Mexico Set to Legalize Recreational Marijuana, Putting Pressure on U.S. to Follow Suit

Will U.S. Follow Canada & Mexico & Legalize Recreational Cannabis?

Canada legalizing recreational marijuana in October 2018 was a big deal. It was the first major economy outside of Uruguay to do so. It was a boon for the cannabis industry and long-suffering marijuana stocks.

Since then, there have been predictions about when the U.S. will do the same. What nobody expected, though, was that Mexico would beat the U.S. to legalizing recreational cannabis.

With Mexico set to legalize marijuana in the coming weeks (it has a deadline of April 30), that puts pressure on the U.S. to follow suit, since the country will be sandwiched between two nations that sell pot legally.

Mexico making recreational pot legal might look like it came out of nowhere, but the issue has been percolating in the country for a while. In 2009, Mexico decriminalized the possession of small amounts of pot.

Earlier this year, Mexico published regulations that outlined how it would implement medical marijuana sales.

Then, on March 10, Mexico’s lower house voted to legalize recreational marijuana. And the count wasn’t even close, with 316 votes in favor, 129 votes opposed, and 23 abstentions. (Source: “Mexican Lower House Passes Bill to Create Legal Marijuana Market,” Bloomberg, March 10, 2021.)

The measure, as it currently stands, would allow adults to smoke pot and, with a permit, grow plants at home. The bill also opens up the retail market, granting licenses to producers, from small farmers to commercial growers.

If passed, the legislation would make Mexico, with a population of about 126 million, one of the largest legal marijuana markets in the world, worth billions of dollars. (Source: “Mexico Prepares for Legal Marijuana Gold Rush,” Buenos Aires Times, March 18, 2021.)

By 2025, the recreational and medical cannabis market in Mexico is expected to be worth $5.0 to $6.0 billion and result in $1.7 billion in annual tax revenue.

The signing of the bill seems like a mere formality. Mexican President Andrés Manuel López Obrador supports the legalization of recreational marijuana. Before the ink dries, Mexico will join Canada and Uruguay as the only countries in the Americas that have federally legalized recreational cannabis .

That would put pressure on Joe Biden’s administration to do the same. There has been some movement on that level, with the Democrats promising to scrap the federal prohibition of marijuana.

It’s hard to imagine the U.S. legislation not facing serious headwinds. But with the Democrats in control of Congress, it seems like a near-term eventuality.

And really, the Republicans likely won’t want to appear out of step with the U.S. population. According to the latest data, a whopping 68% of Americans support legalizing recreational marijuana. (Source: “Support for Legal Marijuana Inches Up to New High of 68%,” Gallup, Inc., November 9, 2020.)

That poll data was released shortly after the U.S. presidential election last November.

And it was clear from the election results that cannabis was a big winner. Every state voter initiative that was looking to decriminalize or legalize marijuana was approved.

Arizona, Montana, and New Jersey voters approved the expansion of marijuana legalization to include recreational cannabis. Mississippi voters approved legalizing medical marijuana. And South Dakota voters approved measures for both medical and recreational cannabis.

Today, 15 U.S. states have approved recreational cannabis legalization while 36 states plus Washington, D.C. have approved medical marijuana legalization.

Other cash-strapped states are set to do the same. New York is expected to approve the legalization of recreational marijuana in 2021. Other states that could follow suit this year include Connecticut, Maryland, Pennsylvania, and New Mexico.

Analyst Take

If the U.S. follows Canada and Mexico and federally legalizes recreational marijuana in 2021 or 2022, it would likely create an industry juggernaut.

That would be great news for pot stock investors, since no cannabis company would want to be left on the sidelines.