CBD is a budding industry
A new industry is budding from the cannabis plant. CBD, short for cannabidiol, is the second-most prevalent ingredient found in marijuana behind tetrahydrocannabinol (THC). CBD is popping up in all types of new products from infused food and drink (CBD lattes were briefly on cafe menus all over New York City), to dietary supplements, lotions, oils, cosmetics and even pet treats.
CBD doesn’t cause the “high” associated with THC, but it’s believed to have health benefits like relieving anxiety and chronic pain (although the U.S. Food and Drug Administration says more research needs to be done). Market research firm Brightfield Group estimates the U.S. CBD market will be worth over $23 billion by 2023, but there’s a catch. Despite its growing availability on shelves, the U.S. FDA says certain usage of CBD – like adding it to food and drink — is still against the law.
Confusion over the legality of CBD products is just one example of how U.S. states and the federal government are wrestling over management of production, sale, and interstate trade in cannabis. At the same time, nations like Canada are moving forward with their own policies legalizing trade in marijuana. With a global cannabis market estimated to be worth over $340 billion this year, the United States risks getting left behind in a cloud of smoke as other nations hurry to cash in on a blooming industry.
Global marijuana markets hitting new highs
More than 50 countries around the world have legalized marijuana in some form for medical use. In October 2018, Canada became the first G7 country to legalize marijuana for recreational use (Uruguay was the first country to do it back in 2013). The marijuana market is now growing like a weed in Canada, with Deloitte projecting total marijuana sales will exceed $7 billion in 2019.
Canadian companies exported over 3,200 pounds of dried cannabis to other nations in 2018. Destinations for Canadian medical marijuana include Australia, New Zealand, the United Kingdom, Germany, Croatia, Chile, Argentina, South Africa and others. Canada is one of the few nations in the world that allow the export of medical marijuana, along with the Netherlands, Uruguay, Australia and Israel.
Under the Cannabis Act, Canadian companies must apply for a government license to import or export marijuana for medical or scientific purposes. They must also have a permit for each individual shipment of cannabis, which is issued on a case-by-case basis. This keeps Canada in line with three international treaties that strictly limit trade in cannabis – the Single Convention on Narcotic Drugs of 1961 (amended by the 1972 Protocol), the Convention on Psychotropic Substances of 1971, and the United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances of 1988.
While Canada is gaining global market share in international medical marijuana markets, companies in the United States remain prohibited from shipping marijuana across state lines.
Buzz kill for U.S. marijuana producers
Thirty-three U.S. states and Washington, DC have now legalized marijuana for medical use, and eleven states and Washington, DC have legalized it for recreational use. Public support for legalization has grown, with two out of three Americans now supporting marijuana legalization, according to Gallup.
But Marijuana remains classified as a Schedule 1 Controlled Substance, making it illegal at the federal level. U.S. businesses selling marijuana in states that have voted to make it legal are prevented from accessing capital markets and the U.S. banking system.
Marijuana may not be transported across state lines. Growers are restricted to selling their products within the state where they are licensed. This has caused oversupply in states like Oregon, where the Oregon Liquor Control Commission reports the state has an estimated 6.5 years’ worth of marijuana supply stockpiled with not enough customers in Oregon to buy it.
An opportunity for hemp to bloom
While the debate over legalizing marijuana continues, the Federal government has opened the door to industrial hemp production. In December 2018, the U.S. signed a new Farm Bill into law that removed hemp – the plant from which CBD is derived— from being classified as a controlled substance.
Both hemp and marijuana are variations of the cannabis sativa plant, but hemp plants contain less than 0.3 percent THC. Industrial hemp is grown in more than 30 nations around the world and used for a number of industrial and consumer products, like paper, rope, plastics, and textiles.
Under the 2018 Farm Bill, transporting or possessing hemp products is no longer illegal in the United States, with certain key restrictions in place. The U.S. Department of Agriculture is still in the process of developing regulations to implement the 2018 Farm Bill provisions, which it says can be expected by the end of the 2019 calendar year, in time for the 2020 planting season. Until then, farmers are to follow the 2014 Farm Bill regulations already in place, which only allows growing and cultivating industrial hemp for research purposes in specific states where it is legal.
China could cash in on CBD craze
Passage of the 2018 Farm Bill may open up new avenues for U.S. farmers looking to cash in on growing demand for hemp-derived products, like trendy CBD. It also gives farmers another crop to consider planting as U.S. agricultural goods are increasingly caught up in global trade tensions. But U.S. farmers will have some catching up to do to compete in the global hemp market.
China is currently the world’s largest hemp fiber and seed producer. Confirmed reports put Chinese hemp acreage at 113,000 acres planted in 2017, but estimates by industry analysts New Frontier go as high as 200 to 250,000 acres. This dwarfs Canada at 137,000 acres and the United States at just 25,000 acres planted in 2017. While most of China’s hemp production is currently focused on supporting the textile industry, the sheer number of hemp plants leaves them well-positioned to cash in on growing global demand for CBD.
Unsurprisingly, hemp is embroiled in ongoing U.S.-China trade tensions. Hemp seeds were on the list of Chinese imports subject to 25 percent tariffs by the United States following the Section 301 investigation of China’s trade practices. While Canada is by far the biggest source of U.S. hemp imports at over 90 percent, China was the second largest source at three to five percent of annual hemp imports to the U.S. in 2017.
The future of trade in cannabis
As the United States continues to debate the future of sales and trade in marijuana at both the state and federal level, other countries are moving full-steam ahead into the cannabis trade.
Canadian companies have gained a significant head start in developing supply chains and international distribution networks for trade in medical marijuana. China is growing more hemp than anyone else, giving them a leg-up in growing global demand for CBD products.
The future of trade in marijuana is looking increasingly green for countries who are able to capitalize on growing popularity of cannabis products. It remains to be seen if U.S. producers will also be able to see green, or be forced to remain on the sidelines, green with envy.
Lauren Kyger is Associate Editor for TradeVistas. Prior to joining TradeVistas, she was a Research Associate at the Hinrich Foundation focused on international trade issues. She is a Hinrich Foundation Global Trade Leader Scholar alumna, earning her Master’s degree in Global Business Journalism from Tsinghua University in Beijing. She received her Bachelor’s degree from the Walter Cronkite School of Journalism and Mass Communication at Arizona State University.