Mexico's cannabis legalization taking longer than anticipated

Shareholders of Khiron (TSXV: KHRN) had some news last week. Fortunately, it was not serious and the financial markets settled down relatively quickly. Here’s what happened.

There was a general awareness that Mexico’s legalization was taking longer than expected. The investment community, myself included, should have picked up on it. Whenever a government changes and new ministers are appointed, time is needed for incoming people to get acclimatized in their new positions. Sometimes, they find things are not exactly as expected.

Mexico’s main regulatory body for medical cannabis announced they have revoked key guidelines used as the basis for issuing dozens of import licenses for low-THC products. In order to understand what happened, we must go back and review the timeline of events:

• On July 1, 2018, President Enrique Peña Nieto lost the federal election to President-elect Andres Manuel Lopez Obrador. According to Mexican regulations, the President-elect assumes power six months later.

• On October 30, 2018, the outgoing government issued guidelines for import permits covering certain cannabis consumer products.

• On November 6, 2018, a prominent member of the incoming government put forward a bill to legalize recreational cannabis.

• On November 21, 2018, the Federal Commission for the Protection Against Sanitary Risks (COFEPRIS) issued the first 38 import permits under the regulations of the outgoing government.

• On November 28, 2018, the foreign trade commission warns that the permits aren’t valid and imports will not be allowed under the licenses issued.

• On November 30, 2018, COFEPRIS issues 19 more permits. I’m guessing but the only thing that makes sense to me is this was an outgoing representative trying to enact last minute changes.

• On December 1, 2018, the newly elected government takes over.

• On March 27, 2019, the newly elected government revokes the previous guidelines issued by COFERPRIS which probably means the licenses covering 57 products of which 3 are KHRN’s products, will be invalid and new licenses consistent with regulations introduced by the current government will be issued.

My main takeaway from this report is that legalization of cannabis in Mexico remains on track. Resolution of these conflicts between the former and current policies was probably a major factor in delaying the legalization process. When applications for licenses are called for, Khiron will remain in a leadership position. Given the expansion of the KuidaTM line and the agreement with Dixie Brands (CSE: DIXI.U), KHRN now has over 100 Stock Keeping Units (SKUs) across 15 categories so their application is probably going to be for more than the 3 that were impacted by this announcement.