How land ownership laws impact cannabis investing in Mexico

The very particular rural land ownership structure that exists in Mexico is a factor that must be carefully considered regarding the way either psychoactive cannabis or industrial hemp will be cultivated once they are authorized as expected by December 2021. 

According to article 27 of the Mexican Constitution and the Agrarian Law, three forms of land ownership are recognized: public, private and social (ejidos and communal).

According to the 2016 Agricultural Census published by the INEGI (National Institute of Statistics and Geography), in Mexico there are 9.3 million rural plots that occupy a surface of 190.3 million hectares, of which 1.9 million are private property. Although they represent a fifth of the total, the surface they occupy adds up to 41% of the nation’s agricultural land, which means that their average size is larger than the other forms of ownership. It is very important to note that article 117 of the Agrarian Law limits the surface of a private plot to a maximum of 100 hectares (247.1 acres).

An ejido is a portion of land, forest or water surface that the government gives to a farming community for its exploitation. Ejido lands are imprescriptible, inalienable and cannot be embargoed. In practical terms it can be said that an ejido is federal government property where the right to possess an individual parcel is ceded to a farmer or campesino, but does not authorize him to sell or mortgage it. There is in place a legal process that allows for an ejido parcel to be privatized so it can be sold, but it is a long and complicated endeavor that is generally reserved when the land’s value increases when it changes from agricultural use to urban or tourism purposes. On the other hand, the law allows leasing it or form associations.

A little over 7 million rural plots belong to ejidos or agrarian communities that occupy a surface of 101 million hectares. These lands are distributed between 31,873 communities in 90% of the municipalities that form the country. The average size of land an ejidatario or farmer possesses is 9.2 hectares. However, over half of them have less than 5 hectares (12 acres).

The Center for Sustainable Rural Development of the Cámara de Diputados (House of Representatives) reported in 2014 there were almost 5 million beneficiaries in the rural communities. With the purpose to facilitate and promote larger investments by providing legal security, there are several government programs that regularize possession titles. However, an unfortunate tendency towards further fragmentation of rural plots has ocurred with the corresponding increase in subsistence agriculture.

This pulverization of agricultural land, both private and ejido, has historically represented an obstacle to large scale farming in Mexico. In general terms, this explains why the country isn’t self-sufficient in producing corn, even though it is an autoctonous plant and the indisputable basis of the Mexican cuisine. The economics of scale are not easy to achieve and corn must be imported, mainly from the U.S. The existence of fences, stone walls, lack of land grading, strewn rocks, etc. make it difficult to use large machinery.

As a counterpart, internationally Mexico is very competitive in the production of tomato, avocado, berries and other crops that are grown in orchards or greenhouses where manual labor is intensive. Thanks to this, the country’s agricultural balance is positive. In summary and with some exceptions, Mexico is not competitive in extensive agriculture, but it is when cultivation is labor intensive.

With respect to cultivation of hemp varieties to obtain flower for CBD, the conditions in our country are ideal because the land surfaces are reduced, sunshine and climate are perfect, politunels are employed together with plastic mulch, drip irrigation and especially important is that this type of farming requires a lot of field handwork to grow and harvest. Each plant has to be checked individually to eliminate males, pull out weeds, supervise its watering and is hand harvested flower by flower. Without doubt, Mexico has the potential to displace the U.S. and Canada in this crop in particular and sooner or later the prices of CBD products that are currently sky high will come down when the Mexican production arrives in the international market

A similar situation is present with the cultivation of cannabis strains with high levels of psychoactive THC.

With regards to growing hemp for seed or fiber, it is possible to employ some extensive farming techniques in a mediumly large scale that are economically feasible. An example is the farming of sugar cane  where a sugar mill associates with the farmers of the region under an arrangement in which the mill invests in preparing the land, does the planting, provides fertilizers, trains the farmers and does the harvesting and transportation of the sugar cane to the mill. The farmer gets paid according to a price previously agreed upon taking into consideration the content of sugar and subtracting whatever advances were given during the year.

Another very common arrangement, both with private properties and ejidos is that the farmer simply leases his land and the renter does all the activities, assuming all the expenses and risks.

In an ideal world, the industrial processor would be the owner of the land who can then with complete liberty and safety make the required investments in infrastructure such as leveling and grading of fields, irrigation works, electrification, build access roads, etc. However, this is feasible if he is already the owner of the ranch, due to the legal difficulties and multiple negotiations needed to consolidate large areas and also because the cost of land is higher in Mexico in comparison with the U.S. or Canada. It has to be taken into account that legal problems may arise as the government looks with distrust the forming of large ranches using subterfuges and loopholes and may object, classifying them as latifundios (larger estates considered illegal).

In 2019, the global size of the hemp industry was estimated by Markets & Markets at 4.71 billion dollars with a compounded annual growth rate (CAGR) of 15.8%. However, analists consider that this expansion rate will go even higher and reach 34% annually in 2025 with a production value of 26.6 billion dollars. As a reflex of what is occurring in the world, in Canada the surface destined to growing hemp has been increasing by 25% per year. In addition to the worldwide “boom” in the demand for CBD, the market has been pushed on by a growing appetite for hemp oil and fibers for the automotive sector, construction, textiles, food, beverages, nutritional supplements, cosmetics, lubricants, paint, paper, among many others.

The subject of land ownership is a strategic matter that determines how any agricultural activity is organized in Mexico, especially with regards to psychoactive cannabis and industrial hemp. The Mexican legal framework and its execution in practice have very particular characteristics that are unique with respect to other countries. It is of common sense that before undertaking any kind of investment to hire specialized professional counselling in order to define a realistic business plan and the actions that have to be made to assure the project’s success.

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