Could Mexico Soon Be Exporting Marijuana to the U.S.?
If you think the marijuana industry is delivering incredible growth now, then you haven't seen anything yet. According to a report from Arcview Market Research and BDS Analytics, worldwide weed sales are slated to grow by 38% in 2019 to $12.8 billion, with investment firm Cowen Group projecting an even more aggressive surge in global sales to $75 billion by 2030.
Some of this growth is expected to be organic, with Canada's recreational weed industry in the early stages of ramping up. Within a few years, once growers are producing near their peak capacity and regulatory red tape issues have been resolved, Canada could very well be on its way to nearly $6 billion in annual pot sales.
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But a good portion of this future revenue to come is going to be the result of new legalizations. The U.S. federal government changing its tune on cannabis would certainly roll out the red carpet to the largest cannabis market by projected annual sales in the world. Unfortunately, there's no telling if or when Capitol Hill will change its mind, despite the American public being overwhelmingly in favor of legalizing marijuana, according to an October 2018 Gallup poll.
Rather, investors may have to look beyond the borders of the United States to find the next great cannabis growth story. And where might that be, you ask? According to a recent Forbes interview with this country's former president, Mexico could be a sleeping marijuana giant that's about to waken.
America's other neighbor could be a cannabis powerhouse
Although former Mexican President Vicente Fox has his differences with current president Andres Manuel Lopez Obrador, the legalization of cannabis is an area in which the two leaders agree. And that's interesting, because during Fox's term as president between 2000 and 2006, he voiced strict opposition to cannabis legalization.
But understand that President Obrador and former President Fox aren't alone in their desire to see recreational marijuana legalized. Mexico's majority political party is also in favor of legalization as a means to generate revenue and "put the hurt," so to speak, on drug cartels operating out of Mexico and Central America. Plus, Mexico's Supreme Court has ruled five times since 2015 that the imposition of a ban on recreational marijuana is unconstitutional. Under Mexican law, if the Supreme Court reaches five similar decisions on an issue, it becomes the court standard and is applied throughout the country.
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As the icing on the cake, Mexico gave the green light to medical marijuana back in June 2017, so the infrastructure and regulatory oversight have already been laid for the cannabis industry. It would simply be a matter of expanding them to suit Mexico's adult-use industry.
What would make Mexico particularly attractive to investors is its population of around 132 million, which is more than triple the population of Canada. Even taking into account Canada's higher annual GDP and individual wages, Mexico's sheer population advantage could lead to a market that Fox believes will outpace California, which is itself the fifth-largest economic entity by GDP. Some estimates call for California to hit $11 billion in annual pot sales by 2030, which gives you some idea of what Mexico might be capable of in terms of weed sales.
Say what? Legal marijuana exports to the U.S. from Mexico?
However, it wasn't Fox's support for legal cannabis, or even the progress that's being made in Mexico to push toward adult-use legalization, that really stood out from his interview. Rather, it was the former president's candid discussion that, for a NAFTA (North American Free Trade Agreement) partner, cannabis would become a globally exported commodity like other products. Or, to dig beneath the surface, Vicente Fox foresees a future in which his home country of Mexico becomes an exporter of cannabis to the United States.
Yet to date, we've seen very little in the way of acceptance from the U.S. in allowing marijuana from outside sources to enter the country. Israel had been planning to become an exporter of cannabis to the U.S., but when Israeli officials learned that President Trump had soured on the idea, it was abandoned.
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Rather, the only recorded cannabis exports to the U.S. to date include Tilray's cannabinoid formulation in September that contained cannabidiol and tetrahydrocannabinol for a clinical study at the University of California, San Diego, and Canopy Growth's (NYSE: CGC) export of medical cannabis to a U.S. research partner in October.
The U.S. federal government has agreed to take a hands-off approach to state-level legalizations, but it's still exceptionally strict with the idea that marijuana be grown and stay within a legal state's borders. Essentially, the ability to track the product from seed to sale is important to the U.S. Drug Enforcement Agency (DEA) and federal government, and that can't always be done with product that's being grown in foreign countries and imported into the United States.
But if there is a cannabis grower with an inside track to U.S. exports, it'd be Canopy Growth. Having completed the first-ever dried cannabis export following an OK from the DEA, Canopy already has its foot in the door. Plus, with the company being awarded a hemp growing and processing license in New York State, Canopy is entrenching itself in the U.S. market.
In other words, despite Fox's commentary, I wouldn't be counting on Mexico shipping marijuana to the U.S. anytime soon. I would, however, look for our southern neighbor to possibly become the third country worldwide, aside from Canada and Uruguay, to legalize recreational pot sometime this year.
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Sean Williams has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.