On July 1st Mexico elected leftist Andres Manuel Lopez Obrador as their next president in a landslide victory.

The electorate has demanded radical change, akin to Trump in the United States and Brexit in the United Kingdom.


Source: Shutterstock

There are two important investment implications from this victory:

1. Trump will likely withdraw from NAFTA, negotiating with socialists is infinitely harder than negotiating with establishment Republicans.

2. Mexico will end its failed 'War on Drugs'.

Mexico's next Interior Secretary Olga Sanchez Cordero (former Supreme Court judge) will be the central figure in helping the country end the "War on Drugs', end criminalization and bring forth marijuana legalization.

In June she wrote a powerful op-ed in Milenio outlining the abject failure of the current drug policy in Mexico.

Criminalizing drugs has only served to embolden Mexican drug cartels as opposed to weakening them and resulted in 160,000 drug-related murders in the last 12 years.

In a radio interview on W Radio shortly after the election victory Sanchez Cordero provided this commentary on marijuana:

If Lopez Obrador is committed to ending the violence, by definition he's committed to ending the failed war on drugs.

Mexico is a significant outlier for murders per capita when compared to other countries with similar or better human development index (see chart below).
Murder Rates of "High" HDI Countries (murder victims per 100,000)


Source: Mises Institute

Prior to this election victory there was already open debate within Mexican media about legalization of marijuana in certain parts of the country.

In late January of this year Tourism Secretary Enrique de la Madrid stated that it's absurd the country hasn't already taken the step toward legalization of marijuana and would like to see it start in the state of Baja California Sur (Los Cabos) and Quintana Roo (Cancun).

Medical marijuana has been legal in Mexico since June 2017 and public opinion about legalizing recreational marijuana is strengthening.

An April 2017 poll by Consulta Mitofsky found that 56% of Mexicans oppose legalizing marijuana down from 77% in 2010.

On Tuesday Sanchez Cordero stated at a university seminar that Lopez Obrador has given her broad leeway to review Mexico's drug policy.

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Mexico will be keenly watching Canada's launch of legal recreational marijuana, a smooth and successful market transition will serve as an important North American proof for Sanchez Cordero to push her case for legalization.

The prospect of legal recreational marijuana markets in both Canada and Mexico would significantly change the dynamics around the debate for national legalization within the US from a political and economic perspective.

Put simply, if Mexico gives legal pot the green light the US won't be far behind, economics make it so — and in this scenario we believe that companies with direct US exposure will benefit significantly.