Trump’s tariff war with China is going to hurt the American cannabis industry and, in the end, it will probably be the consumer who will have to pay the price.
This is the gloomy picture being painted by economists who predict anything but a pot of gold at the end of the cannabis industry’s present-day rainbow. And they blame Trump’s tariff war with China as the reason why the 2018 record-breaking year will come to an abrupt end.
Trump’s ploy backfired
Trump has made no bones about pointing the finger of blame at China for restricting the U.S. economy, blaming that country’s lower labor costs and its huge trade surplus with the U.S. for putting America at a distinct economic disadvantage. In July Trump slapped tariff levies on $34 billion worth of Chinese imports, hoping to encourage Americans to buy local by making the foreign goods more expensive. This ploy backfired when China immediately returned the favor and imposed tariffs also worth $34 billion on U.S. goods.
The problem is that these higher costs have to be absorbed somewhere and, while businesses could cut their margins, the more likely scenario is that these tariff hikes will be passed on to the consumer.
The cannabis industry is not immune
The cannabis industry, like many other businesses, will not be immune to these exorbitant price increases.
Goods that they import from China include:
- Batteries for vaping devices
- Pre-filled pods for vaping devices
But this is not all that is adding to the gloom of Trump’s predicted future tariff increases on Chinese imports. These could also include:
- Packaging materials
- Lighting equipment
- Extraction equipment
Furthermore, the burgeoning marijuana stock market could also be adversely affected and, according to economists, the three pot stocks that are likely to be stung by these tariff hikes are:
- Kush Bottles (NASDAQOTH:KSHB)
- Scotts Miracle-Gro (NYSE:SMG)
- Cree (NASDAQ:CREE)
Kush Bottles is based in Santa Ana, California, and produces packaging and branding materials for the cannabis industry. But the problem is that Kush Bottles purchases a percentage of its low-cost packaging products from China for use in its “Value Line” in areas of the U.S., like California, where the regulations surrounding packaging is more lenient. These increased tariffs could force Kush Bottles to pass on the added costs to its consumers.
Eleven percent of the lawn and garden giant Scotts Miracle-Gro’s total sales were generated by its subsidiary, Hawthorne Gardening, which focuses on the medical marijuana industry with the supply of hydroponic and other lighting solutions.Scotts Miracle-Groalso recently bought Sunlight Supply which imports its lighting products from China which are then rebranded under the company name.
This scenario could also impact on LED producer, Cree, which has a production facility in China for export to the U.S. Economists pointout that while high-pressure sodium lights remain as the lighting of choice for indoor marijuana grow facilities, LED lighting is expected to become increasingly popular and this pattern will, therefore, have a negative impact on the company’s pricing structures.
The cannabis gravy-train will continue when in less than two months Canada will become the first global industrialized country to legalize recreational pot with a forecast annual sales ticket of R5 billion. Adding further impetus to the flourishing marijuana industry was the legalization of pot in Vermont earlier this year, as well as the acceptance of medical marijuana by the Republican-supportive state of Oklahoma.
Now it’s a waiting game but one, nevertheless, which is more than likely to have an adverse effect not only on the marijuana industry but on the consumers who will end up having to pay the price for Trump’s Chinese tariff war.