Mexico, plagued by cartel wars, on cusp of legal cannabis 'green rush'

[October 01, 2020]  By Drazen Jorgic

MEXICO CITY (Reuters) - For Guillermo Nieto, a Mexican businessman who grew up smoking pot, the cannabis greenhouse on his family's vast farmlands in Guanajuato state is part of a bigger dream. One that involves deep-pocketed pharmaceutical companies.

Nieto and several Mexican businessmen have spent years positioning themselves for a time when the country opens up what would be the world's biggest legal cannabis market in terms of population, where the drug can be lawfully cultivated and sold.

Mexico finally outlined rules in July covering cannabis for medical use, and the sign-off is expected in coming weeks.

A bigger prize may also be close for Nieto and foreign companies; Senate majority leader Ricardo Monreal told Reuters he expected a law to be passed before December for recreational use of the drug, allowing regulated private firms to sell it to the public.

"It's going to generate a market," said Nieto, wearing a smart blue shirt, blazer, and bright marijuana-leaf print yellow socks. "We are expecting to create jobs and revenue for the government. We think it could really help our economy."

Indeed the legal cannabis industry is already a multi-billion-dollar global trade, and some big players, including Canada's Canopy Growth and The Green Organic Dutchman, and a unit of California-based Medical Marijuana Inc, told Reuters they were eager to tap the new Mexican market.

Business aside, Nieto says the new regulations will have a profound social impact on the conservative nation of 126 million people, where drugs are a sensitive subject due to a long and painful history of violence perpetuated by feuding cartels.

"The first thing that will happen is that no Mexican will die or go to jail because of this plant," Nieto said.

"With that, everyone wins."

Dario Contreras Sanchez aims to set up a business making products like soaps and pain-relieving oils from cannabis that he would grow legally near his family's hacienda in Durango state, where the powerful Sinaloa Cartel has held sway for decades.

He believes farmers near him who cultivate the plant for narcos would want to sell their produce lawfully - if the government permits them.

"Most of the people want to work legally," said Contreras Sanchez, whose sister married into the family of former Mexican drug lord Amado Carrillo Fuentes.

However Mexicans are by no means unified on this issue.

While a growing cannabis industry promises to be a money-spinner, it faces resistance from campaigners who are worried that regulations for both medical and non-medical cannabis will heavily favor big, often foreign corporations.

They fear legislation will shut out small family producers and fail to offer a path to legalization for many farmers who make a living by feeding Mexico's illegal narcotics trade.

'GREEN RUSH' FRONTIER

The initial regulations covering medical use permit entrepreneurs such as Nieto to grow marijuana on behalf of pharmaceutical companies and allows foreign businesses to import medical cannabis products into the country.

However Mexico's Supreme Court, which has effectively legalized cannabis by ruling prohibition is unconstitutional, has given the government until Dec. 15 to draft new legislation for the recreational use of cannabis.

Monreal, Senate leader of the ruling National Regeneration Movement (MORENA) party, told Reuters that lawmakers were currently ironing out the finer details of the legislation.

He said his party, which has a majority in both houses of Congress with its allies, should have no problems passing the law, which he added would decriminalize possession of a "certain amount" of marijuana.

Monreal said the law would not allow Dutch-style cafes in the first stage of liberalization, but the public would be able to buy marijuana from privately run and strictly regulated "sales and distribution centers".

However he added the Senate was divided over whether to allow industrial cultivation of hemp, a cousin of cannabis plants used in products ranging from food and clothes to building materials, citing opposition from industries that fear hemp will displace their goods.

Depending on what laws Mexico passes, Latin America's second-largest economy could morph into a hot new frontier in the so-called "green rush" spreading across Canadian and American farmlands, spurred by growing global investment buzz around legal marijuana.

Globally the legal marijuana industry was valued at $17.7 billion last year by consultancy Grand View Research, and is expected to reach $73.6 billion by 2027.

POT GIANTS PLAN MOVES

Large cannabis companies, which have pharmaceutical facilities to test products, said they were eyeing both the medical and non-medical marijuana sectors.

Marijuana plants are pictured at a facility in Tepeji del Rio, Mexico August 26, 2020. ANICANN/Bernardo Zavaleta/Handout via REUTERS

Canopy Growth, the world's biggest pot company, told Reuters it aimed to contribute to "the responsible development of this new market" and would review the upcoming regulations.

The Green Organic Dutchman said it "looks forward to participating in the Mexican cannabis market" through its subsidiary, TGOD Mexico, adding it was monitoring the situation.

Raul Elizalde, co-chief executive of HempMeds Mexico, a distributor and subsidiary of California-based Medical Marijuana Inc, said it had held talks with some Mexican pharmaceutical companies about a joint venture about, initially, medical cannabis. However it may launch its own pharma business in the country should the new medical regulations require it.

Elizalde said most companies would hold off making investment decisions until they see what laws the senate passed in December, in case they also amend the medicinal rules.

"It's much better to wait and see if this will change," he said.

To start with, big Canadian companies are likely to see Mexico as a place to export their cannabis products, while U.S. players, hamstrung by federal laws that prohibit marijuana exports, may franchise their brands in Mexico, said Avis Bulbulyan, CEO at cannabis consultancy Siva Enterprise.

Further down the line, Mexico's inexpensive land, relatively cheap labor force and favorable weather would likely make it a top destination for companies to grow and export cannabis raw materials and products.

"It's on a lot of people's radar," Bulbulyan added.

'NO SOCIAL JUSTICE'

Not everyone is happy with how the new industry is shaping up, however.

The coalition that led the cannabis legalization drive through the courts, made up of pro-marijuana activists and parents of ill children seeking cannabis-based pain relief, say the new medical regulation helps big businesses rather than patients.

Lawmakers legalized the use of medicinal marijuana in 2017, while the Supreme Court ruled in 2018 that recreational marijuana should be permitted.

As it stands, the medical regulation would bar people like Margarita Garfias from growing cannabis for personal use to relieve pain. Farmers could only cultivate marijuana through partnerships with pharmaceutical companies that can conduct product trials, tie-ups which are out of reach for most.

Garfias, the mother of a wheelchair-bound 16-year-old son with multiple disabilities, said families who live in fear and have faced getting criminal records for trying to help their children feel short-changed.

"The regulation doesn't help with this, nor with social justice nor human rights for patients," added Garfias, who said her home-grown cannabis-derived medicine had reduced her son's epileptic fits and hospitalizations.

Mexico's health ministry referred queries about the regulation to the regulator, COFEPRIS, which said the rules were focused on ensuring the population was not put at risk.

"Medicines must have quality, safety and efficacy," it said.

Activists say lobbying by corporations could shut small producers out from both the medical and non-medical markets, and thus fail to significantly dent the illicit narcotics trade.

"We are very pessimistic," said Tania Ramirez, drugs policy director at Mexico United Against Crime, an organization that spearheaded the legalization drive through the courts.

Monreal, the MORENA senator, said no law was perfect but that legalization would transform Mexico, from emptying its jails of small-scale pot smokers to helping farmers shed the yoke of deadly cartels.

"The most important thing for Mexico and its legislators is that they dare to knock down this decades-old taboo."

(Writing by Drazen Jorgic; Additional reporting by Frank Jack Daniel and Diego Ore; Editing by Pravin Char)

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