Mexico Aims To Legalize Recreational Marijuana Before October

Momentum within the marijuana industry is undeniable. Since 1995, we've seen support for broad-based legalization in the U.S. catapult from just 25% to 66% in October 2018, according to Gallup's national poll. We've also gone from having zero U.S. states legalized for medical or recreational purposes in 1995 to 33 states having approved medical marijuana as of today, with 10 also allowing adult consumption.

This same momentum can be seen outside the United States as well. Today, more than 40 countries worldwide have given the green light to medical cannabis, with two -- Canada and Uruguay -- allowing the recreational sale of the drug. In fact, Canada's landmark legalization in 2018 marked the first time an industrialized country had fully legalized weed.

The big question always seems to be, which country is next?

According to online cannabis publication Marijuana Moment, the answer is pretty obvious: Mexico.

Mexico plans to roll out the green carpet before October

In June 2017, Mexico became one of the aforementioned 40-plus countries to legalize medical marijuana, which is no small feat given the control certain drug cartels wield in Mexico. With this medical pot infrastructure already in place, the time has come for Mexico take the next logical step and become the third country worldwide to have broadly legalized cannabis.

Of course, Mexico's lawmakers aren't necessarily considering legalization because they feel it's the right thing to do, or because an estimated 80% of the public in informal polling favors legalization. Rather, Mexico's lawmakers are being coerced by the nation's Supreme Court.

You see, anytime Mexico's Supreme Court reaches five similar decisions on an issue, the standard set by the court is applied throughout the country. With regard to recreational marijuana, Mexico's Supreme Court has ruled five times since 2015 that the imposition of a ban on recreational pot is unconstitutional. In effect, the Supreme Court has made legalization the standard, and now it's up to Mexico's Senate to amend the existing laws to reflect this ruling.

According to Marijuana Moment, lawmakers plan to use the summer recess, which begins May 1 and runs through Aug. 31, to rework legislation to legalize recreational marijuana throughout Mexico. This recess period is particularly important given that the Supreme Court has imposed an October deadline to develop a regulatory plan for cannabis.

Should Mexico indeed move forward with legalization before October, as well as develop a plan to reduce or eliminate cartel interference, it could be on a path to usurp Canada as the most important marijuana market in the world. The reason? Just look at the population variance between the two counties. Canada had a population of 37 million in 2018, with about one in six adults using marijuana during the fourth quarter. Meanwhile, Mexico has a population of approximately 130 million. If a similar percentage of adults pay for legal cannabis, Mexico could dwarf Canada in terms of long-term sales potential.

These two pot stocks would welcome Mexico legalizing adult-use cannabis

Interestingly enough, though, there aren't too many marijuana stocks that currently have much of a presence in Mexico. But should full legalization occur within the next few months, Aurora Cannabis (NYSE:ACB) and, to a lesser extent Canopy Growth (NYSE:CGC), should be sitting pretty.

Aurora Cannabis, the projected leader in peak weed production in Canada, is the most logical beneficiary following the December 2018 announcement that it was acquiring Mexico's Farmacias Magistrales. Farmacias was the first company to receive a license to import, manufacture, store, and distribute cannabis in Mexico. The company also has multiple sales channels via retail stores and pharmacies throughout the county, providing Aurora Cannabis with a first-mover advantage.

At the time of the acquisition, Farmacias was entirely geared to support the medical marijuana community, with 12,000 square feet of growing space, and access to up to 80,000 retail points. This fits with Aurora's theme of focusing on the higher margin medical marijuana community. But given Aurora's aggressive expansion tactics, legalization would almost certainly mean going on the offensive and dramatically boosting Farmacias's production capacity.

The other big winner would be the largest marijuana stock in the world by market cap, Canopy Growth. Canopy's international medical marijuana brand, Spectrum Cannabis, has a presence in Colombia, Peru, and Chile, with Canopy's management having hinted in the past that moving into Mexico, with the assumption of legalization, wouldn't be difficult. Loaded with $3.7 billion in cash and cash equivalents as of the end of the fiscal third quarter, Canopy Growth would have no issues laying the framework to push into Mexico.

Although all eyes might be on Canada or the U.S., don't sleep on Mexico, as it looks ready to step into a leading role in the global adult-use cannabis market.

This article originally appeared in the Motley Fool.

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