Trump's Trade War with China could be affecting cannabis space

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For more than a year, President Trump has been waging an intense trade war with China, culminating in both sides increasing their tariffs on imported goods. With 25 percent tariffs levied on $200 billion of Chinese goods, Trump is “still threatening to slap duties on another $325 billion of goods,” reported CNBC. The fallout has been considerable. According to the business news outlet, more than 50 U.S. companies are reportedly pulling their production operations from China.

For over a year, President Trump's trade war with China has resulted in excessively high tariffs levied on imported goods. The effects have been felt by some in the U.S. cannabis market. Image of fighting chess pawn on China and U.S. national flags.

And it’s not just U.S. companies that are shifting their manufacturing from China; it’s also a “handful of Chinese companies” that are reconsidering their production base. Citing a report in Nikkei, CNBC noted that “Chinese multinational electronics company TCL is moving its TV production to Vietnam, while Chinese tire maker Sailun Tire is transitioning its manufacturing line to Thailand.”

The rippling effects of the trade war have also been felt for some in the U.S. cannabis market. Julia Jacobson, CEO of Oakland, California-based Aster Farms, a sustainable cannabis company, said that because most of her company’s packaging is produced in China, they are being hit with 25 percent taxes on their orders. “Our custom tins for our pre-roll pack were finished, but not shipped when the tariffs first kicked in,” she related. “It resulted in our shipment being delayed for two months and was only released after we paid an additional 25 percent.”

To counter these excessive tariffs, Jacobson noted that Aster has been trying to shift much of their packaging operations to the U.S. but “due to the very specific regulations around cannabis packaging, we are often stuck with Chinese production.” Although her company has opted not to hike up prices to consumers, “other brands may not be so generous,” she added.

The situation has become untenable for Jacobson. “While many people think the cannabis industry is striking it rich, with the current regulations and supply chain we are all operating on extremely thin and often negative margins, so any increase in our costs of goods hurts,” she explained.

But not all are feeling the pinch. Perry N. Salzhauer, a lawyer at Green Light Law Group, a cannabis-focused Portland, Oregon-based firm, said he has not heard clients complain about the trade war’s effect on their businesses. As he pointed out, there are multiple items on the tariff list that could be “of interest” to cannabis companies, such as liquid maps, refrigerated devices or other types of equipment.

Salzhauer offered his theories on why his clients have been (so far) immune to the trade war. “It’s possible that the ordering of the equipment is bypassing some of the tariff system,” he speculated. “It must be under the radar. They’re not going through customs or [U.S. cannabis firms] are directly ordering these things from a company in China. That’s a totally different can of worms because that can be subject to the postal office.”

For companies like Aster Farms that are feeling the effects of the tariffs, little can be done. Citing the proverbial banking problem faced by many marijuana businesses, an obstacle rooted in the federal illegality of the substance, Salzhauer sounded an understandably pessimistic note.

“They’re just as powerless as any other industry,” he said. “The cannabis industry has zero clout on Wall Street.”

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