How to be a First Mover Following Legalization of Cannabis in Mexico

The legalization of cannabis in Mexico is set to pass by Mexican Congress in October. The government hopes to closely regulate the industry to increase tax revenues. A poll run on Twitter by Mexico’s secretary of Security and Civilian Protection shows more than 80% of respondents lean in favor of the Bill. That’s good news for cannabis companies interested in entering the Mexican market.

With cannabis already legal in Uruguay and Canada, there is serious money to be made in the cannabis industry. The Uruguayan cannabis market has US$100 million of investment already. With cultivation permits available in Colombia,  Latin America is a major player in the international cannabis market. If you have a commercial interest in cannabis, keep your eye on the legalization of cannabis in Mexico. With proper research and preparation, you could be a first mover in the Mexican cannabis market.

1. Do your market research

It’s important to look at how such legislation works in other countries. Uruguay currently has 147,000 people on its government register for marijuana consumption. However, with only 17 producers authorized to produce and distribute cannabis, there is a massive shortfall in supply. Uruguay hasn’t produced cannabis on such a large-scale before. Regardless, the market continues to grow and producers continue their bidding for government permissions.

Cannabis in Mexico

Mexico’s arable land makes up for Uruguay’s shortfalls, possessing a comparative advantage with land that is well-disposed towards large-scale cannabis production. There are,114,360 hectares dedicated to the cultivation of cannabis in Mexico, according to a document published by UAM. KPMG estimated the medical marijuana market has a potential worth of US$2 billion over the next 10 years. A survey conducted by the Ministry of Health found 7.3 million Mexicans aged between 12 and 65 smoked marijuana more than once during 2016. Therefore, the numbers speak for themselves. With the legalization of cannabis in Mexico, the market is expected to take off. Firms need to familiarize themselves with the cannabis legislation and the business market itself in Mexico to create a successful strategy.

2. Apply for your permit

The Federal Commission for the Protection against Sanitary Risk has already released 38 permits to firms. This permits the production of raw materials, food, beverages, supplements, and cosmetics related to cannabis. Although the Bill hasn’t passed Congress yet, firms are already applying for permits, so gather your commercial documentation to file for yours as soon as possible. With a deadline to pass this Bill by October, Congress members are already underway for the legalization of cannabis in Mexico.

3. Search for production sites

There are many different ways to grow cannabis. However, given Mexico’s large land mass that is already dedicated to the plant, combined with a favorable growing climate, this is your cheapest and most cost-efficient method. Farmers that have lived on the land for decades know the weather patterns and the best methods to grow the crop. Furthermore, as experts in harvesting and cultivation, alliances with local producers can provide get access to the best quality product.

Alternatively, cannabis can be grown in greenhouses. This generates higher electricity costs. However, the environment is completely controlled and therefore isn’t at risk of adverse weather events or droughts. You need to also consider the cost of the greenhouse, its insulation to provide adequate heating, water and lighting solutions. Greenhouses also have automated technology systems, reducing the potential for human error. A benefit of using greenhouse facilities means you can set up production wherever you want. Whatsmore, if you plan to vertically integrate, this could save you money, reducing transport costs to distribution facilities or retailers.

4. Find the right people

It’s important to work with a team that has expertise. Consider collaborating with professionals who have experience working in Uruguay, Canada, or other countries that have legalized cannabis production to varying degrees. Research and development (R&D) is a key part of the cultivation process. The creation of better seeds, efficient fertilisers and sustainable cultivation methods will provide a higher quality product, at a lower cost. Therefore, in order to provide quality products, as well as other diverse offerings, R&D should be part of your budget.

You should also consider forging alliances with health providers. Medicinal cannabis products are used to treat epilepsy seizures, arthritis pain, anxiety and stress. In Uruguay, cannabis is exclusively sold through pharmacies. While it is still not clear how legal cannabis will be distributed in Mexico, alliances will be important to successfully get your product into the market. Working with medical professionals is important to show your product is trusted and reputable.

5. Vertically integrate

Businesses that have the ability to make larger investments in the Mexican cannabis industry can consider vertical integration. Taking charge of more than one part of the supply chain means more control over the product in terms of where its sold and how it’s marketed. Therefore, vertical integration can provide economies of scale, lower costs and higher profits. Well established operations reduce reliance on outside suppliers and mean you can control the quality of your product throughout the whole process, from the seed to product ready for the final consumer.

6. Offer diverse products

The cannabis market doesn’t only offer opportunities for the production and distribution of the actual plant. There are a wealth of products and services that can support producers and users alike. Accessories for cannabis storage and easy transport can appeal to consumers. Hemp-based beauty products, and oils and extracts are just some of the products that can be created with cannabis.

Uruguay has a type of mate (traditional tea-like drink), infused with nonpsychoactive cannabis, which is part of a growing market for cannabis-infused drinks. This product creatively integrates a key Uruguayan drink with the cannabis industry.

Likewise, service companies that transport waste, provide indoor lighting solutions for greenhouse and packaging can benefit in this industry. Forming strong alliances with businesses in relevant service industries will help you to feel secure in your market entry and setup stages.

Where to next?

Now you know how you can take advantage of first mover benefits after the legalization of cannabis in Mexico. Colombia is already positioning itself as a worldwide supplier of medical cannabis, attracting attention from investors and businesses worldwide. Export opportunities for the Mexican cannabis market could follow once it’s established.

If you’re looking to enter the cannabis market in Latin America, reach our team of experts today via email here. Our team expects a bright future ahead for the region’s medicinal cannabis industry. Mexico’s burgeoning cannabis market is open for those international investors on the lookout for new opportunities, and now is the right time to get started.

Learn more about our team and expert authors.