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Saturday, June 3, 2023

Notes on the international cannabis trade

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Before the holidays, I had the pleasure of being invited to speak about international cannabis at The World Cannabis Business Conference organized by the American Bar Association International Law Division. My team looked at the broad scope of current progress toward the legalization of cannabis across North America – Canada (recreational cannabis legal since 2018), Mexico (legislation pending to legalize recreational marijuana), and Brazil (still completely illegal, but pending legislation to consider allowing with medical marijuana). We then tried to look at our crystal balls to try and see what the future of the international marijuana trade might look like in a future that we hope isn’t too far away.

At this point, there is little international trade in legal cannabis. In the United States, it is still illegal for marijuana to cross state borders, let alone national borders. Even among countries where cannabis is legal, international trade is limited to medical and scientific purposes and is subject to extensive regulatory and licensing requirements from both importing and exporting countries. No one realistically expects that an international trade completely free of legal cannabis will occur anytime in the near future. But the continuing trend towards the legalization of cannabis in many countries suggests that the potential for international trade in cannabis is a realistic and achievable goal rather than just a distant dream.

Many of the people working to expand cannabis legalization will focus on the potential benefits and opportunities that international trade in the cannabis industry will create. Under the US-Mexico-Canada Agreement (NAFTA 2.0), we wrote about it Possibility The superior cannabis industry in North America that maximizes the benefits each country has to offer. Canada enjoys full legalization first of all evident in the development of the financing, distribution and operational infrastructure. Mexico It has a better growth environment for marijuana and lower rates of agricultural labor which can provide significant cost advantages. The United States, at a minimum, offers the sheer size of its market. Companies that can access and take full advantage of these benefits from trading across all three North American countries will have a clear competitive advantage.

However, it is also important to consider the potential risks of what could 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 causing prices to fall so unfairly that they are not competitive in the market anymore. International trade often creates at least a perception of “winners” and “losers” in import competition. A domestic industry that feels “lost” to imports often resorts to lawsuits based on international trade laws designed to protect domestic industries from harm suffered by unfairly traded imports that are either sold at unfairly low prices (dumping), or Unfairly subsidized by the foreign government (compensatory duties).

China is often seen as the primary source of the unfair trade for products ranging from various chemicals to barrels to lobster. But even within agricultural products only, there have been many anti-dumping and countervailing (AD/CVD) cases filed against Canada (timber, wheat, and livestock) and Mexico (tomatoes and sugar). All of these cases are warning signs for those people who are planning to make the international trade in cannabis happen. These people must also think about how commercial disputes can throw great boldness into those plans.

If (or when) the federal government allowed the import of foreign cannabis into the United States, it is not hard to imagine that US farmers who have invested so much in setting up their cannabis operations might feel threatened by a greater influx, better financing of Canadian producers, or the lower cost of importing Mexican cannabis. their market share. And don’t forget China as a potential low-cost source of cannabis imports. At the moment, China is not considered a player in the cannabis market, but China is already The world’s leading producer of cannabis. So China could become a formidable force in the cannabis market if it ever decided to enter into the international trade of cannabis. If imports are allowed to rush into the US market, it would not be surprising to see some US producers considering using US trade laws to try to avoid the adverse effects caused by imports.

Another interesting factor regarding the potential development of the international trade in legal cannabis is the large market presence of illegal marijuana. After Canada legalized recreational marijuana in 2018, spending on illegal cannabis products in Canada has steadily declined while sales through legal cannabis distributors have increased. In the third quarter of 2020, legal spending on recreational cannabis in Canada for the first time exceeded the amount spent on illegal cannabis. The legal cannabis market has grown due to the increase in the opening of legally regulated stores that can offer a wide range of products and a steady stock from the many illegal sellers of cannabis. The price of legal cannabis has also fallen so dramatically that it is now relatively close to the price of illegal cannabis. If the difference in price is not too large, many consumers prefer to buy legal marijuana rather than illegal marijuana. Illicit marijuana dealers can take advantage of anti-dumping duties or other trade measures that would artificially increase the market price of legal cannabis, potentially creating a larger price gap between legal and illegal cannabis. With anti-dumping duties subsidizing a higher legal price for cannabis, this could make illegal cannabis a more attractive and lower-priced alternative for some consumers. Or anti-dumping duties may also allow the price of illegal cannabis to rise, at least proportional to the increase in legal cannabis prices.

Commercial battles with cannabis are still a long way off. But in the very near future, it may be worth keeping an eye on products like hemp and CBD that are in the hemp space and that trade has already begun to take place. For example, it is possible to file a case over a strictly defined product such as cannabis biomass. When hemp was legalized under the Farm Act of 2018, many growers across America rushed to grow hemp. Not surprisingly, cannabis supply soon exceeds demand as there were not enough cannabis buyers or cannabis processors that were available to absorb all the cannabis supply. If the volume of imported hemp biomass is large or prices are significantly lower than the domestic hemp biomass, these could be indicators of a potential anti-dumping situation waiting to be lifted.

Therefore, as international trade in cannabis approaches reality, it will become important for companies in the cannabis industry to better understand how domestic producers can use US trade laws to try to protect their position in the US market from import competition. Likewise, US foreign importers, producers and exporters may soon need to understand how Alzheimer’s/CVD cases could disrupt any plans to export to the US market and what options they might have to respond to such actions. Whether they are on the offensive or defensive in AD/CVD situations, businesses affected by the international trade in cannabis need to become familiar with how these business laws work and how these situations can be used so that they can plan accordingly.

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

Grow guide for marijuana beginners.
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