How would Dem-sponsored U.S. cannabis legalization affect Canada?

US cannabis legalization

Throughout the Trump administration, U.S. Democrats introduced a number of cannabis legalization bills in the House of Representatives, each of which failed to pass due to a lack of supporting votes in both the House and Senate. Of course, it’s worth noting that Republicans enjoyed a majority vote in Congress for half of Trump’s term in the White House, and a majority vote in the Senate for its entirety.

Now, with President Biden in the Oval Office as well as Democrat majorities in the House and Senate, the party looks poised to finally legalize cannabis at the federal level. In December last year, the new Democrat majority quickly passed the Marijuana Opportunity Reinvestment and Expungement Act (i.e. the MORE Act) through Congress. The MORE Act proposes removing cannabis from the federal Controlled Substances Act, as well as introducing a pathway to expungement for cannabis-related criminal records.

With the likelihood of U.S. cannabis legalization at an all-time high, it’s worth examining how it might affect cannabis trade in Canada. In this post, we briefly go over how Canadian-American partnerships and market dynamics might be affected, along with how the Canadian legal cannabis industry could be affected by the arrival of an American counterpart.

A look at Canadian-American cannabis partnerships

As of this writing, American companies within the legal cannabis industry — including CBD businesses, dispensaries, terpene retailers and craft beer brewers — rely heavily on Canadian partnerships to get around regulatory red tape. This ranges from partnering with Canadian cannabis farms and growers for source materials too engaging laboratories equipped with machinery for complex cannabinoid and terpenoid isolation procedures.

Large American corporations dabbling in cannabis have also made use of distribution partnerships to concentrate their production and retail presence in Canada following its own legalization reform in 2018. Notable examples of this strategy include Molson Coors’ partnership with Quebec’s Hydropothecary Corporation and Constellation Brands’ partnering with Canopy Growth.

In the event of full U.S. cannabis legislation, these Canadian-American partnerships are likely to gradually fade as U.S. companies and corporations opt to skip expenses related to importation, exportation and tariffs — as well as look to centre their marketing efforts toward the American consumer population, which is nearly ten times that of Canada’s.

American cannabis consumers & the logistics factor

Whether online or via brick-and-mortar stores, American cannabis consumers are unlikely to be willing to pay product markups designed to offset importation expenses. The same can be said for delivery timeframes, or waiting periods for restocks. Barring a significant disparity in product quality, shoppers are also less likely to travel long distances for products they can easily find in their respective localities.

U.S. cannabis legalization at the federal level would pit emerging American cannabis companies against their Canadian counterparts in terms of logistical capability. However, it would be years from the date of legalization before the former could build up a logistics chain capable of adequately supplying all 50 states.

Would U.S. federal legalization palpably affect the Canadian cannabis market?

Although the legalization of cannabis could cause Canadian-American partnerships and American cannabis tourism to dry up considerably, Canada’s international partnerships and prospects won’t be likely to anytime soon. The presence of Republican trade hawks in legislative branches of American government would still give Canada the edge in terms of trade and partnerships with emerging cannabis markets around the world, such as in Latin America and the UK.

While there’s plenty of room for idle speculation now, events surrounding cannabis legalization — including future congressional and senate primaries — could very well transform American prospects in the legal cannabis market. After all, trade and financial policies are crucial factors in the viability and growth of any industry in its nascent stages.

Ultimately, time and voter trends in America’s progressive paradigm shift will be the deciding factor in how the country’s legalization of cannabis could affect its neighbours.

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