Cannabis Across Borders

Operating internationally isn’t simple, but the pay-off can be huge

Earlier this year, Israel become the third country to legalize the importing and exporting of cannabis, joining Canada and the Netherlands. While this presents significant opportunities, it is unlikely to fully take shape while cannabis remains a Schedule I substance in the United States. Despite the fact that cannabis still can’t travel across U.S. borders, countries legalizing cannabis as a product for import and export is a big step that prepares them for an opportunity that seems almost certain to be coming, and maybe coming soon.

Besides Israel, Canada and the Netherlands, other countries are preparing to make cannabis part of their international trade. Colombian shipments of cannabis for scientific research are scheduled, shipments from both Colombia and Uruguay to Germany have received initial approvals and, in an interesting twist, China is ramping up production of CBD for export, despite having some of the strictest drug enforcement policies in the world and cannabis consumption remaining illegal both in Hong Kong and mainland China.

While revenue from legal cannabis in the U.S. is predicted to grow to more than $25 billion by 2025, the worldwide market is expected to exceed $150 billion. The opportunities presented by international cannabis are huge — and largely untapped — given the immaturity of this market. But the price of admission for the international cannabis market is significant, and shouldn’t be taken lightly. Cannabis companies operating in the U.S. and Canada have a number of regulatory challenges to address, not to mention challenges such as how product liability matters should be handled, how to properly test and certify product quality and how to minimize “breakage” (product going missing) in the supply channels. These challenges become even more significant when cannabis starts crossing sovereign borders. Now you have different sets of laws related to your products, new requirements related to quality assurance, tariffs, security requirements, tax authorities and many other new logistical challenges.

Despite the challenges for companies ready to enter the international cannabis market, the potential upside can be huge, as evidenced by the stock prices of many cannabis companies listed on the Tel Aviv Stock Exchange when it was announced that Israel had legalized the export of cannabis. Companies willing to invest the time, energy and money to build the necessary infrastructure for the international market are entering an industry that could easily reach hundreds of billions of dollars annually. These companies, whether in Israel, the Netherlands or any other country, are investing in what the cannabis market could be in the future rather than what it looks like today.

American companies that want to be part of the growing international cannabis market should plan now. This involves ensuring your company is properly licensed, properly capitalized and ready to go public or to get capital infusions as needed. You must be ready to ramp up supply chains, protect your intellectual property globally and operate in markets where the rules can vary significantly, the regulations are still developing and the demand can often be unpredictable, not to mention potentially fierce competition from local companies. But being an early adopter can give you a significant advantage over those who come later, when the full potential becomes more obvious. Operating internationally isn’t simple, but can be very rewarding. It takes a good product, a commitment to excellence and having the right talent on your team.

 

Tom Zuber is the managing partner of Zuber Lawler, which handles corporate, finance, M&A, IPO, intellectual property, FDA and litigation matters from offices in Los Angeles, Silicon Valley, Chicago and New York. He holds a law degree from Columbia Law School, a master’s degree in public policy from Harvard University and a biomedical engineering degree from Rutgers University, where he graduated with highest honors. He can be reached at tzuber@zuberlaw.com.

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