Mexico’s Muddled but Major Market Opportunities for Hemp
By Eric Singular, Director, Hemp Business Journal
In 2018, Mexico’s Supreme Court declared the government’s nearly century-old, explicit prohibition of the recreational use of cannabis to be unconstitutional. Four years later, the Mexican Congress and the Comision Federal para la Proteccion contra Riesgos Sanitarios (COFEPRIS) are still working to promulgate a legal framework to specifically regulate the cultivation, manufacturing, and distribution of adult-use cannabis in Mexico.
Since the court’s mandated reversal, 20 separate cannabis-related regulatory proposals have been received by the Senate. In 2020, those were amalgamated in the Cannabis Regulatory Federal Law. While it was approved by the Senate and forwarded for review to the Lower House, the reviewing chamber’s heavy modifications of the original proposal forced another review in the Senate. There, it lost traction and was eventually discarded.
Meanwhile, COFEPRIS has approved and granted 60 permits to produce cannabis-based ingredients, food items, beverages, supplements, cosmetics, and pharmaceutical products having met the criteria of the 2018 case. Those guidelines positioned about 15 Mexican companies to build a domestic supply chain. Yet, that too proved short-lived when a new presidential administration took office. By March 2019, the approvals were revoked, and permits cancelled.
Finally, in January 2021, COFEPRIS published rules regulating the medicinal use of cannabis. In December 2021, Mexico’s Supreme Court further declared laws against cultivation with a THC concentration below 1% as unconstitutional, ostensibly removing barriers to hemp production. That ruling sided with Xebra Brands, Ltd., and its Mexican subsidiary, Xebra Mexico, in challenging COFEPRIS actions to block cannabis production except for medical and scientific purposes.
Since 2019, Mexico’s hemp imports have increased dramatically. The available trade data refers to two tariff codes which fall under the classification of raw or processed (but not spun) fiber, including yarn waste and garnetted stock. Mexico’s total 2021 imports of hemp fiber were worth $120,000, or 25 metric tons (MT). Among those, imports from the United States accounted for 63% of the total of the tariff group, with France second at 29%.
While the Mexican hemp industry is impeded by a lack of domestic production and a robust regulatory framework for cultivation, processing, and manufacturing, the potential market opportunity for the crop remains significant. Given the country’s low cost of labor, competitive logistics, and trade costs, manufacturing capability, and network of free-trade agreements with more than 50 countries, hemp could find a strong foothold in Mexico, with market opportunities for three hemp verticals: fiber, grain, and CBD.
Short and long industrial hemp fibers could prove highly valuable for at least three sectors within Mexico’s core competencies: vehicle manufacturing, automotive components, and textiles.
Mexico’s automotive sector accounts for 17.6% of the country’s manufacturing overall. General Motors, Chrysler, Ford Motor Company, Nissan, Fiat, Renault, Honda, Toyota, and Volkswagen produce 2.8 million vehicles annually in 20 plants across the country. In 2019, BMW opened a billion-dollar, auto-assembly plant in San Luis Potosi featuring an annual production capacity of 175,000 vehicles.
BMW is already utilizing industrial hemp-based biocomposites in their i3 electric car, made from 95% recyclable materials. Due to hemp’s high cellulose content – hurd is approximately 80% cellulose – the natural fiber is particularly well-suited for factories seeking renewable materials. Apart from being biodegradable, the material has proven to be 3.5x stronger and 5x lighter than petroleum-based plastics. Engineers of the i3 have increased the car’s effective range by lowering the vehicle’s weight.
With hemp production underway in the U.S., and a handful of companies working toward building a supply chain for hemp-based biocomposites, it is conceivable that U.S. hemp processors over the next few years could supply raw or processed material to BMW’s San Luis Potosi plant for hemp-based door paneling.
On average, Mexico annually exports $4 billion worth of textiles and clothing. According to the Commerce Department’s Office of Textiles and Apparel, despite U.S. denim imports’ declining 25% to a value of $2.8 billion in 2020, the denim trade came roaring back in 2021, to $3.68 billion (a 31.4% increase). Mexico – the second-highest denim supplier behind Bangladesh – saw a 39.6% hike to $654.87 million for the year, rebounding from a 41.5% falloff in 2020.
According to Haluk Aksoy, senior vice president of Levi’s Latin America, two-thirds of the company’s denim production is in Mexico. Over the past four years, Levi’s has introduced jeans made with cottonized hemp. By the end of 2020, 83% of its cotton came from more sustainable sources, including organic and recycled cotton and the Better Cotton Initiative; the company plans to reach 100% more sustainable cotton before 2026.
As U.S. operators aim to meet the challenges of a domestic supply chain for hemp textiles, Mexico could become a major importer for apparel manufacturing.
In 2019, Mexico’s market for animal feed was valued at $6.5 billion; it projects to reach $8.3 billion by 2025.
According to the U.S. Department of Agriculture’s Foreign Agricultural Service, Mexico will continue to be a major importer of basic grains from the U.S. to meet growing Mexican demand for livestock feed. Mexico’s three primary domestically produced grain commodities are wheat, corn, and rice. The country is also a major corn producer, primarily for livestock and poultry feed.
While market opportunities for hemp grain for human consumption abound, use in animal feed likewise offers immense growth potential. Yet, hemp grain will first need to gain approval in Mexico from agricultural policymakers for use as an animal feed, a regulatory step which has proven arduous in North America.
Given Mexico’s proximity to the equator, the country has two growing seasons for corn. As hemp grain genetics advance, the ability to produce multiple hemp crops in a single year could prove to be a huge advantage for Mexico’s farmers versus their U.S. competitors.
In 2020, Mexico’s CBD market was valued at $9.2 million. Most of Mexico’s CBD products are imported from the United States and Canada. Expectations over the next seven years are for the market to reach $675 million. Such growth, however, will depend greatly on the passage and implementation of the Cannabis Regulatory Federal Law and the regulatory framework outlined by COFEPRIS for hemp-derived products containing less than 1% THC.
New Frontier Data estimates that Mexico has 2.2 million high-THC cannabis consumers. While there could be substantially more for nonpsychoactive cannabinoids (including CBD formulated as an ingredient in numerous food, supplement, and cosmetic products), Mexico’s consumer buying power will need to be considered, especially in comparison to premium prices which American brands command for CBD-infused products.
North American Hemp Supply Chain
While prospects for a domestic hemp industry in Mexico will be hampered by the lack of a formal legal framework, industrial uses for the crop’s versatile natural fiber could prove it to be an important commodity for a global manufacturing leader.
Today, the U.S. has a four-year head start on hemp production and processing compared to its southern neighbor. When Mexican farmers begin producing hemp, there will be many obstacles to overcome in terms of sourcing high-performing genetics and solving the various processing woes which have stalled the U.S. hemp supply chain. However, ease of trade between the U.S. and Mexico could position the latter as a major importer of raw and processed hemp materials for automotive and textile manufacturing.
For the foreseeable future, Mexico will likely continue to increase its imports of raw hemp goods rather than emerge as a major producer itself. In the long term, that could shift, however, as Mexico builds a domestic supply chain for grain, fiber, and cannabinoids capable of supplying hemp ingredients and materials at much lower costs of production.
A more comprehensively thorough overview of the Mexican cannabis market is available in New Frontier Data’s Global Cannabis Report.