Home Uncategorized Notes on the International Cannabis Trade

Notes on the International Cannabis Trade

337
0
SHARE

Before the holiday, I had the pleasure of being invited to speak at The Global Business of Cannabis Conference organized by the American Bar Association International Law Section. My panel looked at the wide range of the current progress towards legalization of cannabis across North America – Canada (recreational cannabis legal since 2018), Mexico (legislation pending to legalize recreational marijuana), and Brazil (still strictly illegal, but pending legislation to consider allowing medical marijuana). We then tried to look into our crystal balls to try to see what the future of international trade of marijuana might look like in the hopefully not too distant future.

At this point there is little to no international trade of legal cannabis. In the U.S., it is still illegal for marijuana to cross state borders, let alone national borders. Even between countries where cannabis is legal, the international trade is limited to medical and scientific purposes and subject to extensive regulatory and licensing requirements from both importing and exporting countries. No one realistically expects fully free international trade of legal cannabis to happen any time in the near future. But the continuing trend towards legalization of cannabis in so many countries suggests that the potential for international trade of cannabis is a realistic achievable goal and not just a pipe dream.

Many folks working towards expanding the legalization of cannabis will focus on the potential benefits and opportunities that international trade will create for the cannabis industry. Within the framework of the US-Mexico-Canada Agreement (NAFTA 2.0), we have written about the possibility of a super North American cannabis industry that maximizes the advantages that each country offers. Canada with its full legalization has a clear head start at developing financing, distributional and operational infrastructure. Mexico has better growing environment for marijuana and lower farm labor rates that could provide significant cost advantages. The U.S. at a minimum offers the sheer size of its market. Companies who can access and fully utilize these advantages from trade across all three North American countries would have a clear competitive advantage.

See also  New UK Cannabinoid Vehicle Unveils Its Global Ambitions Following US CBD Acquisition

However, it is also important to consider the potential risks of what can happen when legal cannabis products are finally allowed to be traded across international borders. While some will welcome imports, others will complain that imports are unfairly driving prices so low that they can no longer compete in the market anymore. International trade often creates at least the perception of “winners” and “losers” of import competition. Often a domestic industry that feels it is “losing” to imports resorts to filing legal actions based on international trade laws designed to protect domestic industries against the injury they are suffering from unfairly traded imports that are either sold at unfairly low prices (dumping), or are unfairly subsidized by the foreign government (countervailing duties).

China is often viewed as a primary source of unfair trade for products ranging from various chemicals, to kegs to crawfish. But even just within agricultural products, there have been many antidumping and countervailing duty (AD/CVD) cases filed against Canada (lumber, wheat, cattle) and Mexico (tomatoes, sugar).  All these cases are warning signs for those people planning on making international trade of cannabis happen. Those people should also consider how trade disputes can throw a huge monkey wrench into those plans.

If (or when) the federal government allows foreign cannabis to be imported into the United States, it is not hard to imagine that US growers who invested so much in setting up their own cannabis operations may feel threatened by the influx of bigger or better financed Canadian producers or lower cost Mexican cannabis imports cutting into their market share. And don’t forget about China as a potential low cost source of cannabis imports. Right now China is not a player in the cannabis market, but China is already the world’s leader in hemp production.  So China could become a huge force in the cannabis market if they ever decide to get into the international trade of cannabis. If imports are allowed to rush into the U.S. market, it would not be surprising to see some U.S. producers consider using U.S. trade laws to try to fend off the damaging effects caused by imports.

See also  Jetty Extracts Announces OCal ‘Comparable-To-Organic’ Certification For Its Cannabis Concentrates

Another interesting factor on the potential development of international trade of legal cannabis is the significant market presence of illicit marijuana. After Canada legalized recreational marijuana in 2018, spending on illicit cannabis products in Canada has declined steadily while sales through legal cannabis distributors increased. In third quarter 2020, legal recreational cannabis spending in Canada for the first time surpassed the amount spent on illicit cannabis. The legal cannabis market has grown because of the increase in openings of legal regulated stores that can offer a wider range of products and consistent inventory than many illicit cannabis sellers. Also the price for legal cannabis has dropped significantly so that it is relatively close to the price of illicit cannabis. If the difference in price is not too significant, many consumers prefer buying legal rather than illegal marijuana. Dealers of illicit marijuana could benefit from antidumping duties or other trade actions that would artificially increase the market price for legal cannabis, which could create a more significant price gap between legal and illegal cannabis. With antidumping duties supporting a higher legal cannabis price, this could make illegal cannabis to be a more attractive lower priced alternative for certain consumers. Or antidumping duties could also allow the price of illegal cannabis to also increase, at least proportional to the increase in legal cannabis prices

The trade battles with cannabis are still a way off. But in the immediate near term future, it may be worth keeping an eye on products such as hemp and CBD that are in the cannabis space and trade is already starting to happen. For example, it is possible a case could be brought on a narrowly defined product such as hemp biomass. When hemp was legalized with the 2018 Farm Bill, many farmers across America rushed in to plant hemp. Not surprisingly, the supply of hemp soon exceeded demand as there simply were not enough hemp buyers or processors of hemp that were available to soak up all that hemp supply.  If the volume of imported hemp biomass is significant or the prices are significantly lower than domestic hemp biomass, these could be indicators of a possible antidumping case just waiting to be filed.

See also  The 10 Best Marijuana Stocks in February

So, as international trade of cannabis gets closer to a reality, it will become important for companies in the cannabis industry to better understand how U.S. trade laws can be used by domestic producers to try to protect their US market position against import competition. Similarly, US importers and foreign producers and exporters may soon need to understand how AD/CVD cases can disrupt any plans to export to the US market and what options they may have to respond to such actions. Whether on an offensive or defensive position in AD/CVD cases, companies affected by the international trade of cannabis should become familiar with how these trade laws work and how these cases can be used so that they can plan accordingly.

In the meantime, for more on the international cannabis trade, check out the following posts:

The International Cannabis Trade: Webinar Video Replay
USMCA and Cannabis Trade
How to Export Medical Cannabis Internationally
International Cannabis: Selling Worldwide
U.S. Cannabis and International Trade: Never the Twain Shall Meet?
International Cannabis: Breaking the Law, Staying Honest
Should You Import Hemp to the United States?
International Cannabis: Guidance for Companies Entering the U.S. Market
International Cannabis Continues to Look to the U.S. Market
As China’s Hemp Industry Suffers, U.S. Hemp Growers Prepare to Pounce
What to Consider Before Entering the European CBD Market
Border Woes: Transporting CBD into Canada is Not OK
Cannabis and International Trade: Don’t Ignore the U.S.–China Trade War
Will China Really Buy More U.S. Hemp? There is No Guarantee
Cannabis, Tariffs and Vaping Imports from China
Cannabis Legalization Roundup: Mexico, Luxembourg, Switzerland
The World Trade Organization and Cannabis

The post Notes on the International Cannabis Trade appeared first on Harris Bricken.

LEAVE A REPLY

Please enter your comment!
Please enter your name here