This week the Chamber of Senators approved an initiative that includes a draft federal law regulating cannabis (the “Cannabis Act”), which includes reforms to the General Health Act as well as federal criminal law. A helpful addendum has been amended. The amended initiative is on its way to the Chamber of Deputies for discussion and, if all goes well, for approval. This is great news for the Mexican cannabis industry.
While the initiative originally submitted for Senatorial scrutiny had predictable features (and possibly other, more alarming limitations), the addendum looks extremely promising. We expect the Cannabis Act, if approved by the Chamber of Deputies, to be published along with the medical regulations, which we will discuss below. With that, Mexico would suddenly legalize the entire cannabis market for all purposes.
A bit of context: As I reported earlier on this blog, with the reforms of the General Health Act and Federal Criminal Code of 2017, cannabis was legalized for medical and research purposes, including its use, possession, consumption, export, and import. In 2018, the Supreme Court would create case law by declaring for the fifth time the unconstitutionality of the prohibition of the right to self-consumption and self-cultivation for recreational purposes by adults and the Ministry of Health COFEPRIS (The Federal Commission for Protection against Health Risks) and other competent bodies would enact the Legislation necessary to comply with the penalty imposed to ensure the supply, distribution and sale of cannabis.
Last year, a ruling by the Supreme Court gave the Ministry of Health a mandate to issue secondary laws that would allow the above reforms of 2017, corresponding to use in medicine and research, to take effect and set this as a deadline (extended) September 2020. The regulation has not yet been published. On the positive side, however, the initiative, which has just been approved by the Chamber of Senators, aims to meet the Supreme Court’s 2018 mandate, which imposed a deadline for adult use legislation, which was sometimes extended as of today December 15, 2020 expires.
The Cannabis Act regulates the use of adults or recreational and industrial products (hemp). Medical, therapeutic or palliative use is expressly excluded. This is due to the fact that 1) medical use is already legal as a result of the 2017 reforms mentioned above and 2) use is expressly regulated by a medical regulation, the draft of which – as we understand – is ready and in which we will hopefully publish it become the Official Gazette of the Federation almost or simultaneously with the Cannabis Act, if approved.
Below we present the most disruptive changes contained in the Cannabis Act:
- The percentage from 1% in THC concentrations is consolidated as the base standard to consider cannabis as psychoactive, which means Mexico will follow the international standard rather than the North American standard.
- Adult consumption and possession of up to 28 grams of cannabis are legal for those over the age of 18.
- Individuals can finally apply for a self-consumption and adult self-cultivation permit: up to 6 plants per owner and 8 if more than one permit holder lives in a home. No physical barriers need to be installed to consume: it is enough to ensure that the smoke does not reach minors or passive smokers.
- The concept of “psychoactive cannabis consumption associations” is created, a non-profit civil association in which holders of individual permits for personal consumption and self-cultivation can jointly carry out activities associated with adult consumption under certain conditions, provided they are at least 500 meters away from recreational areas , Schools, smoke-free rooms, etc. away.
- The granting of licenses for the following activities is foreseen according to the permitted purposes: cultivation, conversion, marketing, import or export (in this case not for psychoactive cannabis) and research. The licenses include the authorization for ancillary activities for those who are authorized: transport, storage and, in the case of cultivation and conversion licenses, sale to the next link in the production chain, provided the buyer holds the relevant license.
- The verticality of licenses is allowed, and there is no restriction on related parties to request other licensesThis opens up the possibility of generating alliances that cover the entire production chain. However, the Ministry of Health and the Federal Economic Competition Commission retain the prerogative to restrict and even revoke licenses for reasons of economic competition or social justice. The authorities are expected to analyze the exercise of these powers on a case-by-case basis.
- The cultivation licenses cover an interface of 8 hectares outdoors and 2,000 m2 under cover per holder. When granting, preference will be given to groups that are considered to be endangered or affected by the system of prohibition (indigenous peoples, Ejidatarios, farmers, etc.). However, if a member of one of these groups wishes to apply for a license, they must obtain prior approval from the appropriate ejido authorities.
- Foreigners can, under the foreign capital restrictions already contained in the Foreign Investment Act, form a Mexican company to obtain their licenses.
- The Institute for the Regulation and Control of Cannabis (the “Institute”) is being created, a decentralized body of the Department of Health that will be responsible for all aspects of industry control, including policies and guidelines. for the issuing of licenses.
- Hemp is regulated, albeit superficial.
As can be seen, the approved initiative and its contents are very good news. If not changed too much in the House of Representatives, it could pave the way for Mexico’s return (alongside the two largest, cannabis markets in the world) to its geographic location and climate to become an industrial powerhouse and global market for cannabis.
Now it is important that we understand three things:
First, cannabis use is already legal thanks to the 2017 reforms and the case law passed by the Supreme Court. It’s just unregulated, which keeps the industry in a state of legal uncertainty.
Second, the presence of regulation in itself restricts activity more than its lack.
Third, while cannabis is completely legal after the cannabis law and medical regulations come into effect, that doesn’t mean you can apply for licenses once those laws come into effect. The institute must be constituted, publish its organic statute, its guidelines, etc. Once that happens, you will have to wait 90 days to apply for research licenses, while you will have to wait 6 months for licenses that cover activities involving non-psychoactive cannabis, and 18 months for permits and licenses that cover adult use and psychoactive cannabis. Cultivation licenses cannot be requested until the institute issues guidelines for testing and traceability.
The foregoing highlights the convenience of applying for cannabis licenses prior to legalization. Yes, finding licenses without a legal framework may be more difficult, but when issued by the agency they are necessarily broader than the licenses issued after the cannabis law and medical regulations come into effect. Indeed, as I have already written, the restrictions imposed on foreign investments in the cannabis industry, as well as those imposed on licenses on their verticality, breadth of permitted activities, and geographic scope, can be avoided. Additionally, the first successful applicants will be years away from their competitors in terms of local business acumen, understanding of consumer needs, and most importantly, market share. All of this more than makes up for applying for licenses early and legally combating any denial or rejection of your applications. After all, the same transients of the Cannabis Act provide that “[t]All procedures, administrative resources and other matters related to the matters referred to in this Decree that were initiated before its entry into force will be processed and resolved in accordance with the provisions in force at that time. “
So now you know: A market boom is coming, but you have to opt for these licenses TODAY.