Mexico opens its doors to the commercialization of Hemp
Mexico has the necessary experience, natural resources, and workforce to become one of the largest producers of cannabis in the region.
Last week, a significant milestone occurred in the cannabis space: Mexico’s Department of Health, known as Comisión Federal para la Protección contra Riesgos Sanitarios (COFEPRIS), issued the first-ever authorization for the cultivation, processing, and commercialization of hemp.
Mexico’s cannabis laws and regulations are rather complex and convoluted — at least for this American attorney — so here is an overly simplified summary of hemp’s legal status.
While not expressly addressed in any of the country’s cannabis bills, which strictly legalized the individual adult use and medical use of cannabis, hemp became legal in 2017 when Mexican lawmakers passed an amendment to the General Health Law (GHL). Article 245 stipulates that cannabis products containing 1% THC or less, with ample industrial uses, can be lawfully commercialized, imported, and exported “pursuant to applicable sanitary regulations.”
Although COFEPRIS has yet to adopt hemp-specific regulations, stakeholders interested in engaging in hemp-related activities have had the right to apply for authorizations, which are generally described as “licenses” in GHL and matching regulations (i.e., medical use regulations).
Desart MX, S.A. de C.V. (Xebra Mexico), a Mexican company wholly owned by Xebra Brands Ltd. (Xebra), a Canadian cannabis company, tried to exercise that right in 2018 but saw its applications for authorization to cultivate, process, commercialize, import, and export hemp denied by COFEPRIS on the grounds that GHL does not expressly allow the cultivation and processing of hemp, only its commercialization and import/export.
In response, Xebra Mexico filed an amparo action with the Mexican Supreme Court to contest the COFEPRIS decision. Having successfully shown that hemp is safe for human consumption, and thus should be treated as any other agricultural commodity, Xebra Mexico was awarded a favorable judgment in July 2022. In its ruling, the court concluded that prohibiting the cultivation and processing of cannabis containing less than 1% THC for industrial uses, violates the constitutional right of freedom to work. In addition, the court held that since the commercialization and import/export of hemp are expressly allowed under Mexican law, all other necessary activities leading up to those production phases must also be allowed.
The court’s ruling was soon after ratified by a federal court that then ordered COFEPRIS to issue Xebra Mexico’s authorizations — a step that COFEPRIS reluctantly took eight months following the federal court’s order. In fact, last week COFEPRIS issued a public statement in which the agency emphasized it was forced by judicial decree to issue these authorizations and strongly disagrees with the court’s ruling given the fact that COFEPRIS has yet to determine the safest regulatory scheme for the entire chain of hemp production.
This ruling along with the recent issuance of Xebra Mexico’s authorizations are significant for the hemp industry. First, they formally legalized the entire hemp production line in Mexico. Second, they opened the door for other companies to benefit from the same authorizations provided certain conditions concerning safety protocols, security measures, phyto-sanitation processes, pest management procedures, and customary inspection and reporting provisions are met. The ruling obtained by Xebra Mexico is binding caselaw (jurisprudencia). This, in turn, has the potential to increase Mexico’s revenues and position the Latin American country as one of the global leaders in this space. That being said, Mexican stakeholders, including international attorney Adrián Cisneros Aguilar, are skeptical a cannabis bill that regulates the entire chain of recreational and industrial uses of cannabis will be enacted by the end of this legislative term (2024).
Indeed, Mexico has the necessary experience, natural resources, and work force to become one of the largest producers of cannabis in the region. This means that U.S. companies interested in entering this space should apply for authorizations now in order to hit the ground running once COFEPRIS releases its matching regulations.
Other preliminary steps foreign companies should take include:
- Forming a Mexican company with a specific cannabis undertaking (i.e., industrial hemp, hemp-CBD, and/or medical).
- Establishing strong relationship with local stakeholders, including experienced farmers, processors, and distributors.
- Securing land. There are many ways of doing so, but land ownership or entering into a lease agreement for the land where the company plans on conducting its business operations would be most advisable.
- Becoming acquainted with Mexico’s GHL and matching regulations.
- Consult with U.S. and Mexican attorneys specializing in cannabis and international law.