The North American marijuana industry is on fire, and marijuana stock investors have clearly taken notice. A majority of pot stocks with a market cap north of $200 million have seen triple-digit percentage returns over the trailing 12 months.
Cannabis research firm ArcView projects that legal North American weed sales (recreational and medical) will catapult from $6.9 billion in 2016 to more than $22 billion by 2021. With an estimated $46.4 billion in sales conducted on the black market last year in North America, the opportunity for businesses to move consumers toward legal channels appears to offer a sustainable growth trend.
Yet, expansion isn't a given. Despite a record number of Americans wanting to see both recreational and medical pot legalized, the U.S. federal government has dug in its heels on any efforts to reschedule marijuana. Concern over minors gaining access to marijuana, an inability to measure to what extent drivers who've used cannabis are impaired, and insufficient benefit-versus-risk profiles from clinical studies, has halted the U.S. government from loosening laws governing the industry.
Marijuana stock investors rejoice: Mexico legalizes medical cannabis
However, marijuana stock investors do have something to cheer about if they look south of the border.
On June 19, Mexican President Enrique Pena Nieto signed a bill into law that makes medical marijuana legal in the country. The bill that found its way to Pena Nieto's desk had been overwhelmingly approved by Mexico's Congress nearly two months ago. Pena Nieto had previously opposed legalizing weed, but changed his tune in recent years.
Mexico's medical weed bill will now classify cannabis as a "therapeutic" drug, and the government will now lean on Mexico's Ministry of Health to draft and implement regulations controlling medical cannabis use, including tetrahydrocannabinol (THC), the psychoactive component of cannabis. The Ministry of Health will also be responsible for developing and overseeing a research program to study pot's impact on patients before considering an expansion of the program to cover broader use.
Mexico's push to legalize is particularly exciting news for Medical Marijuana, Inc. (MJNA 10.17%), the very first publicly listed marijuana stock. Medical Marijuana, Inc. is mostly an investment company, with its holdings in clinical-stage cannabinoid-based drug developer Axim Biotechnologies making up a good chunk of its current valuation. But it also fully owns HempMeds Mexico, which imports and distributes cannabidiol (CBD)-based hemp oil products to medical patients. Not only was it the first company to be given the green light to import CBD products into Mexico, but last week's legislation appears to open the door for an increase in future sales.
There's also hope from Canada's quartet of larger medical cannabis producers and retailers -- Canopy Growth Corp. (CGC -3.79%), MedReleaf (LEAF), Aphria (NASDAQOTH: APHQF), and Aurora Cannabis (ACB -1.94%) -- that Mexico's actions could provide an impetus to push a Canadian recreational marijuana bill over its current hurdles. Public opinion toward marijuana improves annually, which is potentially good news for these four providers, all of which are expanding their grow capacity either organically or through acquisitions. Canada legalized medical cannabis all the way back in 2001.
Mexico's legalization still presents challenges
Yet, in spite of Mexico's legalization of medical cannabis, challenges still remain within the industry. For instance, Mexico has long had an issue with drug cartels, which could make selling legal pot a challenge. Enforcing regulations on the legal industry could be difficult when there's such a rampant amount of black market activity.
The pushback in Mexico against medical marijuana is also arguably higher than it is in the United States. A Quinnipiac University poll in the U.S. found that 93% of respondents wants to see medical weed legal. However, the Catholic Church in Mexico widely opposes the use of marijuana, and a Nov. 2015 telephone poll by the El Universal newspaper found that 66% of Mexicans opposed legalizing the drug (albeit the question appears to have been phrased in terms of recreational legalization as opposed to medical). Comparatively, support for recreational legalization in the U.S. tends to hover around 60%. In other words, Mexico's legalization of medical weed seems to be more of a baby step than a full-ranging expansion of medical pot access.
What's more, it doesn't appear as if the U.S. will be following the suggestion of Pena Nieto and aligning its marijuana policies with that of its neighbor to the south. The U.S. Drug Enforcement Agency (DEA) had its opportunity to reschedule marijuana last year away from its current schedule I categorization following two petitions to do so, but chose to keep its status the same. The DEA cited a lack of risk-versus-benefit analyses, as well as a lack of marijuana-use oversight as reasons to keep its scheduling unchanged. Congress shares the same opinion, with lawmakers wanting to see additional clinical evidence before considering a federal medical marijuana bill.
Mexico's legislation also fails to clear up how it'll deal with keeping children from accessing marijuana, as well as keeping impaired drivers off the roads. The Health Ministry may be able to outline a plan after a bit of trial and error, but it could take years to hash out (no pun intended). That's not good news for marijuana stocks that are aiming for broader use.
Though Mexico's actions do represent a baby step forward for the pot industry, it's not yet a sufficient enough reason for investors to place their hard-earned money and faith in marijuana stocks.