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Cannabis in Mexico- it ain’t over till the fat Mariachi sings!

I am writing this now, a month after the Mexican Senate virtually ignored (yes, ignored) the social and business mandate to regulate recreational and industrial cannabis. Yes, it took me almost a whole month to calm myself enough so as to write a post that did not sound like a mere rant. Do not get

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I am writing this now, a month after the Mexican Senate virtually ignored (yes, ignored) the social and business mandate to regulate recreational and industrial cannabis. Yes, it took me almost a whole month to calm myself enough so as to write a post that did not sound like a mere rant. Do not get me wrong, I know full well that Congress’ only obligation under the Supreme Court mandate was to regulate cannabis cultivation and consumption for personal use, but for a long time members of Congress openly stated that they would try to create a framework to provide for the creation of a cannabis industry. More importantly, as I have publicly said before, with these kinds of non-transparent, last-minute decisions, the country projects instability to domestic and foreign businesspeople alike and across various areas of the economy, not just those touching upon cannabis.

At the moment of writing this post, I do not know for certain when the Cannabis Law bill will be discussed again. There are some who say that “there is still political will to legalize cannabis”. Reality tells me otherwise. Even if, as I have heard here so far, the Cannabis Law bill will simply be pushed back to the next legislative period, if the barely concealed disdain for the April 30 deadline taught me anything, it is that we, as industry stakeholders, will have to push the government for what is right, for the benefit of end consumers and the Mexican economy as a whole.

That said, none of the above changes the fact that what happened last April is spilt milk under the bridge. The real question now is, what do we do about it? To answer this question, let us review how things legally are at the moment and how you and your business can make the most of it.

A General Declaration of Unconstitutionality for Cannabis?

If you ask me – or anyone in the industry – it is clear that Mexican senators simply decided to de facto put the Cannabis Law bill in the freezer out of concern that voting on something deemed highly controversial could cost them votes in what perhaps are the most important intermediate elections in recent Mexican history. Let me say it again, Congress has never been bound to regulate the whole industry. Politicians offered to do so. The issue is that now, by failing to pass the Cannabis Law bill, which among others, provided for adult use, Congress have also failed to regulate cannabis self-cultivation and self-consumption.

In this context, we face three potential scenarios: first, that Congress might ask the Supreme Court for ANOTHER deadline extension (highly unlikely: this should have been officially asked and I have never heard of such a request from the Senate). Second, that the Supreme Court, given Congress’ failure to regulate cannabis self-consumption, might decide to issue a General Declaration of Unconstitutionality that will expunge from the Mexican legal system those provisions that prohibit cannabis cultivation and consumption for personal use and which had already been deemed unconstitutional by the Court via jurisprudencia (binding court precedent). For the aforesaid to happen, at least eight Supreme Court Justices have to decide in favor. A third scenario would be that the Supreme Court meets, but does not reach the majority necessary to issue a General Declaration of Unconstitutionality. In that case, it will be business as usual: consumers will have to continue applying with COFEPRIS for a self-cultivation/self-consumption permit and filing amparo actions in case of non-response or denial.

Indeed, although the main benefit of the General Declaration of Unconstitutionality is that by expunging prohibitionist provisions it would no longer be necessary for consumers to file amparo actions to exercise their right to consume cannabis, the real problem is the legal void left by the expungement of such provisions and the legal uncertainty this would entail for consumers and cannabis companies. In other words, if upon the issuance of the General Declaration of Unconstitutionality there will be no provisions whatsoever regulating cannabis cultivation and consumption for personal use, how will people know what is lawful and what is not? This was the task Congress had to prove it was up to for the creation of a legitimate Mexican cannabis industry -and still is, if the Supreme Court, for any reason, decides it is not proper at the moment to issue a General Declaration of Unconstitutionality.

Talking business: what you can do now

How do businesses make the most of the current Mexican cannabis landscape? How do they force the creation of an industry in a context where the political class appears reluctant to do so? To answer these questions, let us revisit what we can do under the current legal framework.

1.- Medical cannabis remains the only thing fully legal (i.e., not only provided for in a general statute, but accompanied by implementing regulations) in Mexico: as we reported here, the Medical Regulations deal with the control, promotion and sanitary supervision of raw materials, pharmacological derivatives and medicines, regulating activities like 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 through relevant licenses or permits.

The Medical Regulations themselves provide for the issuance by incumbent agencies of implementing guidelines. This has not happened so far. Although as we mentioned here, it is not only legally possible, but your right to apply for a permit/license in any of the activities already provided for and for which the incumbent agency had not been granted a grace period to issue guidelines, what we have seen most feasible so far is to apply for a) health registration authorization (registro sanitario) for a specialty drug (medicamento de especialidad: that which can be mass manufactured per the specifications contained in said authorization); b) a sanitary license that allows you to merchandise compounding (fórmula magistral: drugs prepared ex professo by a physician for a patient, per instructions set forth in a medical prescription); c) a prescription booklet: qualified surgeons, veterinaries, and dentists can apply for a special prescription booklet that enables them to prescribe cannabis medical products, and; d) research protocols: a document containing a research proposal involving cannabis, for obtaining pharmacological derivatives to be used in pharmaceutical manufacturing. In this latter case, the tricky part is of course finding a reputable individual or institution with the scientific expertise necessary to help your company draft a protocol, but they are out there.

Finally, it is worth noting that cannabis supplements are very unlikely to be considered medicine (medicamento) by COFEPRIS, and therefore businesses are very unlikely to obtain the health registration authorization necessary for their import and merchandising in Mexico. I cannot insist enough on this, given the amount of times we have been approached with the idea of importing and/or merchandising in Mexico these products.

2.- You can also apply with COFEPRIS for a cannabis cultivation/consumption permit for personal use through an amparo action: why do I say “through an amparo action”? Because, in our experience, COFEPRIS usually either fails to answer your application or outright rejects it. Plainly speaking, by filing an amparo action, you argue before a federal court that the Supreme Court has already declared the prohibition of personal use unconstitutional because it violates the right to a free development of your personality (derecho al libre desarrollo de la personalidad, or your inherent right to find the best means to achieve the best version of yourself and with it, happiness, thus rejecting any external interference in the decisions you make on what those ‘best means’ are). This right has been ruled by the Supreme Court to be a human right enshrined in the Constitution. Consequently, COFEPRIS’ failure to issue a cannabis cultivation/consumption permit for personal use violates your constitutional rights.

3.- You can apply for a hemp permit. As I reported here, in 2017, the General Health Law was amended to provide 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 take the form of the Cannabis Law (yes, the very bill whose postponement has prompted me to write this post). As a result, hemp, as an industry, continues being legal, but unregulated in Mexico, which  in turn, means that hemp-related activities (merchandising, import and export, but to that we add production and processing) are lawful in Mexico—even without hemp regulations per se, and without specific licenses to apply for to conduct such activities. We still recommend our clients to apply with COFEPRIS for a general authorization to conduct these activities nonetheless, just to be on the safe side, as well as be prepared to pressure the authority into allowing them to operate by pursuing amparo actions before federal courts.

In sum, what is the moral of the story concerning the current status of cannabis in Mexico? What we reported last December: start with medical cannabis if possible. You will have infrastructure, market insight and business acumen for when everything else goes legal, BUT if that goes beyond your possibilities or simply does not match your business strategy, there is always more to be done. That said, how should businesses get prepared to actually do something? Keep reading!

Life goes on-what you should do now

1.- Set up your company and register your trademark in Mexico as soon as possible. This might seem like a no-brainer but please consider that we are all living under COVID times, that most government agencies are understaffed and underfunded and that all this extends considerably their response times. In the case of international cannabis companies, the time taken to translate and legalize any documents should also be factored in. Since cannabis permits/licenses are not transferrable, getting a cannabis company up and running is necessary before even thinking of applying.

2.- Draft-a-freaking-business-plan. Yes, I know this sounds like a truism but I cannot tell you how many times I have dealt with actual or prospective clients that “just want to do something with cannabis now that it’s going to get legalized”. Hire a cannabis business consultant that works with your legal counsel in drafting a plan according to 1) what is actually legal in Mexico, and 2) your actual resources and capabilities.

3.- Consider hemp, and with this I am not referring only to supplements, edibles and the like (which in any case are not going to be legal until the Cannabis Law bill is passed – thanks again Congress). Think of an actual manufacturing industry: unlike the medical or adult cannabis use industries, industrial hemp is less politicized and easier to set up and be inserted into existing value chains in Mexico with regional impact like the textile or the auto industries.

Do not forget, the lack of regulation can be a blessing in disguise (and believe me: as I said at the beginning of this post, it has taken me almost a whole month to be calm enough to write this post) if we know how to make it work for us. No regulation means lesser application costs, for requirements to be fulfilled are minimal as compared to more regulated industries, like medical cannabis. Also, no regulation means no caps on foreign investment. What are you waiting for then? Start working on your cannabis business NOW!

The post Cannabis in Mexico- it ain’t over till the fat Mariachi sings! appeared first on Harris Bricken.

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