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Shift in US Politics May Open Door for African Cannabis Exporters

The lucrative United States cannabis market could be open to African exporters sooner rather than later if political developments there are anything to go by.  The Democratic Party’s unexpected control of the Senate will speed up the cannabis deregulation already proposed by Congress.  

The lack of cannabis regulation at a federal level in the US means that exporters are effectively blocked out of the world’s biggest market. However, a growing groundswell of cannabis reform has swept in with last year’s presidential elections with New Jersey, Arizona, Mississippi, Montana and South Dakota legalizing adult use. State coffers in these areas will have a new source of tax revenue which has in turn prompted overwhelming support for cannabis legalization in New York and Conneticut.

“The attitude towards cannabis is changing in the US, and many believe that we are at the tipping point of drastic federal change in the nation” according to consultancy, Prohibition Partners .

New energy in the White House good for international cannabis

Alongside state-wide legalisation, on 4 December 2020, the House of Representatives passed the Marijuana Opportunity Reinvestment and Expungement Act (MORE ACT) of which Vice-President Kamala Harris is a lead sponsor. The MORE ACT is a bill that seeks to decriminalise cannabis federally and removes cannabis from the Controlled Substances Act. The bill is one of the most comprehensive cannabis decriminalisation bills to-date. It pursues to end the current war on cannabis, aid economic development and promote criminal justice reform. 

This may be just what African cannabis exporters are looking for. Currently the US is not an option for exports, although US companies have indicated interest in licenses in Rwanda and Uganda. The only certain African player with a route into the US right now is Stellenbosch-based Felbridge Medical which has a relationship with Geneva-based Puregene Pharmaceuticals. Puregene is one of the few non-US companies to have access to that market.

A total of 35 states as well as the District of Columbia have legalized marijuana to some degree—mainly for medical purposes. Fifteen of those states—Alaska, Arizona, California, Colorado, Illinois, Maine, Massachusetts, Michigan, Montana, Nevada, New Jersey, Oregon, South Dakota, Vermont, and Washington—made recreational use legal.13 These numbers, though, continue to rise.

 

Canada best placed to benefit from US reform

Should this trend continue, it seems likely that lawmakers on the federal level will at least reconsider the possibility of legalizing marijuana nationwide, even if only in particular situations. Regardless of what happens with U.S. regulations, expect that Canadian companies Tilray and Canopy Growth will take firm advantage of this unique opportunity to gain access to the U.S. market. Should the federal government eventually open the doors to cannabis imports on a broader scale, these two companies may be in the best position to capitalize.

The major African cannabis exporters – Lesotho, South Africa and Zimbabwe – are generally eyeing the European Union market rather than the US.  

US cannabis lawyer, Adams Lee says when the US starts importing cannabis, it is likely to be accompanied by a trade dispute.

“Legalization of marijuana has often resulted in supply and demand imbalances that result in prices rising or falling sharply. In Oregon, prices for licensed marijuana plummeted with overproduction, and nearly 70 percent of the legal recreational marijuana grown has gone unsold. In Canada, medical marijuana dispensaries faced shortages as licensed producers shifted to selling to the much larger legalized recreational marijuana market. Italy faced consistent shortages of medicinal marijuana and ultimately permitted imports from Canadian companies to ease the supply shortages.

 

With Relaxation of Trade Barriers, Disputes will Follow

Trade disputes often result when producers in one country complain that imports from another country are being sold at unfairly low or subsidized prices and harming the domestic industry. Domestic producers can petition their government to investigate imported products and often antidumping or countervailing duties are imposed. If imported cannabis products are allowed into the U.S., it would not be surprising if U.S. marijuana producers resort to U.S. trade laws in order to fend off import competition. Which countries might be likely targets of a cannabis trade dispute?

  • Canada –Given the head start that Canadian cannabis companies already have in developing international distribution networks in a number of countries, bigger and better funded Canadian companies could swoop in and aggressively price their product to overwhelm U.S. competitors and take over a dominant market share in the United States. U.S. cannabis companies could try to seek trade protection from Canadian imports by filing antidumping or countervailing duty petitions like those filed against Canadian softwood lumber in multiple rounds going back to the 1980s.
  • Mexico – Mexico’s new President Lopez Obrador has proposed legislation to legalize marijuana. If Mexico ever legalizes exports of licensed marijuana, Mexico’s relatively lower farm labor rates could provide significant cost advantages over U.S. or Canadian licensed suppliers.
  • China – Although marijuana is illegal in China, China is nevertheless the world’s leading producer of industrial hemp cultivation. China likely will have a significant advantage in producing more cost-effective hemp fabric and medicinal products than any other country. As of 2017, Chinese companies hold more than half of the 606 patents filed around the world that relate to cannabis. These patents could trigger plenty of litigation as companies try to attack or defend the intellectual property rights of their hemp products.

It’s hard to think of international trade disputes involving cannabis when it is still illegal for marijuana to cross U.S. state borders, let alone international borders.  But as the trend of marijuana legalization continues globally, it is likely a matter of time before licensed marijuana products become treated like any other commodity subject to competitive market forces and resulting litigation over fair and unfair competition. Once imported marijuana products are allowed, it is not difficult to foresee the day when import competition in the legal marijuana markets may trigger some type of international trade dispute either in the form of an antidumping or countervailing duty petition or a patent infringement action.

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