Mexico Ready to Unleash a $2 Billion Market

North American Export Containers

The United States is dominating the cannabis headlines because four states are set to vote on legalization on November 3 with the U.S. presidential election.

Cannabis investors could have easily missed a huge investment opportunity that is rapidly developing just south of the U.S. border.

Mexico is on the fast track to legalize recreational cannabis – most likely by the end of the year. Here are some more details from marijuanamoment.com.

The Mexican Senate will likely vote on a bill to legalize marijuana within the next two weeks, the chamber’s majority leader recently said.

It’s not clear if the legislation will go through the committee process or straight to the floor given that tight timeline. Zara Snapp, a legalization activist with the Instituto RIA and the coalition #RegulacionPorLaPaz, told Marijuana Moment that advocates have similarly heard from senators that the plan is to quickly pass the proposal and they’re “hopeful” that’s the case.

If the Senate passes the legal cannabis bill it will still have to go before the other house of the nation’s Congress, the Chamber of Deputies. President Andrés Manuel López Obrador said in August that marijuana reform legislation will advance in the new session. The bill was approved by several committees earlier this year, but the COVID-19 outbreak derailed negotiations.

Legalization in Mexico is important for two reasons.

North America on the Verge of Cannabis Revolution

Canada has already legalized recreational cannabis. Mexico looks almost certain to do so by the end of the year. If that happens, the U.S would be the only country in North America where recreational cannabis is illegal at the federal level.

If Mexico does legalize, and I expect it to happen, it puts additional pressure on the U.S. to follow suit much sooner than later.

Mexico Could Grow into a $2 billion Annual Market

Mexico could easily grow into a multi-billion dollar cannabis market.

New Frontier Data, a leading cannabis market research firm, predicts that Mexico’s annual cannabis sales would be between $1.8 billion and $2 billion.

  • 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 grows 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.

In the long run, Mexico will most likely grow its own cannabis in Mexico. Mexico’s climate is perfect for growing cannabis.

However, that would take years to develop. In the meantime, for the next few years, Mexico will likely look for imports to supply its domestic markets. With cannabis still illegal in the U.S. on the federal level, U.S. cannabis companies would be banned from exporting to Mexico.

Mexico would likely turn to the Canadian cannabis industry for imports. Canadian cannabis producers have been struggling with oversupply. Mexico exports could be a great way for some of the largest Canadian cannabis companies to unload tons of extra product.

There are two Canadian cannabis industry leaders that are in position to benefit if Mexico goes legal.

2 Canadian Cannabis Leaders Looking to Score in Mexico

One way to invest is with Aurora Cannabis (NYSE: CGC, TSE: ACB). Aurora is one of the largest Canadian cannabis companies with a market cap of $550 million.

Back in 2018, Aurora acquired Farmacias Magistrales S.A.. Farmacias is a Mexican pharmaceutical company that became the first in the country to receive a license to import, grow, and sell medical cannabis.

Aurora Cannabis to Acquire Mexico’s Farmacias Magistrales S.A.

That investment could pay off nicely as Mexico pursues legalization. However, back in Canada, Aurora has been a dumpster fire for the last 18 months.

The company has had major problems executing its business plan, taking multi-billion dollar losses cratered its share price more than 90%.

Chart of Aurora (ABC)

Aurora looks like a high-risk play on Mexico. For more details, read my report from last month.

A safer way to invest in the Mexican cannabis industry is with Canopy Growth Corp (NYSE: CGC, TSE: WEED). Headquartered in Ontario, Canada, Canopy is the largest cannabis company in the world with a market cap of $7 billion.

Canopy has been trimming back international efforts in the last year in order to cut spending. However, Canopy still has a strong international presence, including Peru, Chile, Columbia, and Germany. The company is well-positioned to enter the Mexico market.

Canopy has the best cannabis drinks portfolio in the industry. The company would definitely be looking to leverage Constellation’s distribution resources to get its cannabis drinks into thousands of bars, liquor stores, and restaurants all across the country.

Canopy shares were weak in the second half of 2019 and early 2020. However, Canopy’s share price has been stabilizing for the last six months and this looks like a long-term trend reversal.

Chart of Canopy Growth Corp.

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.

Mexico will likely import cannabis from Canada to supply local markets until it can ramp domestic production. That would be beneficial to the Canadian cannabis industry that is currently flooded with overproduction and oversupply. Aurora and Canopy are both in a position to benefit from Mexico going legal.

We’ll be keeping a close eye on the Mexican market as it shows a lot of promise.

Best,
Michael Vodicka
Editor, Cannabis Stock Trades


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.

Mr. Vodicka brings his expertise and guidance to the members of Cannabis Stock Trades.

Join Cannabis Stock Trades for Mr. Vodicka’s exclusive analysis, trade alerts, and model portfolio.

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