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Mexico's legal cannabis business takes next step with CBD-focused firm

FILE PHOTO: Marijuana leaves are seen next to Mexico's Senate building at the protest cannabis garden of the Cannabico Mexican Movement

By Diego Oré

MEXICO CITY (Reuters) -Mexico's nascent legal cannabis industry on Thursday welcomed its first company authorized to grow at commercial scale, focused on a booming niche market that mostly sidesteps the mind-altering qualities of the plant's flowers.

The local unit of Canada's Xebra Brands is the first company to obtain permits to cultivate, process, produce and market cannabis in Mexico, the firm said in a statement.

The authorizations mark the latest step in a major shift away from the Mexico's decades-long criminalization of the plant that was once a major source of revenue for powerful drug gangs.

However in a potential setback, Mexico's health regulator COFEPRIS said later on Thursday in a joint statement with the interior ministry that officials could not vouch for the safety of the company's plans.

The statement added that the agencies will seek to cancel the authorizations due to the health risk they pose.

The health regulator had to approve the permits after Mexico's Supreme Court in late 2021 gave Xebra Brands' subsidiary Desart MX a partial greenlight to import seeds, and grow, process, sell and export cannabis products with 1% or less THC, the plant's psychoactive substance.

Desart MX, however, is more focused on marketing products with another of the plant's components known as cannabidiol, or CBD, which does not make users high but is used to treat ailments such as insomnia, pain and anxiety.

COFEPRIS granted final approval in late February, the company said.

Xebra Brands said it faces no restrictions where it can grow cannabis in Mexico, the size of cultivation facilities or processing volumes.

"This represents an important moment for cannabis globally," Xebra Brands CEO Jay Garnett said in the statement.

Xebra Brands said it is actively looking for farm land and a site to build an extraction facility to produce CBD-rich hemp derivatives.

In an interview with Reuters in late 2021, the firm's former president said regulatory authorizations would position Mexico as the industry's most important North American player.

In 2021, Mexican lawmakers approved a law to decriminalize cannabis for recreational, scientific, medical, and industrial uses, but key regulations remain stalled in the Senate.

(Reporting by Diego Ore; Editing by David Alire Garcia, Marguerita Choy and Sonali Paul)