As 2019 came to a close and the new decade kicked off, one thing seemed sure. The stage was set for big changes in the world of cannabis law. The last 12 months were a blockbuster for the humble plant. More than two dozen states are considering legalization in 2019.
State legislatures also aren’t the only ones looking at cannabis law anymore. The debate finally reached the highest levels of government. In late 2019, a federal House Committee recommended de-scheduling of cannabis.
If you’ve been playing along, then you know a change in federal legislation will increase competition for cannabis companies. Legalization in individual state markets has proven that. Federal legalization would likely see what’s played out at the state-level happen again on the national stage.
Federal legalization will also attract interest from players outside the cannabis industry. It’s not likely that Big-Ag companies will be caught snoozing on the opportunity of a lifetime. Pharmaceutical giants are also champing at the bit to get a slice of the cannabis pie.
There’s another set of players we haven’t thought about yet. When the U.S. instates nationwide legalization, American companies aren’t going to be the only ones making moves.
Oh Canada!
When it comes to naming corporate powerhouses, people tend to forget about our friendly neighbors to the north. But Canada actually made a bit of a power move when it legalized cannabis back in 2018.
In doing so, Canada became the first G8 nation to do so. It was also the second nation in the whole world to legalize recreational cannabis for adult use. Canada got the drop on the US for setting up infrastructure for a viable marijuana industry.
Canadian giants Tweed, Aurora, and Cannabis Corp. are already listed on the NYSE. American investors were looking to put their money into Canadian cannabis. The industry expanded rapidly, and some producers even experienced surpluses.
Much like Oregon, Canada is ready and waiting for export opportunities. With the world’s longest unguarded land border, Canadian companies have easy access to the US. Removing federal legislation could enable a legal cross-border marijuana trade.
That may not sound all that bad at first. The bigger problem for US companies is the reputation of Canadian cannabis. There’s a reason the black market knows terms like “BC bud” and “BC gold.” Much of Canada’s marijuana industry is based out of the western province of British Columbia
One of the reasons Canadian cannabis has such a reputation is the quality. The Canadian climate is hardly suited for growing a crop like cannabis. That’s just made Canadian cultivators more innovative. Long before legalization, Canadian operations were experimenting with hydroponics and aeroponics for indoor grow-ops. These operations are intensive, but they allow marijuana to be grown year-round. They also give cultivators much more control over their produce.
Whether Canadian marijuana brands can go toe-to-toe with American-grown remains to be seen. A change in federal legalization might lead to the showdown.
A German Invasion?
Another international player to keep an eye on would be—perhaps surprisingly—Germany. Germany hasn’t yet legalized recreational marijuana, but it does have a budding cannabis industry. Speculation is already high about where German producers would be able to export to.
Our Canadian neighbors have already been exploring potential in Germany. They see the country as one outlet for their marijuana surplus. In turn, Germany sees Canada as a potential export market for their own industry.
Here’s what that means for the US. Germany’s already considering exports to one part of North America. It wouldn’t be a stretch for German-owned or –backed companies to push into the US market either.
It’s hard to say how a European import would fare on American shores. First, the product would need to travel farther than American or Canadian products.
There’s also the question of trade deals. Canada has a trade deal with the EU and Germany by extension. Canada also has a trade deal with the US, which could pave the way for marijuana to cross the border.
US-EU trade is a bit more complex, so imports from Germany may be subject to tariffs and come with higher price tags. It remains to be seen if the appeal of a European brand could overcome those price differences on the American market.
There’s reason to suspect it might. Germany has been a hotbed of cannabis research in recent years. That’s led to more knowledge about what cannabinoids can do. It’s likely German companies are capitalizing on this knowledge to create new strains and products.
There may also be another route into the US for German marijuana: the pharmaceutical industry. Big players like Bayer may move to bring products from Europe to America through their subsidiaries.
Who Else?
If Germany legalizes, it’s likely other Western European nations will follow suit. In fact, many EU nations already have fairly relaxed rules about marijuana. Take Portugal for example. There’s no such thing as an illegal drug in Portugal. (There are, however, still drug-related crimes, such as possession.)
Israel might be another international competitor to keep an eye on. Cannabis for recreational use isn’t legal anywhere in the Middle East. Despite that, Israel has been involved in medical cannabis research. The result is a flourishing industry, which is likely capable of producing some of the best medical marijuana. If the US federal ban on cannabis were lifted, then medical marijuana could be imported as well.
The Potential Reversal of Fortune
A change in federal legislation could mean big changes for competition. Even with that, it’s unlikely there will ever be a complete foreign takeover of the US cannabis industry.
One reason is that many companies operating in Canada and Germany are subsidiaries of US businesses. Take, for example, pharmaceuticals giant Pfizer. The US-based corporation is one of the largest pharmaceutical companies in the world. It operates subsidiaries in Canada and Germany. If marijuana were legalized tomorrow, Pfizer would leverage any holdings it has in Canada and Germany to gain a share of the US market. In this case, Pfizer is still a US company, rather than a foreign competitor.
The situation benefits large conglomerates that have operations around the world. It’s likely to hurt smaller players on the scene. Small cannabis companies may find themselves bought up by foreign interests in a gold rush on a newly legalized US market.
There is one silver lining here, and it’s that these smaller companies may find there’s opportunity to grow. In fact, that’s why American investors are already looking north of the border. By investing there now, they may be able to set themselves up for a re-entry into the US market when federal legalization happens.
It may also set the stage for US take-overs of Canadian and other international companies.
Barriers to International Trade
As much as US federal legalization seems like it would open the door to a cross-border cannabis trade, there may be some snags along the way.
The first is how cannabis is treated in international law. Almost every country, with the exception of Canada and Uruguay, treat it as a banned substance. In fact, when Canada legalized cannabis, one of the big questions was how the country could do so without breaking a number of international treaties and conventions.
Given that, it’s possible international bodies will step in to curb international trade in cannabis for some time yet.
On the other hand, with major business interests at stake, it’s possible US legalization will force a revision of international law. Canada, in some ways, has already opened the door to re-examining those laws. By legalizing, Canada is violating some agreements. US federal legalization might also mean breaking some treaties. That may prompt renegotiations, which would ease the way for international trade.
It’s also possible some countries will simply continue to flout international agreements. As other nations legalize, they may decide to pursue trade with each other, in spite of the letter of international law.
If and when international law is revised, it will enable a truly global cannabis industry. In the meantime, countries like Canada and the US may just turn a blind eye.
Can You Be Ready?
It’s a good question. Federal law has made it difficult for investors and companies to access the funds they need. Investing in marijuana abroad has been somewhat tricky, although it’s easier than investing in the US. Revisions to federal law may soon loosen banking restrictions. That would give companies better access to funding.
Smaller cannabis companies would be wise to create potential partnerships with international operations. If it’s possible, investing in these international operations is a good strategy. This could mean buying land or investing in pharmaceutical companies operating abroad.
It also makes sense to grow a strong brand now. A strong brand contributes to company recognition and consumer trust. These, in turn, lead to sales. Higher sales and growth could see your company brokering mergers and acquisitions. That’s a much better outcome than being pushed out of the market by competition from all corners of the world.
Want more cannabis industry predictions? See more in our Crystal Balls and the Future of Cannabis Industry Series: Pt. I The Dark Side of Legalization and Pt. II What Will Happen to Cannabis in 2020?