What Legal Medical Pot In Mexico Would Mean For Marijuana Stocks In The US

The marijuana industry and marijuana stocks have had practically unstoppable momentum over the past couple of years.

Last year in the U.S., five states wound up legalizing medical cannabis, bringing the total number of states to have legalized medical pot over the past two decades to 28. Interestingly enough, two of the five states (Ohio and Pennsylvania) did so entirely through the legislative process, thus avoiding putting an initiative or amendment on a ballot.

We also witnessed the number of recreational marijuana states double to eight from four, with Arizona being the only state out of five whose residents voted on a recreational weed measure in November and didn't pass it (it failed by just 2%).

These state-level expansions, along with steady medical marijuana business in Canada, which legalized medical cannabis back in 2001, pushed legal sales of the drug in North America up 34% in 2016 to $6.9 billion. It probably hasn't hurt that both Gallup's and CBS News' latest marijuana polls show respective support levels for a nationwide legalization in the U.S. at an all-time high.

Well, folks, things are about to get even rosier — or perhaps I should say greener.

Mexico is about to legalize medical marijuana

As reported late on Friday, the lower house of Mexico's Congress overwhelmingly passed a bill that would legalize cannabis for medical and scientific uses. The measure gathered 371 votes in favor, just seven votes against, and 11 abstentions. The bill, which aims to classify the psychoactive component of cannabis tetrahydrocannabinol (THC) as a "therapeutic," was passed in Mexico's Senate this in December. The next step for the bill is to head to Mexican President Enrique Pena Nieto's desk, where it's fully expected to be signed into law.

Last year, Pena Nieto, who has been a supporter of the legalization and decriminalization effort, commented during a gathering of world leaders that the global strategy of fighting drug use needed revisiting. He's also gone on record as suggesting that the U.S. and Mexico must be on the same page when it comes to marijuana policies.

Medical cannabis investors, rejoice

This is big news for marijuana stocks, even if Mexico's black market is massive as a result of its drug cartels. Legalizing medical weed would give pot-based businesses yet another avenue to legally sell their product beyond Canada and the 28 U.S. states that have legalized physicians to prescribe the drug.

According to Stuart Titus, the CEO of Medical Marijuana, Inc. (NASDAQOTH:MJNA), a Southern California-based provider of industrial hemp products, legalizing medical marijuana in Mexico represents a "$1 billion to $2 billion opportunity" in cumulative revenue over the next decade, according to an interview with Fortune.

Of course, Medical Marijuana is no stranger to operating in Mexico. HempMeds Mexico, which is Medical Marijuana's distribution branch in the country, was the first company to be allowed to import cannabis products into Mexico (non-psychoactive cannabidiol products, not THC). The bill currently working its way through Mexico's legislative branches will merely make the infrastructure Medical Marijuana has laid in Mexico all the more effective — and potentially profitable.

Mexico's medical marijuana legalization efforts also come shortly after Prime Minister Justin Trudeau of Canada introduced a bill to legalize recreational weed. The demand for legal pot, be it medical or recreational, is exploding right before investors' eyes, and producers with the capacity to expand their operations could benefit in a big way.

In Canada, the three largest medical cannabis producers, Canopy Growth (NASDAQOTH:TWMJF), Aphria (NASDAQOTH:APHQF) and Aurora Cannabis (NASDAQOTH:ACBFF), have all been hell-bent on increasing their production capacity. Canopy Growth took to the acquisition route and acquired Mettrum Health earlier this year, boosting its current growing capacity to 665,000 square feet across six licensed facilities. Meanwhile, Aurora Cannabis is working on its Aurora Sky project that'll add 800,000 square feet of growing capacity when completed, and Aphria is working on phase 4 of its organic expansion that'll see its growing capacity push to 1 million square feet by early next year.

It remains to be seen if this added capacity encourages these medical cannabis providers from Canada to consider entering the Mexican market, but recent North American legalization efforts have certainly favored an aggressive expansionary approach.

Admittedly, most pot stocks still aren't turning a profit, which means investors would be wise to keep their expectations in check when it comes to this incredibly volatile, risky sector. However, with the green rush taking shape, investors can't help but be excited about what could very well be the fastest-growing industry over the long term in North America.

Sean Williams has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.