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What a trade war means for your marijuana

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  • What a trade war means for your marijuana

    If a full-blown, tit-for-tat U.S.-China trade war erupts, a slew of consumer goods could be subject to as much as 25 percent in tax. On the hit list: imported, Chinese-made vaping devices.

    That could have far-reaching consequences for the vaporizer industry, as well as the booming cannabis industry, which has been growing like a weed, so to speak.

    Currently, nine states plus the District of Columbia allow recreational marijuana use, and 30 states and D.C. permit some form of medical marijuana, which is used to treat cancer patients and those with chronic pain or PTSD, among other ailments. More states are likely to follow suit.

    For the full accounting of Chinese goods that the Trump administration plans to target, see this list from the United States Trade Representative.

    As a result, legal sales of marijuana are projected to jump to more than $20 billion by 2022, from approximately $10 billion in 2018, according to Marijuana Business Daily. Estimates from an Ackrell Capital research report show even greater growth (see chart below).

    Market Size in USD BillionsProjected combined recreational and medicalmarijuana consumer market in the U.S. from2015 to 2024 (in billion U.S. dollars)$4.4$4.4$5.7$5.7$6.7$6.7$8.5$8.5$9.5$9.5$2 3$23$26.4$26.4$30.1$30.1$33.7$33.7$37.3$37.3201620 18202020222024$0$10$20$30$40Source: Ackrell Capital Statista 20182020● Market Size in Billions of Dollars: $23

    Much of the cannabis and cannabis concentrates on the market today are grown and sold in the U.S., but the devices used to consume them are manufactured in China, according to Arnaud Dumas de Rauly, co-CEO of The Blinc Group, a vapor and cannabis incubator, and treasurer for the Vapor Technology Association. Those devices can cost anywhere from $50 to $500, depending on the type.

    That's where a trade war threatens to put a stranglehold on the marijuana market.

    Companies that import vaping products will have to either absorb the additional cost of the tariff, source production in another country or increase the prices charged to consumers.

    However, the profit margin on those devices is only between 10 percent and 15 percent and few alternatives exist for making them, Dumas de Rauly said. As a result, the extra cost of the tariff will be largely passed on to consumers by way of higher prices.

    That will impact the "entire cannabis consumption market β€” including medical and recreational marijuana," he said.

    "There's no question that tariffs will raise the price of those products, which producers and importers will try to pass on," added Dan Ikenson, the director of the Herbert A. Stiefel Center for Trade Policy Studies at the Cato Institute, a nonprofit think tank in Washington, D.C.

    "If the duties go into place in September, prices could be higher in a month," Ikenson said.
    "If the duties go into place in September, prices could be higher in a month."-Dan Ikenson, director of the Herbert A. Stiefel Center for Trade Policy Studies at the Cato Institute
    So far, "we've seen tariffs on imported steel, aluminum, solar panels and washing machines," he said. But for a large part, shoppers haven't been heavily impacted yet. "Consumers buy washing machines once every 20 years."

    Vaping products for marijuana, medical or otherwise, are a different story. "It's hard to predict how people will react," Ikenson said.

    "For those who need it, they don't have a choice," said Mary Lovely, a professor of economics at Syracuse University and nonresident senior fellow at the Peterson Institute for International Economics in Washington, D.C., although the devices themselves are only a portion of a medication's total cost, she added.

    President Donald Trump has said tariffs are a good bargaining tool in his pursuit of better trade agreements.

    Americans' views of the new tariffs between the U.S. and some of its trading partners remain divided, although they are more negative than positive overall, according to a new poll of more than 1,000 adults conducted by the Pew Research Center in July.

    Nearly half, or 49 percent, of Americans said increased tariffs will be bad for the country, while 40 percent said the tariffs will be good for the U.S. Just 11 percent said they are unsure of what the impact will be.

    - CNBC
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