Trump’s so-called trade war against China has hit the US cannabis industry.
According to a representative of KushCo, America’s largest supplier of bottles and packaging for state-legal cannabis, the company can no longer “absorb” the costs of the new tariffs, which began last year.
After the first round of tariffs, KushCo reported that it lost four percentage points from its overall gross margin, although the company experienced a 39 percent increase during last quarter’s sales, Barron’s reported.
“So many companies are struggling to survive on all levels of the supply chain that these tariffs are like throwing salt in the wound,” Brad Blommer, an Oregon-based weed attorney, told Marijuana Business Daily last summer. “Ultimately, the consumers are going to have to pay more.”
US cannabis companies have experienced financial and regulatory obstacles no other industry currently deals with. For instance, they cannot make most business deductions on their taxes like other businesses, due to federal prohibition. They also cannot structure themselves according to national or international distribution models, again, because federal guidelines prevent cannabis products from crossing state lines.
The US cannabis industry — like most manufacturing industries — heavily depends on Chinese goods. Chinese companies mass produce the glass, plastic, electronics, and paper used for packaging cannabis products and for making cannabis consumption devices like bongs, pipes, and vaporizers.
By increasing tariffs on Chinese imports, costs of production have increased for cannabis companies. With many licensed businesses already hemorrhaging from high licensing fees, constantly-shifting regulatory compliance, excise taxes, and non-stop legal consultations, the tariffs will only add to the swelling snowball of expenses every ganjapreneuer currently faces.
However, some weed executives don’t see the Chinese tariffs as another ‘extinction event’ for the US pot industry, namely because sales are doing awesome right now, and most customers may not mind (or notice) the slight uptick in costs.
“[T]he profit margins in the cannabis space, as an overall rule, are still healthy,” Jan Verleur, the CEO of vaporizer producer VMR Products, said to Marijuana Business Daily. “I don’t think this is a hit that’s going to collapse anyone’s business.”
Although the cannabis industry may be able to, ahem — take the hit — other industries may not fare so well. According to a UBS report in USA Today, the newest tariffs could lose the US $40 billion in sales and put 12,000 stores permanently out of business.
Meanwhile, President Trump continues to rely on Chinese companies to make his campaign swag and other Trump-branded products, even as he claims the tariffs are designed to force Americans to buy more American-made goods.
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