Opportunities for Canadian cannabis companies exist in the U.S., even as federal legalization lags
May 18, 2021
Our Omar Khan writes in GrowthOpp today about how federal legalization of cannabis in the U.S. remains an uphill battle but significant opportunities exist in the federally permissible hemp derived CBD space.

CBD is the place to be, writes cannabis industry insider Omar Khan.The results of the 2020 election in the United States touched off a wave of enthusiasm among Canadian cannabis companies looking to cash in on business opportunities south of the border.With the Democrats retaining their majority in the House of Representatives while picking up control of the Senate and the White House, it appeared to casual observers that full federal legalization could be just around the corner. This is still possible, but it is by no means certain.

Fortunately, there are plenty of opportunities within the legal hemp-derived CBD space for companies looking to expand their presence south of the border.

But more on that in a bit.

To understand why full-scale federal legalization in the U.S. is far from a done deal, it’s important to look at the current state of U.S. politics.

To legalize cannabis, both houses of Congress must pass legislation that would subsequently require a presidential signature to become law. Because members of the House of Representatives face re-election every two years, Democratic lawmakers there are much more susceptible to pressure from their political base, which overwhelmingly supports an end to prohibition.

There are also a handful of House Republicans with libertarian leanings who are sympathetic to cannabis reform. These include David Joyce of Ohio and Don Young of Alaska, who introduced a bill last week that would see cannabis legalized in a manner similar to alcohol. If it were up to the House of Representatives alone, cannabis would likely be legalized by the end of this year.

Unfortunately, the Senate and President Joe Biden must also agree.

The Democrats have a precarious majority in the United States Senate. Although both Democrats and Republicans currently have 50 senators each, ties are broken by Vice President Kamala Harris. As such, one might think that even with a one-vote majority, Democrats would be able to push through legalization. Unfortunately, the Senate’s arcane rules make that difficult.

A supermajority of 60 out of 100 votes is required to pass most legislation. This means that even if every Senate Democrat were onside, an additional 10 Republicans would need to be recruited to the effort.

Although some Senate Republicans like Rand Paul of Kentucky are sympathetic, there are currently just a handful who would even consider voting in favour of outright legalization.

Add to that the fact that some conservative-minded Senate Democrats, like Joe Manchin of West Virginia, appear to have reservations, it becomes clear that passing a comprehensive cannabis reform bill through the Senate remains an uphill battle.

Let’s assume for a moment that supporters of cannabis reform can garner 60 votes in the Senate. Any legislation that gets through Congress would still need to be signed into law by President Biden. Although Kamala Harris, who prior to being elected Vice President, was a lead sponsor in the Senate of the Marijuana Opportunity, Reinvestment and Expungement Act, which many describe as the most far-ranging legalization proposal in recent times, President Biden has been lukewarm to the idea, preferring, instead, to focus on decriminalization and the expungement of criminal records.

So, what does this all mean for Canadian cannabis companies looking to grow their business in the U.S.? Simply put, they should not base their business plans on the inevitability of federal legalization in the near term. But that does not mean that significant opportunities do not exist in the U.S.

Because the so-called 2018 U.S. Farm Bill removed hemp from the definition of marijuana in the Controlled Substances Act, the manufacture and sale of hemp-derived CBD products is federally permissible. Since then, U.S. consumer demand for these products has consistently increased.

Kelly Neilson, vice president of insights and analytics at cannabis market research firm BDSA, recently told Marijuana Venture that he expects hemp-derived CBD sales in the U.S. to net out at US$6.8 billion ($8.2 billion) in 2021, growing to up to US$20.5 billion ($24.7 billion) by 2025.

To put this in perspective, Statistics Canada has reported that total Canadian cannabis sales across all product formulations in 2020 was $2.6 billion. New Frontier Datarecently reported that almost 90 per cent of Americans are now familiar with CBD, and about 20 per cent have consumed it.

This data speaks for itself.

While it is important for Canadian cannabis companies to monitor the legislative situation in the U.S. and be ready to take advantage of legalization should it occur, smart industry players who want to drive shareholder value today will focus on what is already legal and in high demand.

When it comes to driving profitability while staying onside with U.S. federal law, CBD is the place to be.

Omar Khan is Senior Vice President for Corporate and Public Affairs with High Tide Inc. (TSXV: HITI) (OTCQB: HITID) (FRA:2LY), a retail-focused cannabis company enhanced by the manufacturing and distribution of consumption accessories.