We Thought We Would Be Celebrating the Legalization of Recreational Cannabis in Mexico. We Were Wrong.

11 Jun We Thought We Would Be Celebrating the Legalization of Recreational Cannabis in Mexico. We Were Wrong.

Two months ago we posted to celebrate the passage by Mexico’s Lower Chamber of the Cannabis Law bill sent to it by the Mexican Senate last November. In that post, I wrote, “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.”

Oops.

Just over a month ago the Senate ended its session not only without having approved the Law but also having ignored the Supreme Court’s directive (dating from 2018) to do so. As a reminder, Mexico’s Supreme Court ruled in 2018 that the federal government’s prohibition on recreational marijuana use was unconstitutional and ordered Congress to pass a reform legalizing recreational use within 90 days. Since then, the Court has set multiple deadlines for Congressional action, with April 30, 2021 set to be the final one.

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 publicly stated that they would try to create a framework to provide for the creation of a cannabis industry.

Unfortunately, politics intervened. In Mexico, as in many countries, cannabis is a polarizing issue. Social conservatives use the issue to scare voters (¡drogas!) about the intentions of the opposition and to reassure them about their own credentials.

In the run-up to last Sunday’s elections, the Senate backed away from commitment on the issue, apparently preferring to shift any political blowback to the Supreme Court, which way back in 2018 said it would strike down the government’s prohibition on recreational marijuana use if Congress did not enact reforms. A complication is that the composition of the Supreme Court has changed slightly since its 2018 ruling, and the issuance of a General Declaration of Unconstitutionality would require the support of eight of 11 justices.

So, where do things stand today for cannabis businesses (or start-ups) interested in the Mexico market?

The final outcome of the elections will be an important factor, of course. President Andrés Manuel López Obrador’s MORENA party appeared to maintain its plurality in the Lower Chamber of Mexico’s Congress, but lost a significant number of seats and will need to work with its allies in the Workers Party (PT in Spanish) and Green Party (PVEM, in Spanish) to pass legislation.

For cannabis businesses, this is good news; MORENA politicians and legislators were the originators of the Cannabis Law, and are the most likely to press for further action toward enactment, e.g. by taking it up again during the next Senate session, scheduled to begin on September 1, 2021. Victory by the opposition would likely have postponed the creation of a legislative framework to underpin the development of a cannabis industry until the political winds have shifted once again.

Another question is whether or not the Supreme Court will press ahead and issue a General Declaration of Unconstitutionality in relation to the government’s prohibition on recreational marijuana use. If it does press ahead, and if at least eight justices vote in favor, the existing legislation will be expunged from Mexican law, which would create a legal vacuum in which there is no law applicable to non-medical use of marijuana.

If the Supreme Court does meet to consider issuance of a General Declaration of Unconstitutionality, but a majority of justices does not approve, consumers will have to continue applying to the Federal Commission for Protection against Health Risks (in Spanish, Comisión Federal para la Protección contra Riesgos Sanitarios, or COFEPRIS) for a self-cultivation/self-consumption permit and will have to continue filing amparo actions (lawsuits in federal court that require the government to defend its actions) in case of non-response or denial.

A final factor to consider: as in the United States, Mexican state legislators have a different view to their federal counterparts on the cannabis issue, and I have been told that legislators in many states are drafting legislation that would pave the way for the establishment of a legal industrial hemp industry. Again, the outcome of yesterday’s elections will be critical to the development of this storyline, but certainly this would be good news for industry stakeholders and consumers.

The above is an update on the political situation governing the development of recreational cannabis and industrial hemp businesses in Mexico. Shortly I will post again, with my suggestions for how cannabis businesses and investors should react to this news.