With the US’s historic 2020 election, cannabis has now moved from the fringes to the spotlight. Will international trade follow?
While the 2020 election continues to divide opinion, one thing that it seems almost everyone agreed on was weed. The 2020 election added New Jersey, South Dakota, Montana, and Arizona to the 11 other states that had already legalized adult use or “recreational” cannabis. Mississippi and South Dakota joined the medical cannabis ranks making it 35 States and the District of Columbia who have legalized some version of marijuana, putting the plant solidly in the majority. With politicians on both sides of the aisle, large tobacco, alcohol and pharmaceutical companies moving with clearer public and financial motives toward the monetization of both Tetrahydrocannabinol (THC) and Cannabidiol (CBD) it now feels inescapable that the cannabis business is here to stay.
With so much momentum, science and intellectual property being delivered during this domestic “green rush” the international markets might seem the logical next step. There are more than 30 countries who have decriminalized, legalized or provided the foundation for medical cannabis, including imports. The US however remains locked out due to federal mandate and international treaty. In 1961 the United Nations signed the Single Convention on Narcotic Drugs. In that cannabis is classified as a Schedule 1 and Schedule IV substance which carries no medical value and is equivalent to trafficking heroin or LSD. Cocaine as the opioid, is only a Schedule 2 and technically easier to produce for international medicine. While a study by the Pew Research Center in 1969 showed 84% of Americans thought marijuana should be illegal, that same group shows that fifty years later it is now 91% of Americans that support legalization. Times have changed, but the United Nations has not, yet.
In January 2019, the Director General of the World Heath Organization (WHO) submitted to the Secretary General of the United Nations a recommendation that cannabis and cannabis resin’s status be changed and elements removed from the 1961 Convention and that alternatives to conviction and prison be considered for possession and personal use. In December 2020 with a historic vote of 27 for and 25 against, the United Nations approved the recommendations of the WHO and provided the international framework for rescheduling of cannabis for medical purposes. However more work if left to do and the cluttered mess of CBD, THC, extracts and isolates remains a work in progress. With all that 2020 has brought, the WHO’s attention is of course on bigger things, so what can business do to prepare to navigate the trade opportunity and pitfalls of the global cannabis markets?
Canada which fully legalized cannabis in 2018 has already had a history of export and international cannabis business. Starting with the 2016 passing of the Access to Cannabis for Medical Purposes Regulations (ACMPR), Canadian businesses were able to begin applying for export permits to countries for medical cannabis usage. A rush of investment and speculation followed that these Canadian licenced producers (LPs) would have a strong first mover advantage in bringing new cannabis and specifically THC products to markets in Israel, Australia and Germany among others. Suddenly Canadian companies with a population base 1/10th that of the US were the largest cannabis companies in the world. Columbia and Uruguay also began to move towards similar medical production programs to take advantage of the high cost of THC and CBD medicines in the European and Australian/Asian markets.
Unfortunately, this international explosion has been less boom and more bust. The uneasy truth is that without the WHO, United Nations, the US Food and Drug Administration (FDA) or equivalent, “medical” cannabis has no standardized regulations between countries. That means content, potency, chain of custody, toxicity, heavy metals and other residues, not to mention testing standards and protocols are not equivalent between nations or do not exist. Germany, Israel and the EU have mandated good manufacturing practice (GMP) requirements, but without standardized metrics, it is very much caveat emptor.
So as US businesses contemplate the international marketplace what are a few of the universal lessons gained from the first wave of cannabis exports they will need? The first and most important; provide clear and undisputable evidence the cannabis product was produced where and how it was supposed to be.
The reason countries like Israel moved to a GMP requirement was the cannabis imports were found to have insufficient quality control at scale. Cannabis is still just a plant and after all the agricultural advances in the world, two tomatoes on two different plants in the same farm will be different sizes and even tastes. But when it comes to medicine and medical cannabis you can not provide different levels of THC, CBD or other cannabinoids. Currently a Certificate of Analysis (COA) and test data on batches is required, however with no universal acceptable mandate on batch size, there is nothing stopping that COA to be for a 50-kilogram batch, a 500 or a 5,000. Hemp derived CBD can not exceed 0.3% THC as part of the matrix. Most hemp strains however spike their THC content at flowering so something as small as 0.01% increase in THC turns hundreds of acres of hemp farms into and illegal grow op, literally overnight. That COA may now be only a small piece of a bigger picture.
Quality at scale matters, as with other industries, like cotton, where agricultural products are produced at farms and shipped for processing, sub-par or in the case with cannabis and hemp, illegal products, are easily substituted into the matrix and processed for export. In cotton, like cannabis, companies are demanding clear and transparent chains of custody and supply lines. Advanced technologies such as Molecular DNA tags, can be applied to cannabis and hemp at the farm through a fogging method or at a processor by adding a unique tag via a liquid formulation to a batch of oil or isolate. The tag can also be applied to packaging and labels in the ink and varnishes enabling an extra level of security to prevent counterfeits and diversion across the globe.
This supply chain transparency is not just for buyers, exporters need to stand out in a sea of unregulated international sellers. In 2019 the number one exporter of cannabis oils (CBD included) was China with nearly a billion in export sales, three times that of the United States and 20 times that of Canada. China has some of the strictest cannabis laws on the planet yet holds almost 50% of the global cannabis patents and dominates the unregulated CBD oil production for export. Price therefore can not be the only consideration, where and how the cannabis is produced, must be unimpeachable and verifiable to stand out.
The German market, considered the most difficult and in many ways the most lucrative global market due in part to the EUGMP requirements and government reimbursement on medical consumption, only imported roughly 7,000 kilograms (15,400 lbs) in 2019. For companies looking to invest in the infrastructure, quality assurance, IP and marketing to succeed in export, verifiable supply chain should be top of list to compete. The future of the international cannabis business will not come down to how much, but where and how was it made.
Jason Warnock is a cannabis advisor for Applied DNA Sciences. He is a strategic thinker specializing in international market development, brand advocacy and integrated communications. Jason has worked with high-profile brands for more than 20 years to articulate sustainable, resonant campaigns in architecture and design, energy and the cannabis market. He has spent his career as a marketing and business-consulting lead, building companies and brands while working on M&As through his advisory practice.