Mexico on Pace to Legalize in the Next 4 Weeks – Here’s How to Play It

Mexican Flag over Stock Chart

It was easy to miss because the U.S. presidential election has been dominating the headlines, but Mexico just moved one step closer to legalizing cannabis by the end of the year.

On November 19, 2020, Mexico’s Senate approved a groundbreaking cannabis legalization bill. If the initiative makes it through the lower house of Congress, it would create the world’s largest legal cannabis market.

What Happens Now?

This cannabis bill still has a few legal hurdles that it needs to clear. But bigger picture, there is a high probability this bill will pass in the next few months and Mexico will take an important step forward into federal cannabis legalization.

Home to a population of 125 million citizens, analysts predict that Mexico will quickly grow into a multi-billion dollar cannabis market.

Mexico Could Grow into a $2 Billion Annual Market

New Frontier Data, a leading cannabis market research firm, predicts that Mexico’s annual cannabis sales grow to the $1.8 billion to $2 billion level.

  • Mexico is the second-most populated country in Latin America. That’s more than 1.4 million cannabis consumers, including nearly 850,000 regular (past-month) users.
  • Mexico’s total potential market revenues surpass $2.0 billion, supporting between 50,000-75,000 jobs.
  • Converting farms from illicit to legal growers represents a significant challenge for the Mexican government due to the activity and influence of drug cartels.
  • During the latest presidential election, Mexican voters identified violence, corruption, and economic growth among top concerns; the interior department reported nearly 16,000 killings in the first half of 2018 — the highest total in more than 20 years, and a rate of 320,000 over a decade.

If Mexico goes legal, I see an opportunity that cannabis investors need to know about. This early global leader is in an ideal position to capitalize on Mexico.

Canopy Growth Corp (NYSE: CGC, TSE: WEED) is the largest cannabis company in the world with a market cap of $8 billion.

Headquartered in Ontario, Canada, Canopy is currently generating most of its revenue in Canada. However, there is no company in the cannabis industry that’s in a better position to capitalize on Mexico.

Canopy’s relationship with Constellation Brands (NYSE: STZ) puts the company in a unique position to serve the Mexican market.

Constellation is the third-largest alcohol company in the world. Its product portfolio includes more than 100 brands that it distributes in 150 countries all across the world.

Back in 2018, Constellation invested $4.8 billion into Canopy, purchasing a 38% equity stake in the company. This partnership would make it easy for Canopy to expand into the Mexican cannabis market because Constellation already has a well-established distribution network in Mexico.

Canopy already has one of the best and most developed product portfolios in the industry – including cannabis drinks. Canopy would be looking to leverage Constellation’s distribution resources to get its cannabis drinks into thousands of bars, liquor stores, and restaurants all across Mexico.

In the meantime, Canopy is looking very solid even without access to Mexico. Canopy’s recent second-quarter revenue jumped to $135 million, up 77% from the same period last year. It looks like Canopy is on pace to hit $1 billion in annual revenue within the next 24 months.

Canopy Shares are Up Big on the Chart

12-Month Chart of Canopy Growth Corp (CGC)
12-Month Chart of Canopy Growth Corp (CGC)

Canopy shares are up 200% from the COVID low in March. Shares look a little extended in the short run, but in the long run, this looks like a trend reversal from bearish in 2019 to bullish in 2021.

The Big Picture on Mexico and Legal Cannabis

Mexico is on the fast track to legalize recreational cannabis. Although it will take years for the market to mature, analysts estimate annual sales should hit $2 billion.

Canopy is in a unique position to capitalize because of its partnership with Constellation Brands. We’ll be keeping a close eye on the Mexican market as it shows great promise.

Author Michael Vodicka owns shares of Canopy Growth Corp (CGC, WEED).

About the Author & Cannabis Stock Trades

Michael Vodicka is an equity analyst with more than 20 years of experience trading and investing. His research has been featured in some of the industry’s most respected publications. He has been investing and leading investors in the cannabis sector since 2013.