While marijuana has been around in Mexico since the 1600s, the real story begins in the 20th century during the Prohibitionist Era. After Mexico news outlets widely reported stories of cannabis users committing violent crimes, a cannabis stigma was created, resulting in Mexico banning the production, sale, and use of cannabis in 1920, followed by a ban of exports in 1927. The movement of cannabis was first regulated by the three U.N. conventions on narcotic drugs, beginning with the Single Convention on Drugs in 1961. The prohibition gave rise to the cartel’s involvement in the illegal cannabis industry in the ’80s, and these cartels have consistently supplied the U.S. market since. After the war on drugs significantly increased violence in Mexico and gave the cartels more power than before, Mexico began to alter its stance. In 2015, the country decriminalized cannabis use, and in 2017, legalized medical cannabis containing less than 1% THC. In 2018, the Mexican Supreme Court deemed the prohibition unconstitutional, and in December 2020, the U.N. Commission on Narcotic Drugs transferred cannabis from a Schedule 4 to a Schedule 1 drug under the Single Convention. As of now, Mexico is on the edge of legalizing recreational cannabis use. This bill, “The New Federal Law on the Regulation of Cannabis,” is awaiting approval by the Senate and then only needs to be signed by the President to be passed into law.
With a population of 130 million and over 10 million regular cannabis users, Mexico will generate $1.2 billion in annual tax revenues while saving $200 million annually in law enforcement and creating thousands of new jobs. One estimate has cannabis legalization bringing up to $5 billion to the economy annually. One issue Mexico will face will be keeping the cartels from transitioning to the legal cannabis market. While those with criminal records can’t obtain any cannabis license, cartels have a deep network, and Mexican officials can’t always determine whether someone is connected to a cartel. Mexico’s legislators believe the cartel will be forced to operate legally over time as they won’t be able to compete in the illegal market and keep as much power as they currently have.
There are also many questions regarding how Mexico’s cannabis legalization will affect the U.S. market. The USMCA, formerly known as NAFTA, currently does not include cannabis, raising the question of whether Mexican producers will be able to import cannabis into the U.S. for a much lower price than the U.S. can produce domestically. However, the U.S. will likely implement trade barriers to protect domestic companies. Currently, the U.S. places trade barriers on tomatoes in Mexico, and many see similar actions being placed on cannabis.
The United States will likely place a trade barrier on cannabis from Mexico to protect domestic companies
There’s no doubt that cannabis legalization in Mexico will create investment opportunities in the U.S. It mostly comes down to whether the U.S. creates trade barriers with Mexico regarding cannabis. If they don’t, the U.S. cultivation and manufacturing sectors will be hurt badly as Mexico can produce much cheaper. The absence of trade barriers will also hurt testing labs as cultivation moves out of the country and uses testing labs in that same country. However, U.S. companies with distribution networks, retail operations, or strong brands will benefit from Mexican legalization through lower costs of goods sold. One solution that would benefit U.S. companies would be legalizing interstate commerce in the U.S. without federally legalizing cannabis. This means other countries wouldn’t export finished products or raw material with THC above 0.3% into the U.S., and the U.S. industry would develop and consolidate. Once the U.S. federally legalizes cannabis, they must create tariffs or some trade barriers against all the developing countries legalizing cannabis, or the U.S. companies will suffer.
Companies are also greatly affected by banking laws. Currently, companies touching the flower in countries where it is not federally legal cannot access regular banking and can’t list publicly on the NASDAQ or NYSE. However, Canadian companies touching the flower can list in the U.S. since it is federally legal in Canada. These laws mean companies operating in Mexico will also be able to list in the U.S publicly. However, the SAFE Banking Act recently passed the House of Representatives in April 2021 and is up for debate in the Senate. Passage of this act would grant banking access to cannabis companies touching the flower and open the door for these companies to list in the U.S publicly. This would create a large flow of money into U.S. cannabis companies and allow them to scale at a much quicker pace than previously available. One important thing to note is that the large U.S. stock exchanges are technically able to accept cannabis companies’ listings if they meet the exchange requirements. However, they don’t accept them to avoid punishment from the federal government. Therefore, as the government moves towards allowing these companies federal banking access, the main question regarding U.S. companies is raised. In absence of government pressure, will these exchanges allow U.S. companies to list and access their own public markets?
The SAFE Banking Act would reduce risk for cannabis companies transacting with only cash
Overall, companies and investors looking to take advantage of the booming cannabis market need to stay up to date on the fast-changing cannabis legalization process in many countries. Those that truly understand it will position themselves to benefit from what is projected to be one of the fastest-growing industries over the next decade.
Ms. Della Mora is the Co-founder of BLC, a financial advisory and investment firm based in Los Angeles with satellite offices in Houston, New York, London, Hong Kong, and Melbourne. During her tenure at BLC, she successfully invested, assisted in the capitalization, and helped business develop small cap oil companies in Kentucky, Texas, Louisiana, Illinois, Colorado, California, Wyoming, North Dakota, and Alaska. She has also structured oil & gas partnerships in several U.S. states, and in Ecuador, Central America. Ms. Della Mora has been involved in many LNG (Liquid to Natural Gas) projects in the U.S., as well as many commodity trades worldwide. She has personally advised also Chinese conglomerates in their U.S. oil & gas investments.
Black Legend Capital is a leading Merger & Acquisition boutique advisory firm based in California with offices worldwide. Black Legend Capital was founded in 2011 by former senior investment bankers from Merrill Lynch and Duff & Phelps. We provide M&A advisory services, structured financing, and valuation services primarily in the cannabis, technology, healthcare, and consumer products industries. Black Legend Capital’s partners have extensive advisory experience in structuring deals across Asia-Pacific, Europe, and North America.
Top Five Memorable Marijuana Moments In 2018
by Michelle Rutter, NCIA Government Relations Manager
As 2018 draws to a close, our Government Relations team in Washington, D.C. is feeling especially thankful this year – both for all of our members, and for all of the strides forward that cannabis policy made this year! Before 2019 begins, let’s take a look back on marijuana’s top five most memorable moments of 2018:
Cannabis wins big at the ballot box
There’s no doubt about it: America experienced a green wave on election night as voters all over the country cast their votes in favor of reforming cannabis laws and electing candidates that share those values. Voters in Michigan cast their votes for the legalization of adult-use cannabis, increasing momentum of our movement. At the same time, voters in Missouri and Utah were successful in legalizing medical cannabis, becoming the 32nd and 33rd states to do so, and despite significant hurdles. In addition to the ballot initiatives that were passed, Democrats took control of the House of Representatives, while Republicans maintained their control of the Senate. While this development surely means that cannabis policy will progress further than ever in the House in 2019, it also means that anything passed through that chamber will face significant hurdles in the more conservative Senate.
Shake-up at the Department of Justice and the rescission of the Cole Memo
On January 4, then-Attorney General Jeff Sessions announced the Department of Justice’s decision to rescind the “Cole Memo” and two additional memos related to marijuana enforcement policy. These memos, issued in 2013 and 2014, helped to clarify the Department’s response to state-legal cannabis activity. The rescission of the memo has not resulted in any major change in enforcement policy, rather, this continues to be a matter of prosecutorial discretion. On November 6, the day after the midterm election, Jeff Sessions resigned as Attorney General at the President’s request.
Congressional banking and 280E bills gain record co-sponsorship
As the momentum for cannabis reform grows, so has the number of cosponsors on marijuana bills in Congress. Most notable is legislation that would provide safe harbor to financial institutions that choose to service the cannabis industry. At the end of the 114th Congress in 2016, the House’s Marijuana Businesses Access to Banking Act had 39 cosponsors, while the Senate version had just 10. As we finish the 115th Congress, the House’s SAFE Banking Act (H.R. 2215) has 95 cosponsors, while the Senate version (S. 1152) has 20. That’s nearly a quarter of the House of Representatives and a fifth of the entire Senate! Bills to reform IRC Section 280E have seen a similar spike. At the end of 2016, the House’s Small Business Tax Equity Act had a mere 18 cosponsors, while the Senate version had four. Today, the Small Business Tax Equity Act (H.R. 1810) has 46 cosponsors, while the Senate’s version (S. 777) has six.
Canada implements adult-use cannabis laws
In October, Canada’s laws making marijuana legal for adults went into effect and licensed retail stores opened throughout the country. This move made Canada the second country in the world, after Uruguay, to formally legalize the recreational use of the plant. Canada is the first G7 and G20 nation to do so. Federal prohibition has effectively locked American cannabis companies out of legitimate financial markets and, in doing so, has provided a significant advantage to publicly traded Canadian firms. Changes to federal law are needed to enable American small businesses to compete on the emerging multi-billion-dollar global cannabis market. Without legislative action, U.S. cannabis entrepreneurs will miss out on opportunities to develop innovative new products, attract global investment funding, and expand their reach to capitalize on expanding international business opportunities.
NCIA’s 8th Annual Cannabis Industry Lobby Days
This year, 225 cannabis industry professionals descended on Washington, D.C. to lobby congressional offices on some of the issues they and their businesses are facing. In total, NCIA members met with nearly 300 offices on Capitol Hill! The cannabis industry has seen exponential growth in the mainstream support for regulated cannabis markets from both sides of the political aisle. This progress is a direct result of the uncountable number of personal stories told by our members each year at our annual Lobby Days events in Washington, D.C., so don’t forget to mark your calendars for May 21-23, 2019, so that you can join us for our largest event yet!
The 116th Congress will arrive in Washington, D.C. in January. With the change in leadership in the House of Representatives and the momentum at our backs, 2019 is shaping up to be one of the cannabis industry’s best years yet. Our Government Relations team looks forward to all of the opportunities we will be faced with in the new year, and we wish you a very happy holiday season!
Canada Legalizes Cannabis – When Will The U.S. Follow?
by Rachelle Lynn Gordon, NCIA Editorial Staff
On June 19, Canada became the first G7 nation and second in the world after Uruguay to fully legalize cannabis for adult use, paving the way for what is estimated to be a CAD$9.2 billion dollar industry by 2025. Canadian Prime Minister Justin Trudeau Tweeted in response to the move:
“It’s been too easy for our kids to get marijuana – and for criminals to reap the profits. Today, we change that. Our plan to legalize & regulate marijuana just passed the Senate. #PromiseKept”
The passing of the iconic Bill C-45, also known as the Cannabis Act, was met with raucous applause from the across the globe and sent marijuana stocks soaring. Provinces and territories now have until October 17 to develop and implement their own regulations for the sale of cannabis products; according to the federal statute, adults will be able to carry and share up to 30 grams of marijuana in public and cultivate up to four plants at home.
But when will the United States follow suit and become a part of the multi-billion dollar global cannabis market?
High Time for Federal Legalization
“With leading policymakers on both sides of the aisle calling for reform, there has never been more momentum behind the effort to replace criminal marijuana markets with regulated businesses, but we still have a long way to go.” says Aaron Smith, executive director for the National Cannabis Industry Association (NCIA).
Despite the fact that 29 states, as well as Guam, Puerto Rico, and the District of Columbia, have legalized cannabis for medical and/or adult-use, the plant is still illegal at the federal level. This has led to immense headaches for business owners within the legal space who only wish for their companies to thrive but are hindered by lack of access to traditional banking and fundraising opportunities and stuck operating within individual state lines.
Lawmakers from legal states have heard their constituents’ voices loud and clear and have joined together to develop the STATES Act, short for “Strengthening the Tenth Amendment Through Entrusting States.” Introduced by Senators Elizabeth Warren (D-MA) and Corey Gardner (R-CO), the bill aims to protect states that choose to legalize cannabis by creating an exemption to the U.S. Controlled Substances Act, and would remove industrial hemp from the Controlled Substances Act entirely. The bill would also allow banks to work with cannabis businesses more easily. Representatives David Joyce (R-OH) and Earl Blumenauer (D-OR) have already introduced a companion bill in the House.
When asked about the STATES Act by reporters, President Trump replied that he would more than likely support the measure, stating: “I support Sen. Gardner, I know exactly what he’s doing. We’re looking at it. But I probably will end up supporting that, yes.”
Full Legalization Needed for Market to Thrive
Adopting a federalist approach on the issue of cannabis law reform will certainly mean that individual states will be allowed to flourish, but it stops short of the immense financial opportunities that federal legalization could bring.
“The cannabis industry is vibrant and expanding rapidly, but until the threat of federal interference is removed, our economic potential is limited,” said Aaron Smith, NCIA. “Lack of access to financial services, exorbitant tax pressures, and the absence of interstate and international commerce are all problems that we can fix by turning up the pressure on Congress.”
U.S.-based companies and investors are missing out on huge financial investment opportunities due to cannabis’ current status as a Schedule I controlled substance. According to a recent white paper released by NCIA’s Policy Council, as of February 2018, 39 of the 89 federally-licensed producers (LPs) of cannabis in Canada were publicly traded, raising a total of $1.2 billion CAD in January 2018 alone. On June 20th, it was announced that Tilray would be joining Cronos Group as the second Canadian LP listed on the U.S.-based NASDAQ; behemoth Canopy Growth is listed on the NYSE.
In late 2017, Canopy announced the sale of nearly 10 percent of its stock to U.S.-based alcohol giant Constellation Brands (known for Corona and SVEDKA vodka) for a cool $191 million dollars. Now that cannabis is legal in Canada, there are certain to be even bigger deals fastly approaching that U.S. operators are missing out on.
Impressive Advancements are Being Made – Just Not in America
The United States is also being left behind in terms of research and development and intellectual property within the cannabis space. In countries such as Israel, where the federal government appropriates money to researching marijuana, rapid advancements are being made that could be groundbreaking – and have global effects. In 2017, there were more than 110 clinical trials involving cannabis in Israel – far more than any other developed nation. It was also recently revealed that China now holds around half of the IP related to hemp in the world. This puts Americans at a disadvantage as the rest of the world competes to create innovative and life-altering cannabis medicines and technology.
“R&D requires access to capital and federal and academic support,” explains Frank Lane, President of Cannabis Financial Network. “These remain elusive in the U.S. because cannabis remains federally illegal. The U.S. is slowly allowing more University backed cannabis research but at a much slower pace then Israel, Canada and have allowed research on a federal level for years. The U.S. will be playing catch up as medical cannabis continue to be adopted globally.
Exports Expected to Rule Canadian Market
While legal domestic sales won’t begin for several months, some Canadian LPs have already been exporting cannabis products to several countries that have approved the plant for medical purposes. It was announced last October that Cronos Group had reached a deal to put their products in over 12,000 pharmacies across Germany, where the government is choosing to use their own socialised healthcare systems to handle the distribution of cannabis product to patients. Obtaining these lucrative government contracts means big money for exporters, and unfortunately for entrepreneurs from the U.S. looking to cash in may be too late by the time legalization occurs.
“Many European and Latin American countries are approving cannabis for medical use,” Lane adds. “These are billion dollar markets that countries like Canada and Uruguay are seizing because they have federally legalized cannabis and become adept at developing pharmaceutical grade products.”
U.S. Canna-Businesses Must Double Down on Reform Efforts
Until the federal government ceases to consider cannabis a Schedule I narcotic, American businesses will continue to lag behind and miss out on multi-billion dollar opportunities. Therefore, it is more important than ever that the industry continue to communicate with policymakers in order to create impactful change – before it’s too late. Attending events such as the NCIA Quarterly Cannabis Caucus series is a perfect way to engage with local politicians and fellow entrepreneurs while also staying up to date on the latest legalization developments.
NCIA’s team in Washington, D.C. and our allies in Congress have been busy advancing cannabis reforms on Capitol Hill over the last couple of weeks. The Congressional appropriations process for the FY2019 federal budget is well under way and cannabis has been at the center of some of the debates around government spending.
Last week, the Senate Appropriations Committee approved legislation that would renew protections for state medical cannabis programs when the current spending budget expires in September. The language, which was introduced by Sen. Patrick Leahy (D-VT), prevents the Department of Justice from using any resources to target medical cannabis patients or providers who are in compliance with state laws.
While this provision has been amended into the budget since 2014, this is the first time that this provision has been included in the original language of the spending bill by either chamber of Congress. Thanks to the hundreds of member-businesses that have invested in NCIA’s work on Capitol Hill over the years and the growing public support for national cannabis reforms, this policy is no longer a controversial issue for Congress.In fact, leading up to the Senate hearing, Sen. Lankford (R-OK) attempted to include a budget rider that would effectively nullify the medical cannabis protections but later withdrew it, citing lack of support.
Over on the House side, an amendment offered by Rep. David Joyce (R-OH) which would have restricted the Treasury Department from using tax dollars to sanction banks for providing financial services to the legal cannabis industry came very close to passing but ultimately did not make it into the budget package. NCIA is working with our allies in the Senate to include the banking protections in that chamber’s version of the federal budget in the days ahead.
Another champion for social justice and sensible cannabis policies, Rep. Barbara Lee (D-CA), introduced a first-of-its-kind resolution bringing attention to the racially discriminatory enforcement of marijuana prohibition. Lee’s Realizing Equitable & Sustainable Participation in Emerging Cannabis Trades (RESPECT) Resolution calls on states with legal cannabis to enact policies to ensure that people of color and communities that have suffered the most under prohibition policies have equal access to business opportunities within the emerging legal cannabis industry.
NCIA applauded Rep. Lee and the bipartisan group of lawmakers who are leading the charge on tackling this important issue.
Meanwhile, other nations may be surpassing the U.S. in enacting sensible marijuana policies. Just today, the Canadian Parliament passed legislation that would legalize adult-use cannabis for our neighbor to the North beginning in October 2018. For more information about how the U.S. cannabis industry risks falling behind other nations due to outdated federal laws, download NCIA’s recent white paper, “How the U.S. is Falling Behind in the Global Cannabis Market.”
Stay engaged with NCIA for more news about the advancement of federal cannabis reforms and to learn about how you can get more involved.
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Ms. Della Mora is the Co-founder of BLC, a financial advisory and investment firm based in Los Angeles with satellite offices in Houston, New York, London, Hong Kong, and Melbourne. During her tenure at BLC, she successfully invested, assisted in the capitalization, and helped business develop small cap oil companies in Kentucky, Texas, Louisiana, Illinois, Colorado, California, Wyoming, North Dakota, and Alaska. She has also structured oil & gas partnerships in several U.S. states, and in Ecuador, Central America. Ms. Della Mora has been involved in many LNG (Liquid to Natural Gas) projects in the U.S., as well as many commodity trades worldwide. She has personally advised also Chinese conglomerates in their U.S. oil & gas investments.
On June 19, Canada 