In Part 1 of this multipart series, we debunked various incorrect ideas, impressions and rumors we repeatedly hear in the Mexico cannabis practice. In this post, we will address five additional, common misconceptions, in order to help guide a healthy discussion on the real status of cannabis legalization in Mexico. Do the following misconceptions ring any bells? Keep reading!
- Now that the Medical Regulations are official, I can export any type of CBD products to Mexico.
No! We cannot insist enough on this point. We have observed prospective American exporters being misled by potential Mexican distributors that with the proper COFEPRIS approval they can get their products into the country. The reality is that only CBD products that can qualify as medicine (medicamento) per the definition provided for in the General Health Law will get a medical product health registration from COFEPRIS, which is a precondition to obtain an import permit. This means that under the Medical Regulations, CBD edibles, cosmetics, drinks, supplements, etc. cannot be exported at the moment. Everyone else is operating in a VERY legal gray area, to say the least.
- Narcos will get on board with legalization, using this opportunity to get legal.
This idea is not necessarily a misconception: it presupposes that the illegal market will disappear with legalization. Though we can only speculate here, we think there will be something in Mexico for everyone.
On the one hand, many in Mexico believe that the Government and the cartels have been in close association for decades. If we consider that under a legal framework there will be strong governmental scrutiny (agencies with new powers/transformation of existing ones), it is not hard to imagine that cartels acquiesced and are already planning to go legal. On the other hand, it is known that cartels’ main revenue source nowadays are not necessarily narcotics, but high-impact crimes.
As in the U.S., not everyone will be able to pay the high costs of going legal (permit/license fees, taxes, social security, etc.), or for a product sold by a legal cannabis company. For willing buyers, there will always be someone offering to sell unregulated product. This may not necessarily be someone from a cartel.
Legalization is important, not only because it creates a regulated, taxable industry that can help reactivate the economy. It also facilitates safe access for medical, industrial or recreational consumers to the supplies and products they need. In our view, that offsets any potential setback concerning the illegal market survival post-legalization.
- Cannabis licenses are enough to start growing, processing, etc.
This is not really true, it is important to clarify a couple of things. First, in order to apply for any cannabis permit/license, you need to comply with a host of prerequisites. For instance, to secure a growing license you must first: a) obtain a research protocol authorized by COFEPRIS if you are growing for research purposes, or b) obtain a medical product health registration if you are growing with mass production in mind.
If the seed you intend to grow is imported, you also need to submit a duly legalized official document certifying that the species/variety of the seed in question corresponds to those authorized in the country of origin. Further, you need to submit a phytosanitary certificate and a transport license, issued by the Ministry of Agriculture and COFEPRIS respectively, to legally move your cannabis to your research or production facilities following harvest. These are just a few examples of the requirements you need to fulfil prior to applying for a growing license. Each permit/license has its own set of requirements to be fulfilled in advance.
Second, in no way are the cannabis permits/licenses alone enough to conduct authorized activities: you also need to obtain the federal or local permits/licenses necessary to operate like any other business. Of course, these permits/licenses vary according to your actual location, the size and undertaking of your business, but they would involve, by way of example, getting registered before the Tax Revenue Administration (the Mexican IRS, or SAT in Spanish) and timely submitting your tax returns. If you are a foreign-invested Mexican company you will have to comply with report obligations before the National Foreign Investment Registry, pay social security fees for your employees and obtain an operating license. If you intend to sell over the counter, you must be duly licensed to operate as a medical product warehousing facility, pharmacy or drugstore. In the case of a factory or any other similar facility you may also need to submit an environmental impact assessment for approval of the Ministry of the Environment, etc.
- The Cannabis Law bill just passed in the Mexican Lower Chamber regulates every cannabis use and so it is not possible to know yet how “legal” cannabis will become in Mexico.
This is simply not true. We believe this misconception stems from the fact that even the media sometimes mistakenly equates cannabis legalization with last week’s passing of the Cannabis Law bill by the Mexican Lower Chamber. Actually, medical cannabis has been fully legal since last January, following the entrance into force of the Medical Regulations, with just some aspects pending implementation (see our post on the matter here). It is the Cannabis Law, on the other hand, the one that will regulate adult use and hemp.
The Cannabis Law provides for the ways and means in which both statutes will interact and mandates a 90 day harmonization period, plus further timelines for the creation of guidelines under which licenses will be applied for. Practically speaking, when the Cannabis Law enters into force we will be able to talk about a full legalization of cannabis in Mexico. As of now, one can already conduct medical cannabis activities under the Medical Regulations that are not covered by the implementation grace period granted to certain agencies (discussed here); or file an amparo action to obtain a permit for personal adult use and, at least theoretically, to obtain a hemp growing license.
Finally, the advice for both domestic and international cannabis business is that, even if your Mexico project’s ultimate end is adult use cannabis, you would do better to start focusing on medical use. This will allow you to develop the necessary infrastructure, market insight, awareness of local laws and regulations, production/distribution chains, etc. to succeed in the adult use marketplace.
- When cannabis is fully legal, my activities will become automatically legal too.
Absolutely not! And we must add that this is a very common misconception, particularly among those who are interested in personal adult use.
First, neither the General Health Law, nor the Medical Regulations provide for the possibility of conducting any cannabis-related activity (or any other health-related activity, for that matter) without the corresponding authorization, permit or license. The Cannabis Law will provide for hemp and adult use cannabis in the same way.
Second, we have mentioned before that for many cannabis uses (namely, medical, research, hemp and personal adult use), the issue is not so much that such uses are illegal, but that they remain largely unregulated, thus hindering the exercise of rights. This has made it possible for many people to conduct cannabis activities either thanks to an amparo-fought permit (i.e. personal growing and self-consumption for adult use, or in few instances, growing or selling medical cannabis), or by operating in a legal gray area (see first misconception in this post).
Once cannabis becomes fully legal for all uses, this is bound to change. Legalization means that there will be specific formalities you must follow if you want to obtain the permits/licenses that will enable you to carry on with your cannabis business.
Stay tuned for upcoming posts, where we will continue debunking misconceptions that muddy the waters as cannabis legalization in Mexico commences. Our goal is to help domestic and international players make informed decisions, and build a responsible, cohesive industry. To learn more, we also urge you to follow us for the next webinar or contact us at firm@harrisbricken.com or MX@harrisbricken.com!
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