Why the Canadians rule the cannabis business and we don’t
President Trump routinely waves his fist at alleged unfair trade practices, including at the hands of our good neighbor Canada. But what about playing fields that are uneven because the U.S. government makes them so? Witness the cannabis industry. It’s enjoying explosive growth worldwide, but Canadians are running away with the profits because Washington has shackled their American competitors.
It’s not that Americans are unacquainted with cannabis in all its forms. Cannabis is a family of flowering plants that includes both marijuana, which produces a high, and hemp, which does not. Most states have relaxed their marijuana laws to various extents. Ten states and the District of Columbia have made pot fully legal.
Meanwhile, nonintoxicating cannabis products — cannabidiol, or CBD, oil in particular — are flying off the shelves. Green Growth Brands of Columbus, Ohio, is about to open CBD stores in family-friendly malls.
Whether CBD extracted from hemp actually delivers relief from depression, insomnia, pain and acne has not been established. These products remain largely unregulated, so consumers may not know exactly what they’re ingesting or rubbing on their backs.
But to see who’s prospering most, look north. Canada last year totally legalized marijuana. Canadians have found gold in pot and its non-toxicant relatives.
Eight cannabis companies are currently listed on Toronto’s main exchange. Tilray Inc., the largest maker of medical marijuana, based near Vancouver, just bought Manitoba Harvest, the biggest manufacturer of hemp foods, for about $315 million.
Not only do differing state laws hamper U.S. producers but so does the enduring federal ban on marijuana. As one can imagine, this complicates Americans’ ability to build up a nationwide, not to mention international, business.
For starters, it’s illegal to ship marijuana between states. Hemp-derived CBD is OK — but Tilray plans to open processing plants in the U.S. because it’s illegal to move CBD over the border with Canada. American marijuana companies can’t deduct wages or other business costs from their taxes. The Hoban Law Group, a Denver firm specializing in the cannabis industry, says this results in some U.S. competitors paying effective tax rates of 85 percent.
As a result of these restrictions, Americans don’t have a competitive infrastructure of investment banks and law firms able to handle marijuana- or hemp-related deals, not to mention supply chains. That’s why Martha Stewart has linked up with a Canadian company to develop CBD products.
Coca-Cola is said to have explored putting CBD in drinks. They would be non-psychoactive and marketed as healthful. Stories circulate that it has talked to Aurora Cannabis as a possible Canadian partner.
Other U.S. giants, such as Altria (tobacco), have shown interest in the business. Constellation Brands (beer, wine and liquor) last year added $4 billion to its investments in the Canadian cannabis company Canopy Growth.
For decades, farmers in North Dakota looked over the border into Manitoba to see waving fields of hemp, a profitable crop they were not allowed to grow. The U.S. banned its farming not because hemp is any kind of drug but because it is a biological cousin of marijuana. Hemp still grows wild among the roadside weeds of the farm belt.
Hemp is used for making paper, oils and textiles. Car manufacturers put it in car seats for insulation. George Washington grew hemp. Oddly, while U.S. farmers were barred from growing the plant, American manufacturers remained free to import hemp fibers, oil and seeds from other countries.
This bit of insanity ended in December, when a farm bill passed by Congress and signed by Trump let U.S. farmers again produce hemp.
But the crazy quilt of American laws governing cannabis remains a hindrance to fully participating in a hot market. Canadians obviously don’t mind.
Follow Froma Harrop on Twitter @FromaHarrop. She can be reached at firstname.lastname@example.org.