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Big Ideas: Apply For Your Mexico Cannabis License NOW

By Adrián Cisneros AguilarHarris Bricken correspondent attorney

For the past 15 years, the global “War on Drugs” has shaped Mexico’s national security landscape. The Mexican government’s offensive against illegal drugs has taken two paths: head-on clashes with the cartels and significant updates to its drug policies.

A brief timeline of events specifically affecting cannabis in Mexico is in order.

In 2009, Mexico decriminalized possession of small amounts of various narcotics for immediate and personal use. Since then, possessing 5 grams or less of cannabis is not a crime. Then, in 2015, Mexico’s Supreme Court decriminalized cannabis cultivation by any adult (18 and up) for personal use. In 2017, amendments to the General Health Law and the Federal Criminal Code allowed limited cannabis use and consumption for  qualified patients, possession for undertaking medical research, and import and export of medical cannabis products.

In 2018, Mexico’s Supreme Court declared Mexico’s general prohibition against adult use cannabis unconstitutional and also mandated that the Ministry of Health, COFEPRIS (Federal Commission for the Protection against Sanitary Risks), and various other Mexican governmental agencies issue regulations to specifically address the establishment of a commercial cannabis chain for the distribution of cannabis.

Much remains to be done for a more formal regulatory and licensing system for commercial cannabis in Mexico. COFEPRIS actually issued guidelines on the topic in 2018, detailing its criteria for granting licenses to cultivate, process, sell and import or export cannabis products for medical, scientific, and industrial purposes, but then abolished those five months later after AMLO became president and in the face of arguments that COFEPRIS overstepped existing foreign trade restrictions by issuing the guidelines.

In turn, medical and adult use commercial cannabis continues to exist in a legal grey area in Mexico. Though an individual or a business can currently apply to COFEPRIS for permission to use cannabis for one’s own personal use or for licences to cultivate, process, sell and import or export cannabis for medical or scientific use, the application process and license issuance requirements remain unclear as no further guidance or regulation has been issued from any Mexican government agency.

There is likely light at the end of the gray legal tunnel though. In 2019, Mexico’s Supreme Court gave Mexico’s Ministry of Health, which oversees COFEPRIS, 180 days to issue a complete set of regulations for the medical cannabis commercial supply chain. Though the creation and adoption of these  regulations is officially deemed “urgent,” even during the coronavirus pandemic, the deadline to actually issue them was extended to September 9, 2020. Meanwhile, a draft law to regulate all cannabis uses, including both recreational and medical applications, is currently under discussion in the Mexican Congress and expected to pass in early 2021. This legislative action should pave the way for the emergence of a lawful and organized cannabis industry in Mexico, primed both for the domestic market and for export around the world.

It is not hard to foresee legalization bringing a cannabis boom to Mexico, generating big money for its legally licensed participants. due to COFEPRIS rescinding its own regulatory guidelines back in 2018.

This means medical cannabis is the only viable means for legally entering Mexico’s cannabis marketplace. This also means those who want a Mexican cannabis license should seriously consider applying for a medical cannabis license right away, before any official regulations for medical use come into reality this fall.

In turn, below is what you should know about applying for Mexican medical use cannabis licenses now:

The bad news is that even if you satisfy the existing prerequisites, COFEPRIS still might not grant a license or it may impose limitations on the scope of the license it does grant. If either of these things happen, the remedy is to pursue amparo actions against the government, which are intended to remedy constitutional rights violations by legislative and executive acts, governmental acts of authority and court decisions. Administrative appeals are also an option but note that these remedies can take years to achieve.

You can currently request a medical cannabis license for four business activities: cultivation, processing, merchandising and import/export. The law already provides that only pharmacies and pharmaceutical companies can engage in merchandising or importing or exporting cannabis, and you must also apply for additional sanitary permits. Few merchandising and import/export licenses have been issued.

To obtain a medical cannabis cultivation license, COFEPRIS requires you prove legal ownership or tenancy of the land on which you intend to cultivate the cannabis.

It is important to consider the tax implications in Mexico. Your licence will be linked to the stated domicile in your application, but it is possible to secure a license in a Mexican State other than that of your corporate/tax domicile.

These licenses are non-transferable, so if you apply for one as an individual you will not then be able to sell it to your business in the future and then sell that business to a third party purchaser. Incorporating a company in Mexico must be certified by a public officer (i.e., a Notary Public or a Commercial Notary), but many are reluctant to notarize companies related to cannabis given the legal ambiguities currently in play.

It is expected that the new regulations for medical use and the Law for Cannabis Regulation will prohibit vertical integration. The likely result then is that getting your licenses now may allow you to engage in more than one activity, which will make it easier for you to have a larger presence/market share in this nascent industry.

The Law for Cannabis Regulation is expected to have a 49% cap on foreign investment. There is no such limit in place right now.

Even if the regulations for medical use do come into effect this September and the new Law for Cannabis Regulation comes into force in early 2021, it will take several months for their complete implementation and, in the meantime, license applications filed with COFEPRIS will be carried out pursuant to the laws then in force when they were filed. This means those who apply now have a chance to obtain the less restrictive licenses discussed above, and this could translate into a competitive advantage once more comprehensive regulatory restrictions come into play.

The Law for Cannabis Regulation is expected to grant the Mexican Cannabis Institute the power to determine how many licenses it will issue per State and per activity. This, along with the vertical integration restriction, could make business scaling difficult over the long term. There are no such limitations in place right now.

COFEPRIS is not charging a fee right now for medical cannabis licenses, and this will almost certainly change with regulation. The prediction is that licensing fees alone will be $4,500 USD or more per license.

The bottom line is there are risks to applying now with no regulations in place, including that a license may not issue. But the upside is tremendous. You may be able to bypass restrictions on foreign investment, as well as future limitations on verticality, scope of business and location. Most importantly, successful early applicants will be years ahead of the competition in terms of local business acumen, understanding of consumer needs and above all, market share. Email us at [email protected] if you want to discuss.

For more on Mexico and cannabis, check out the following posts:

About the Author

Adrián Cisneros Aguilar is a Harris Bricken correspondent attorney in Mexico on US-Mexico cross border legal matters, including cannabis law matters. In addition to his legal practice, Adrian is a professor of international law and intercultural negotiations at Anáhuac University. Adrián is fluent in English, Spanish, French, and Chinese.

Re-published with the permission of Harris Bricken and The Canna Law Blog

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