International and China Cannabis Look to U.S. Market for Growth

Although COVID-19 is causing much of the world to slow down, business deals in many industries continue, including from China. Companies continue to seek strategic acquisitions, partnerships, and investments as they enter new international markets or seek to relocate a portion of their business or supply chain from higher-risk markets, such as China, to lower-risk markets in Southeast Asia and Africa, or even reshoring back to the U.S. In this global upheaval and opportunity seeking, cannabis is no exception.

Recently we have had many conversations with clients and prospective clients in Asia, Europe, and Africa regarding entering the U.S. cannabis marketplace. Many of these companies and their financial partners are sophisticated and understand the complexities of international business. They are successful in their home countries, experienced, and well-capitalized. They know their home markets, laws, and regulations well but need insight into the attractive but fractured U.S. market. Some understand some of the nuances of the U.S., while others are stymied by:

  • the federal vs. state struggle between regulation and application of those regulations;
  • cannabis as a scheduled drug but hemp as distinct from marijuana;
  • the patchwork of state-by-state regulations in consumable, smokable, and cosmetic-based products in the medical, recreational, and hemp consumer cannabis markets;
  • the interplay between and often slow rollout of regulations and guidance from the FDA, DEA, and U.S. Department of Agriculture;
  • the patchwork of enforcement actions at both federal and state levels; and
  • the current and future treatment of emerging cannabinoids beyond CBD such as CBGCBN, and synthetic CBD.

Companies have been calling our international cannabis lawyers because they want to hit U.S. ground running. They want to understand which products can be imported into the United States, which consumer markets are most likely to be receptive to their products, which U.S. states have favorable regulatory licensing and enforcement environments, and which financial, logistics, and insurance companies they can and should be working with.

Companies in Europe tend to be experts in producing cannabis products, including distillates such as oil, because they have been working with legalized cannabis longer than most. They are looking for a market for their value-added products, including consumables, smokables, and cosmetics. They understand the need to focus on niche markets and customer engagement through technology and social media. Some are looking for local companies to partner with. Others are only looking for sound legal advice so they can establish U.S.-based operations and compete with U.S. companies on equal footing from their own U.S. business entity.

Companies in Africa and Asia (especially China) tend to have both money and real estate in their home countries and are focused on cannabis cultivation and, to a lesser extent, processing. Some of the most mature cannabis companies in China are extremely well capitalized and have the backing of significant governmental organizations. Even where cannabis is illegal (or partly illegal) in their home countries, they can get regulatory approvals to grow cannabis and produce products for export markets. They are often experienced growers and manufacturers of other products (such as hemp in textiles or consumer products like beverages) and are turning that expertise to the consumer cannabis market. They want to learn more and do more, and they are engaging with U.S. researchers and companies to do so. They know they need to find local partners to help them navigate the tangles of importing in those countries because they have often been turned away by U.S. customs.

Companies and individuals in the U.S. and in international markets may not fully grasp some of these nuances of why the U.S. market is attractive for international cannabis companies:

  • The U.S. consumer market is well-educated on the benefits of cannabis and cannabis-derived products.
  • The U.S. regulatory market is advancing and providing more certainty with new federal and state regulations being issued constantly.
  • The U.S. consumer market is fractured, providing opportunities for both consolidation and new entrants with niche products.
  • The U.S. has the technology infrastructure and strong rule of law, providing incentives for innovation and a legal basis to protect and enforce contractual obligations.
  • The U.S. legalized hemp in 2018, leading to a hemp-derived cannabinoid marketplace that is rapidly eclipsing the legal adult-use marijuana market.
  • Distressed U.S. cannabis companies that were struggling before COVID-19 are still looking for strategic partners and capital.

Based on our current clientele and projects, as well as the volume of international cannabis inquiries, we see the international cannabis market continuing to grow substantially in 2020 and beyond, even as so many emerging markets will decline due to the economic fallout from COVID-19. Though no company or industry seems to be immune from the effects of COVID-19, companies engaging in international cannabis will continue to seize new opportunities for growth, partnerships, and investments across international borders. We will keep you informed with more developments on the international cannabis scene. The world is big, so let us know if you are interested in learning more about any particular international markets.

China will not be going away, and Chinese companies are rapidly working to transition from growing low-CBD strains that are useful mainly in a textile manufacturing supply chains to high-CBD strains, and they are courting businesses and university R&D labs to get those strains. It will not be long before Made in China hemp and cannabinoids derived from that hemp can compete toe to toe with the best U.S. hemp strains.

Read more of our articles on international cannabis, and check out our recent webinar:

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