China’s aggressive economic strategies and the current administration’s response have disrupted — and are continuing to disrupt –many different industries that are dependent on Chinese goods.
The tariffs have had a negative impact on many industries in the US. Some of these industries, like automobiles and technology, you’d expect to feel the brunt of a trade war; but, other less obvious industries, like cannabis and those ancillary to cannabis, are also being seriously affected.
On May 10th, the Trump administration increased U.S. tariffs on $200 billion worth of Chinese imports from 10% to 25%. What does this look like? According to a UBS report in USA Today, the newest tariffs could directly result in the loss of $40 billion in sales and put 12,000 American stores permanently out of business.
Not the cannabis industry!
The cannabis industry — from cultivators to extractors, but especially retailers — heavily depends on products, parts, and materials which are sourced from China. By increasing tariffs on Chinese product imports, costs have increased for companies throughout the cannabis supply chain.
The reason for this is that tariffs are a type of tax which companies, and not governments, pay on the goods that they import. Often, those at the end of the supply chain face the highest costs due to others above them in the chain adjusting to the tariffs with higher prices. In the case of the cannabis industry, the chain ends with dispensaries.
The next time you go into your local dispensary, check the packaging. Chinese companies produce most of the glass jars, paper, plastic and mylar bags used for cannabis products in dispensaries. Chinese manufacturers produce this packaging in bulk for extremely low cost and ship enormous sums of it to the United States to satisfy the growing demand here. For dispensaries, the economies of scale for Chinese packaging are hard to pass up.
But as a direct result of the trade war, the Chinese packaging vendors that we use for our six cannabis dispensaries in California and Nevada are already applying an extra 3% cost on our exit bags and packaging — for the flower we grow and distribute ourselves.
Most dispensaries also source cannabis consumption devices like vaporizers from China. In fact, according to Reuters, the U.S. vaping industry in general depended on China for 91 percent of imported vaporizers and parts in 2016. Some of the vaporizer manufacturers that we buy, specifically, have increased the price of 510-threaded batteries by $1-$2. These numbers really add up, especially in bulk.
Depending on the state, most licensed cannabis dispensaries are already struggling financially from licensing fees, regulatory fees, legal consultations, and a complex tax system. The tariffs only add to the list of mandatory expenses.
And as the President continues to ramp up economic sanctions — he has most recently threatened to add a 25% tariff on almost all the remaining $325 billion in goods shipped in from China — the future looks more uncertain. In the meantime, dispensaries that are able to keep their doors open are looking seriously for alternatives for product sourcing.