Last updated December 26, 2018
The new Trump administration tariffs on Chinese imports are going to have a disproportionate effect on an unexpected market; the medical marijuana industry.
The tariffs, expected to go into effect in the coming days or weeks, may cause up to a 25 percent increase in the cost of packaging products necessary for medical marijuana businesses and an estimated 1.25 percent increase in the price of final products sold to the consumer.
Why the Medical Marijuana Industry?
Because of federal tax laws, the medical marijuana industry will be hit harder by the tariffs than many other businesses. The lack of tax deductions of typical costs to do business for medical marijuana businesses means that the increased cost will either come straight out of profits or potentially passed on to the consumer.
Other industries using similar packaging products, such as beauty and food-based businesses, will be able to offset some of the new costs created by the Trump tariffs through annual tax deductions. Without the same tax deductions, the medical marijuana industry is left to feel the full financial brunt of the new tariffs.
The 25 percent tariffs will be charged on many common packaging items (like boxes and mylar bags), lithium-ion batteries, cartridges, as well as other products arriving on U.S. shores from China. The tariffs will be assessed based on the value of the goods, costing anyone importing products subject to a tariff of up to $25 for every $100 spent.
Any goods that are not already on U.S. soil will be affected. Items already produced, ordered and shipped but not yet in port will be subject to tariffs.
Scrambling to React
Some within the industry could be forced into a difficult situation when orders placed months ago arrive at a significantly higher cost than anticipated because the tariffs become effective immediately.
While packaging sourced from the U.S. remains an option for some products, it also comes at a higher cost and could be in short supply for the medical marijuana industry in the coming months. Some U.S. manufacturers are already squirreling away large amounts of raw materials, leaving other manufacturers without the necessary supply. Paper necessary for the production of cardboard packaging, for example, is already said to be in short supply in the U.S. as these raw materials are, in many cases, manufactured in China.
Other types of products, such as glass jars, and mylar bags, are not readily available from American manufacturers since most U.S.-based glass factories have long since closed. The long-term reliance on China for affordable packaging products has left the U.S. with a shortage of manufacturers of these products. The higher cost of U.S. goods also takes a bite out of the profits of medical marijuana businesses who must already find a way to make every penny count.
Customers Picking Up The Tab
In the end, it will be the consumer who pays the price of the new tariffs. Since medical marijuana packaging can be up to 5% of the product’s final cost, a 25% increase in the cost of packaging will come across, on average, as a 1.25% increase to the consumer.
While not as significant as the 25% increase felt by those in the industry, any sudden price increase in the final product is sure to upset consumers and result in reduced or lost sales. Medical marijuana businesses will not see any additional profit from the price increase, making it a lose-lose proposition for both the industry and its customers.