Legal cannabis: the immense business potential of Mexico's marijuana market

20/03/2021

A hundred companies and national and foreign players are getting ready to start the engines of the marijuana market in Mexico, which is expected to be the largest in the world once it is regulated by Congress. But the nascent emporium, valued at billions of dollars, could perpetuate the marginalization and criminalization of peasants -traditional producers- due to legislation that, according to activists, favors big industry.

Several companies related to the cultivation and marketing of cannabis have gone public and although this market grows over time, Mexico is still not an option because it is not regulated for these purposes.
Several companies related to the cultivation and marketing of cannabis have gone public and although this market grows over time, Mexico is still not an option because it is not regulated for these purposes.

"Mexico is positioning itself as the largest market in the world at the country level, more than the United States, more than Canada (...) There is room for everyone," says Erick Ponce, president of the Cannabis Industry Promotion Group (GPIC), which brings together 25 Mexican and foreign companies.

Legalization puts Mexico at the top of the business, ahead of pioneers like Uruguay and Canada, whose populations are a fraction of Mexico's 126 million inhabitants. A legislative debate remains, but it is taken for granted that it will pass without major changes. Different projections indicate that the national medicinal and recreational market will be worth between 5 and 6 billion dollars by 2025, a considerable portion of the world total, which would reach 73.57 billion dollars in 2027, according to the consulting firm Grand View Research.

It is also expected to raise between $900 million and $1.7 billion in annual taxes, according to estimates by Congress and the NGO Mexican Cannabis and Hemp Council (CMCC). The law regulates the business from cultivation to commercialization of various products. Not only the leaf for smoking, but even infusions or sweets could enter the menu.

It allows for "vertical integration" where actors will be able to receive licenses to participate in all phases of the business, thus fostering the emergence of companies with great market power. Although it gives priority to permits for farmers and financing, it does not prevent them from being overrun by companies with experience and a lot of money, say activists.

The law also imposes high standards on seeds, production, and even marketing spaces, which could generate an oligopolistic business.

"The Mexican model should be based on an issue of social justice. We cannot allow the formation of a market that allows two or three large companies to take control of it," says Tania Ramirez, of the NGO Mexico United Against Crime. Thus, although a path towards formalization is opening up, there is a risk that the peasants will continue to be trapped in illegality, dominated by powerful cartels. The industry trusts that the laws of the market will keep the mafias away because "it is no longer a business", defends Ponce.

Activists disagree

Zara Snapp, the founder of the RIA Institute that promotes public policies on drugs, doubts that in regions punished by drug violence cannabis businesses will easily flourish. "You talk to people and they say 'I wouldn't put a dispensary in Guadalajara' because there are other players who have that market," Snapp says of the Jalisco capital, the fiefdom of the New Generation, one of the country's most powerful cartels.

Eda Martinez, director of the CMCC, also warns that if the road to legalization involves too much red tape, few will take the leap. She agrees with Snapp that the state should guide and encourage the transition to formality. In developed markets like Canada, 40% of consumers still turn to illegal suppliers, according to the United Nations Office on Drugs and Crime, UNODC.

A 2016 private study, presented to state and academic bodies, estimated that Mexico's black market produced between 5,250 and 6,550 tons of cannabis annually and employed 17,200 people.

In 2020, 244 tons were seized

The most recent national drug survey (2016) found that 7.3 million Mexicans aged 12-65 tried marijuana at some time and 1.82 million showed the prevalence of use. Ponce estimates that consumers could be around five million, but recognition of this habit remains taboo.

Legal recreational marijuana would reach the Mexican public by the second half of 2022, since aspects such as the tax burden or the products that could be marketed have yet to be defined, according to experts. Those with tetrahydrocannabinol (THC), the psychoactive element of cannabis and "ground gold" for the industry, according to Ponce, are yet to be defined.

As for foreign trade, still restricted to a few countries, the law only allows raw materials or products without THC, such as hemp or those with cannabidiol (CBD), usually for medicinal use.