What Will Be The Cost Of Doing Cannabis Business in Mexico…If The Country Finally Legalizes It?

Medical marijuana has been legalized in Mexico since June 2017 and, in 2018, Mexico’s Supreme Court of Justice ruled that banning the plant was unconstitutional.

On April 30, 2021, Mexico's Congress failed to pass adult-use legalization orders that were handed down by five Supreme Court rulings, marking the fourth time the deadline was missed. Now, a bill to legalize recreational cannabis is expected to be brought to a vote.

Health licenses for cultivation, harvesting and production of marijuana in Mexico are exclusively limited to medicinal and research purposes.

Andres Fajardo, CEO of Clever Leaves (NASDAQ:CLVR) considers Mexico as “interesting geography for cannabis,” with over 100 million people “with interesting consumption patterns.”

Clever Leaves entered Mexico via a supply deal with CBD Life Sciences OTCPK: CBDL. The New York-based company will act as a supplier for the development and production of CBD Life's medical cannabis products in over 18,000 points of sale in Mexico.

In an interview, Fajardo highlighted that the country has a pharmaceutical complex, an asset for the processing of cannabis.

Fajardo considers Mexico “the cornerstone for any Latin American expansion.” The country produces “high-quality agricultural products at significant scales with efficient costs”, thus, he envisions a competitive insertion of the cannabis industry in Mexico.
The size of the medical cannabis market alone in Mexico is expected to reach $249.6 million by 2025, according to an analysis by United States-based consultancy Grand View Research.
The study also revealed that “competition among existing players is moderately high as very few companies have the technology, financial resources, and legal clearance to venture into the large-scale manufacturing of marijuana.”

“However, the cannabis industry is likely to face security challenges, given that cannabis production still represents a large percentage of the revenues of many organized criminal groups,” Eduardo Arcos, a senior analyst with Control Risks, told Al Jazeera. 

Arcos noted that “businesses operating in remote locations with little presence of law enforcement (…) are frequent targets of extortion by organized criminal groups” that “significantly disrupt their operations.”

Drawing on Clever Leaves’ experience in Colombia, Fajardo argues that some of the strategies to confront the issue of risk and security in Mexico could proceed through “strong local partnerships” to set up a viable legal business.

In Colombia Clever Leaves looked at socio-political factors, before picking locations for its operations, Fajardo added.

Mexico’s Cannabis Market: ‘poised to be a global leader’

A framework for the medical market was released in Mexico, in January 2021. However, as of August, would-be operators remained in limbo regarding adult-use licenses.

Despite the significant hurdles, analysts and operators told Benzinga that the market is poised to be a global leader.

Janko Ruiz de Chavez, COO and founder of CBD Life, highlighted the country's geography and climate, calling them ideal for cultivation. He cited the country's population of over 127 million and access to Latin America as additional selling points.

“Mexico's position allows local and global corporations to use Mexico as an export hub,” Ruiz de Chavez said.

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