Why Mexico is Crucial for the US and Canadian Cannabis Markets

Why Mexico is Crucial for the US and Canadian Cannabis Markets

One of the headlines you could read plastered all over the internet post the legalization of marijuana in Canada is, “There’s a shortage!” which in turn negatively affected stocks and obviously shed some light on what is needed to sustain the insatiable appetite of the people when it comes to cannabis.

The United States is also going through an adjustment, as more democrats are sitting in places of power. More states legalized both medical and recreational cannabis, even some conservative states you wouldn’t have thought to legalize – legalized!

The “Shortage phenomenon” appears almost always right after a state or country legalizes due to the lack of infrastructure to supply legal cannabis to new consumers. Aside from the initial “novelty buys”, people will begin to incorporate cannabis into their consumption habits, increasing demand where supply was created to deal with the “pseudo-legal market”.

It takes a couple of years for the “wobble” to rectify itself, but it also does shed some light on what could happen if the US legalizes in the near future.

The United States with a population of 330 million people and the number one consumer of drugs globally, could have a real stock problem if they legalize it on a federal level.

Not only will the country need to scale up production, there is going to be a grey period where the legal and the illegal markets balance itself out. With legalization, you won’t ever get rid of the black market, however you would shrink it significantly. In fact, over the next ten years, the only “black market weed” would probably be locally sourced and sold to demographics that cannot participate within the legal market. Don’t worry though, this will be miniscule compared to the current model.

Imagine what would happen when cannabis prohibition is finally rescinded. You’ll have an influx of new cannabis consumers and a limited supply of legal cannabis on hand. During this transitionary period, many people will turn to the black market to get “legal weed”. Only when the marketplace catches up with the demand will we see a change in black market purchases.

Even then, the United States and Canada have a few other problems. The first being the elevated price of maintaining a workforce. In the U.S and Canada, if you’re an employer you need to cover things like insurance, pay decent wages, and supply other benefits. This, all increases the cost of production which ultimately increases the cost of the product.

The other problem the US and Canada share is that they have limited cultivation time due to seasonal changes. This forces them to use Greenhouses to be able to grow yearlong which limits space of cultivation and increases energy costs to maintain humidity levels, light, irrigation and so forth.

This is where Mexico actually becomes a viable player within the North American Cannabis Trade. Unlike the US and Canada, labor is incredibly cheap in Mexico. Employers do not necessarily need to cover insurance and other benefits as within the US and the minimum wage is $3.5 per day. This means that for every single American farm employee (that costs roughly $58 USD per day), you could employ 16 Mexican farmers. This means that there is an increase production and a reduction in costs, both, which benefits the consumer.

The other issue that doesn’t plague Mexican cultivation is the extreme seasonal weather conditions. There are several states in Mexico that gets sun all-year round with very fertile earth. Large, unused areas that could easily be converted to cannabis farms as well as hemp farms.

The problem Mexico has is that they are not as sophisticated in their farming techniques as the U.S or Canada. And here is where a healthy relationship can be established between the three countries.

Mexico has the ability to produce high quality cheap cannabis to supply to the U.S and Canadian markets, where the U.S and Canada can process the marijuana and turn it into products to be re-sold back to Mexico.

This is essentially the scheme the U.S and Mexico has in regards to the Oil Trade.

Why is this a likely scenario?

Recently, the Mexican Supreme court ruled for the fifth time in favor of a cannabis case which sets a precedent within the country. Once the supreme court rules five times on a particular topic, they have to incorporate it into law.

But what will this look like?

The new administration, which takes power on December 1st, already provided some insight on what that should look like.

They are proposing that individuals can grow up to 20 plants a year and cultivate up to a half a kilo during that time. Additionally, they are working on retail systems, supply chains, testing facilities and the likes. Obviously, within a legal framework and an obvious supply-demand issue with their northern neighbors, means that the likeliness of this cannabis trade scheme could be very possible.

Of course, it’s simply speculative right now, but looking at the trade trends of the past, geographical configuration of the nations and opportunities within a new market…we could see this come to realization within the next five to ten years.