Wherever you look these days, thanks to state by state passage of medical and adult use, the cannabis industry in the US and Canada is beginning to bloom. But there is a big potential bump in the road ahead and its Trump’s punitive tariff war with China. There will be at least three areas of the industry that will be impacted.
Fulfilling a campaign promise to “level the playing field,” Trump has attacked the trade deficit between the two countries with sizeable tariffs. He levied $34 billion worth in July and China was quick to retaliate with an equal dose of tariffs on US goods. It can only escalate from here. The first round has brought as much as 25% tariffs on some goods. Businesses impacted then have to decide if they can pass the added cost onto consumers or eat that cost and lower their profits. It’s easy to guess how that’s going to go.
The biggest impact of these tariffs will be passed along in the cost of vaporizers, vape pens, the batteries they use, the pre-filled cartridges they require, plus filters and other elements. Profit margins are low on these products, usually between 10 and 15%. Any alternative sources besides China are few and far between. The tariff costs will have to be passed on to the consumers.
That is expected to have an effect on the “entire cannabis consumption market – including medical and recreational marijuana,” according to product industry spokesman Arnaud Dumas de Rauly co-CEO of The Blink Group. He recently testified at public government hearings about the proposed tariffs. “It’s not just consumers who will feel the impact” he advised. “Higher prices mean decreasing sales and shrinking tax revenues and 25% of sales come from cannabis vaping product.”
Ancillary products will also be affected. In Washington state shop owners will be paying more for the glass jars they use to package their buds for consumers. Marijuana Business Daily has suggested another place of impact that will be felt will be the cost of packaging materials imported from China.
Growers aren’t exempt either. Their costs will rise if lighting equipment from China is also hit with the punishing tariffs.The cost of equipment used in extraction in the making of cannabis concentrates will go up with the added cost to Chinese steel and aluminum.
The third area that could feel a big bad impact would be the stock market. There are at least three marijuana related stocks that could be impacted. One is Scott’s Miracle Gro. Their subsidiary, Hawthorne Gardening brings in about 11% of the gross revenue. A big slice of that comes from lighting supplies and products for hydroponic growing. They recently bought a supplier that buys and re-brands Chinese-made products. If they are hit by the tariffs, then Scott’s Miracle-Gro must decide if they or their customers will feel the pinch.
LED light producers could be in line for a hit. Although most pot farmers still prefer high pressure sodium lights, public companies like CREE are leading this nascent branch of pot production and would feel the heat if tariffs strike.
Santa Ana, California based Kush Bottles could also be in a tight spot. They are a popular supplier and source for much of the packaging and branding materials for the cannabis industry. Much of their resources are from China. Any price increase for them would likely be passed right through to consumers.
All in all the impact of the new and proposed tariffs could have a measurable negative impact on the marijuana industry and consumers. Can the Trump plan affect industry and consumer wallets? Yes it can. Some consumers can tighten their belts but for medical marijuana patients, there could be tough choices ahead. Meanwhile Trump is tweeting, “Tariffs are the greatest!’
Paul Pot
