly with the Ministry of Agriculture) the maximum annual authorized land extension for indoor/outdoor growing per issued license, as well as the national maximum.
The Law defines hemp as the cannabis plant and its derivative with <1% of THC content, which can produce fibers and is devoid of psychoactive effect. Hemp can be produced, processed, merchandised, imported and exported, as can products therefrom. Hemp licenses will be issued by the Ministry of Agriculture and not by the Commission. The Commission, (in coordination with other Government entities) shall seek to incentivize farmers and communal owners to switch to growing hemp.
Vaping / Edibles
The Cannabis Law legalizes vaping for medical use, but edibles containing psychoactive cannabis are prohibited. This prohibition could be lifted in three years, when the Ministry of Health has enough scientific evidence on the health effects of cannabis edibles.
The Law will now return to the Mexican Senate, where it is expected to be approved pretty much as written, at which point, it will go to the Executive Power for publication.
We are living in interesting times here in Mexico and we will report back on the final phase of the cannabis legalization process. So stay tuned and start preparing now for Mexico’s becoming the most populated country in the world with a fully legalized cannabis regime.