Pubdate: Sat, 13 Mar 2021 Source: New York Times (NY) Copyright: 2021 The New York Times Company Website: http://www.nytimes.com/ Details: http://www.mapinc.org/media/298 Author: Oscar Lopez ECONOMIC IMPACT OF A LEGAL CANNABIS MARKET REMAINS UNCLEAR MEXICO CITY - Mexico, a country carved up by cartels for decades, is poised to take a major step in drug policy. This week, the lower house of Congress approved a landmark bill to legalize recreational marijuana, which would make it the world's largest legal market for the drug. With legalization considered all but certain to win Senate and presidential approval, many in the business world are predicting a Mexican green boom: a newly legal industry providing tens of thousands of jobs, millions of dollars in profit for savvy entrepreneurs and welcome tax revenue for the government. But many business analysts and economists are wary, and caution that the cannabis industry here is more likely to be a green blip than a boom. Opening a licit market would matter more legally and symbolically than economically, they argue, citing relatively low domestic demand and little chance of exporting the product, as well as seemingly restrictive regulatory measures. "It's hard to see any obvious broad effects" on the Mexican economy, said Jeffrey Miron, an economist at Harvard University. "You will see a little bit of a bump in measured G.D.P.," he added, but "people claiming that it will be a big boost to the economy through legalization, I don't think that makes sense at all." But industry promoters are enthusiastic about the prospects. The cannabis industry "is going to finally generate income in terms of employment, in terms of the local economy, in terms of taxation," said Erick Ponce, a Mexican entrepreneur and president of the Cannabis Industry Promotion Group, a local research and advocacy group. "We definitely see it as an important economic boost for the country especially in the middle of a pandemic," Mr. Ponce added. According to a January report from a cannabis data analysis company, New Frontier Data, the Mexican marijuana industry could be worth as much as $3.2 billion dollars annually, and major cannabis companies like Canada's Canopy Growth are already eyeing the market. But Canada may be a cautionary tale. In the lead-up to its own legalization in 2018, investors and analysts predicted a surge in cannabis cash, but the business has not been a rousing success. In the last quarter of 2020, the country's national statistics agency estimated that consumers spent $918 million Canadian dollars (about $736 million U.S. dollars) on legal weed products, considerably less than was predicted before legalization. Earnings have been sluggish and most producers are still reporting losses worth millions. In December, Canopy Growth announced it was closing five facilities and laying off more than 200 employees in a bid to speed up profitability. "The green rush part hasn't materialized," said Michael Armstrong, an associate professor at the Goodman School of Business at Ontario's Brock University. "It's been a positive boost for Canada, but not a dramatic one by any means." Official figures indicate that Canada, with a much smaller population, has many more regular users than Mexico: Prior to legalization, around 15 percent of Canadians said they had smoked marijuana in the past three months, according to the national statistics agency, a consumer base of more than 5 million potential users. By contrast, a 2016 Mexican government study found that only about 1.2 percent of the population aged 12 to 65 said they had smoked pot in the previous month, and 2.1 percent, about 1.8 million, in the previous year. Legalization supporters argue that such numbers are misleading: In a country like Mexico, where a majority of the population is against legalizing weed, many people won't admit to smoking it. "Cannabis is an issue with stigma, with taboo," said Mr. Ponce, the entrepreneur. "We don't really know the impact of the local market because there aren't true statistics." But even if polls underestimate the number of potential consumers, most experts downplay the size of the market in Mexico. "I don't think there's going to be a huge demand," said Jorge Javier Romero Vadillo, a political scientist at Mexico's Autonomous Metropolitan University. And "I don't think this regulation process is going to substantially increase demand." The new law's strict licensing requirements for cultivating, packaging and selling marijuana could keep small farmers and vendors out of the licit market, according to Mr. Romero. "With the rules they want to apply, which are super restrictive, they're going to open up a tiny market," he said. "They're rules that are so strict, with a barrier for entry that's so high, that few are going to opt for entering the legal market." California, which legalized recreational marijuana in 2018, has had similar teething troubles: In the first year of legalization, legal vendors in the state sold $500 million less worth of marijuana than in the year prior, when it was only permitted for medical use. Strict regulation and high taxes kept the majority of California's producers and vendors in the gray or black market, according to Daniel Sumner, director of the agricultural issues center at the University of California, Davis. In many communities, marijuana-related businesses faced fierce local opposition. Of late, sales have picked up considerably, as the number of licensed growers and sellers has gradually increased, and the state took in $1 billion dollars in cannabis taxes last year, according to Mr. Sumner. "It's a substantial business," he said, but in the context of California's annual budget of more than $200 billion, "it's a drop in the state bucket." With a relatively small consumer base and complex regulatory measures, it's unlikely that Mexico will see anywhere near such revenue in the recreational market, analysts say. Instead, some industry leaders say that the real money in Mexico may be in medicinal cannabis, which has been legal in Mexico since 2017, as well as industrial hemp, which the new bill also regulates and could be used to produce everything from plastics to paper. "The market for marijuana is a very small market," said Guillermo Nieto, president of the National Association for the Cannabis Industry, a Mexico City-based trade group. "Agriculturally, it's not going to help us like the legalization of industrial hemp." In the short-term, some businessmen say, Mexico's biggest gains may be doing what Mexico already does best: manufacturing - in this case, potentially producing cannabis products like nutritional supplements and cosmetics. Still, the greatest impact may be more symbolic than monetary: As the largest economy to legalize the drug to date, Mexico, with about 128 million people, could encourage other countries, including its northern neighbor, to follow suit. "Sometimes it's nerve-racking to be the first person to take a step into a pond that might be infested with sharks," said Mr. Miron, the Harvard professor. "But if four or five other people have done it and it's OK, then more people are going to give it a try."