International Cannabis Continues to Look to the U.S. Market

22 Apr International Cannabis Continues to Look to the U.S. Market

Although COVID-19 is causing much of the world to slow down, business deals in many industries continue. 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. cannabis markets. 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;
• “marijuana” as a scheduled drug but hemp as distinct from that form of cannabis;
• 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 roll-out 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 CBG, CBN, and synthetic CBD.

Companies have been calling us because they are preparing to hit the ground running. They want to understand which products can be imported, 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.

Companies in Africa and Asia tend to have both money and real estate in their home countries and are focused on cannabis cultivation and, to a lesser extent, processing. Even where cannabis is 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 who can help through 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 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 in 2020 and beyond, even as some emerging markets will severely grapple with the economic fallout from COVID-19. While no company or industry seems to be immune from the effects of the coronavirus, 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.

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