The Trump Administration’s on-going billion dollar trade war with China has earned headlines for how the threatened tariffs on imported consumer goods are likely to raise prices in the US. One item on the most recent list of goods targeted for tariffs are vape pens, cartridges and batteries.
Dual reports from Forbes and MJBizDaily, have examined how the US cannabis industry, and the state tax revenue generated, is reliant upon Chinese-made vaporizers and accessories. The Trump administration’s proposed tariffs on Chinese goods and metals could raise the price of vape pens and associated accessories by 25%. Cannabis business owners, already operating by the slimmest of margins due to the inability to deduct common business expenses, are likely to pass the increase in cost to their customers and patients.
Cannabis Products Targeted by the Trump Administration
Last June, the Office of the United States Trade Representative (USTR) released a list of Chinese-made products that are currently being targeted for a 25% tariff in response to “China’s unfair trade practices related to the forced transfer of American technology and intellectual property.” The list includes vapor product devices, batteries intended for use in vaping devices, and pre-filled pods and cartridges.
If Not in China, Where Will Vaporizers be Manufactured?
The Trump administration’s proposed tariffs are just a small component of a greater campaign to balance import/export relationships and drive US-based manufacturing. But in the case with vaporizers, the US has never had a robust manufacturing base focused on the vaporizers and/or e-cigarettes.
Since the emergence of the vaporizer/e-cigarette market, US retailers have relied on manufacturing operations in China and Hong Kong. As reported by MJBizDaily, in 2017 the US imported $42 million worth of vaporizers or vaporizer parts from China and $800,000 worth of similar products from Hong Kong. All other sources of vaporizers did not exceed $500,000 in imports.
Operators seeking to source American-made vaporizers for their cannabis retail business will struggle to find manufacturers who can meet demand and whose products aren’t significantly more expensive than Chinese-made counterparts.
Tariffs Could Affect Others in the Cannabis Supply Chain
While vape pens are the most obvious target of the tariffs, cultivators and related service providers could also experience significant cost increases. Tariffs on Chinese-made steel and aluminum could increase the costs of indoor grow lights, materials used for greenhouse construction, and heavy-duty machinery used in manufacturing and extraction.
How Long Until We Feel the Price Increase?
The Trump administration’s proposed tariffs are set to go into effect on August 23rd. There was a public comment period, which ended August 1st, and a number of cannabis industry advocates voiced how the tariffs could have a negative impact on the growing industry. It has yet to be determined whether vaporizer products will remain on the list of targeted imports when the tariff goes into effect.
If vaporizers remain on the list of targeted products, cannabis customers and patients are likely to see price increases as early as this fall.