Mexico May Be Just Weeks Away From Legalizing Marijuana

Last year, we saw marijuana history made many times over. Canada became the first industrialized country in the world to legalize recreational marijuana nearly one year ago, while the U.S. Food and Drug Administration approved its very first cannabis-derived drug. The latter is a pretty big deal, considering that marijuana remains a Schedule I (i.e., illicit) substance at the federal level in the United States.

The activity this year has been no different, with the many of the largest acquisitions in cannabis history being announced, and derivative pot products officially being legalized in our neighbor to the north as of this coming Thursday, Oct. 17.

But maybe the biggest story of all in 2019 is yet to come.

Recreational cannabis legalization may happen very soon in Mexico

According to online publication Marijuana Moment, Mexico's Senate appears to be mere weeks away from officially legalizing recreational cannabis. In doing so, it would become only the third country globally to have waved the green flag on adult-use weed, after Uruguay and Canada.

On Halloween of 2018, Mexico's Supreme Court ruled that an absolute ban on the recreational use and possession of marijuana was unconstitutional. What makes this ruling so meaningful is that it was the fifth time in a couple of years that the country's highest court had reached a similar verdict. In Mexico, when the Supreme Court reaches a similar verdict five times, it becomes the standard set throughout the country.

Putting this verdict into another context, Mexico's Supreme Court effectively put Mexico on the path to legalization, with the requirement that lawmakers craft and pass legislation by no later than one year from its ruling (i.e., the end of October 2019). According to Marijuana Moment, Sen. Ricardo Monreal of the Morena Party noted that a reform bill should be voted on, and hopefully approved, by the end of this month.

Then again, cannabis legalization in Mexico won't be a cut-and-dried issue.

Here's why giving the green light to adult-use weed in Mexico could be tricky

One of the nuances about the Supreme Court ruling in October 2018 is that it concerned the possession and use of recreational cannabis, and not the retail sale of the drug. Not everyone in Mexico's Senate is necessarily in favor of the idea of a broad-based bill that would not only grant Mexicans adults the right to possess and use certain amounts of cannabis without the fear of prosecution but also allow businesses to produce and sell marijuana.

There have also been objections to the idea of privately run marijuana businesses infiltrating the Mexican cannabis market. Last week, Mario Delgado Carrillo, the coordinator of the Morena Party's bench in the Chamber of Deputies, Mexico's lower house of Congress, filed a bill that would have placed the recreational cannabis market under state control. Neither Mexico's President, Andres Manuel Lopez Obrador, nor Senate leader Monreal, favor a state-run approach.

There's also, arguably, an even more pervasive black market presence that would need to be contended with in Mexico than there is in Canada or the United States. Drug cartels in Mexico control a significant chunk of illicit production in the country, and it's going to be a far tougher task to, pardon the pun, weed them out than it is to halt illicit production from small-time operators in the U.S. or Canada.

Lastly, the hard timeline that Mexico's Supreme Court placed on Congress to come up with rules and regulations concerning adult-use weed may actually make things more difficult. Rather than producing legislation that's best for consumers and businesses, Mexico's lawmakers, now under a time crunch, may, in my view, pass non-optimal legislation.

A potential billion-dollar opportunity awaits

But if everything goes well -- and that's a big "if" -- Mexico could become a $1 billion annual market by 2024, according to the State of the Legal Cannabis Markets report from Arcview Market Research and BDS Analytics. That would be particularly welcome news for a handful of pot stocks that've navigated their way into Mexico in recent years.

For example, in December, Aurora Cannabis (NYSE:ACB) agreed to acquire Farmacias Magistrales, the only company given a license to import raw materials containing greater than 1% tetrahydrocannabinol (THC), the cannabinoid that gets users high. Farmacias owns a 12,000-square-foot pharmaceutical processing and production facility in Mexico City that can process THC and cannabidiol (CBD), as well as produce cosmetics and nutraceuticals. When Aurora made its purchase, Farmacias had a network reach of about 80,000 retail doors for its CBD products, and roughly 500 pharmacies and hospitals for its THC products.

Although Aurora Cannabis has made clear that its focus is on higher-margin medical marijuana patients, its purchase of Farmacias may give the company a first-mover advantage in a recreationally legalized environment.

Opportunities for added revenue should also be available to Medical Marijuana, Inc. (OTC:MJNA), the very first publicly traded cannabis stock. Medical Marijuana holds the distinction of being the first company to import CBD-rich oils into Mexico in 2016. The company has had early success with its RSHO-X hemp oil product line with medical patients, and Medical Marijuana would more than likely see an acceleration of sales if Mexico further loosens restrictions on cannabis products.

Needless to say, the next couple of weeks are going to be pivotal to the future of Mexico's cannabis industry.

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.

This article originally appeared in The Motley Fool.