The US and Canadian cannabis industries are a big mess. Massive margin compression is happening at every level of the industry due to unrelenting pressure from the illicit market, high taxes on the legal market, burdensome regulations, lack of banking and access to capital, oversaturation of many state markets that leads to spillover into neighboring states, and the list goes on and on.
The industry is in the midst of a crash, and "trying to catch a falling knife" is one of the toughest things you can do according to many financial experts. Interested in picking up distressed assets for $0.02 on the dollar? Well, we may not see a true market bottom until full Federal legalization and interstate commerce can establish a true floor for a price of a pound, ounce, and gram of cannabis. But that may be a false bottom as well, as the international scene could spell the end of the North American cannabis industry in terms of expansion and worldwide growth.
The US and Canadian markets blew there first mover advantage and gave the world stage away to cheaper producing and more aggressive players in the new cannabis space. One thought that made American cannabis feel good about the future was that “we grow the best weed here in Cali, Colorado, the Emerald Triangle, and that will carry us in the end”. Quality seemed to be the one thing the US and Canadian markets could hang their hat on in the future (certainly not lower pricing and production costs), but that may also be slipping away from the American growers.
Word comes now that Colombia, the most experience country at growing and shipping drugs around the world, has a high THC strain called “Creepy” that is taking over the world. The demand is through the roof for the creepy strain, to the point that even socialist neighboring country Venezuela is getting flooded with high grade Colombian weed. If the Americans and Canadians were hanging their hat on better quality cannabis winning out over lower cost weed, well, time to find a new hat. The bumbling of federal cannabis legalization by the Trump and now Biden administration could set the American cannabis market back to the stone age as other countries continue to ramp up their cannabis legalization and export efforts. Legal Colombian cannabis grows like Flora claim to grow cannabis at $0.06 a gram, and that is the legal market grow pricing.
Is it time to jump in and pick up a cheap dispensary license in distress or a cannabis brand that is out of funds? My open opinion is no way, the industry has a few major crashes to go with US Federal legalization and then the bumpy road to importing and exporting cannabis internationally. But what if you had to go long on one cannabis idea, and go short (bet against) one cannabis idea right now? Gun to your head, what would you pick?
Go Long
If you can’t beat’em, join ‘em. While the playing field isn’t set yet and there are many treacherous turns out there for South America and Latin America, go long Colombia, Argentina, Ecuador, Brazil, and eventually Mexico. They are perfectly positioned countries on the map to grow outdoor cannabis year-round. The main populations are very poor so labor costs are cheap, electricity is cheap depending on the country and not much is needed to grow outdoor cannabis, anyway. Colombia is the most experience country at growing and shipping drugs around the world. Their networks, connections, and past history will give them a huge leg up on international shipping, legal and illicit.
Developed countries won’t be able to compete on cost or experience, and if you thought “our stuff is so much better”, you are wrong. Give Colombia, Argentina, Mexico, and Brazil a few more years head start on the US, and their quality and shipping will be top notch.
Does that mean no US-based cannabis will be able to compete on the open market worldwide? No, the Emerald Triangle and a few other spots will command higher prices and will be sought out by cannabis fans, but think car manufacturing and NAFTA. Mexico could just product cars so much cheaper than US due to auto unions, tariffs, and American wages. In the same analogy, high-end US weed may be a Mercedes or BMW, but the car companies that sell the most cars are Toyota, Honda, and Ford.
In the end, the worldwide cannabis consumer will be price conscious, think Bud and Bud Light sales. Every cannabis consumer survey done says the same 3 things, how much did it cost, did I get the desired effects from said product, and how difficult or easy was it to get the product (drive time, overnight mail, etc). No one ever said Bud and Bud Light were the best beers in the world, but they are by far the best-selling beers in the USA.
In the end, the consumer will ask, what did my cannabis cost, did I get high, and how easy or convenient was it to get. Bud and Bud Light is in every convenience store and supermarket in America.
Bet on South, Central, and Latin American cannabis to win the long-term worldwide cannabis game.
Go Short
This one may surprise you and goes against some of the brightest minds in the industry, but if I had to pick a short, I am going to short EU weed. What? That massive market? Don’t you read your own stuff on Cannabis.net saying the European cannabis market could be the biggest weed market on earth?
If you think the US black market is a problem and decimating the legal industry at every turn, considering you can get edibles on the black market for $0.07 on the $1.00 compared to the legal market, the EU version of this will be 10x worse.
Europe will face much bigger problems with black and illegal markets than the US or Canada for a few reasons. One, the 27-country union very rarely can agree on anything, let alone enforcement of anything. Two, you have members who are very “rich” like Germany and Switzerland, and members that are dirt poor, like ex-Soviet Union countries like Romania and Belarus. Hence, there is a natural incentive for the “poor” countries to cheat and try and make more money since they can’t compete with the Germany’s and Poland’s of the EU.
That is not to mention the poor countries of Northern Africa that sit in beautiful geographic regions to grow cannabis. Go check out where Tunisia, Libya, Algeria, Morocco, Sudan, Niger, and Chad sit on the climate zone map. They also have massive access to Europe to a variety of routes such as land, water, and air. If you think immigrants were a problem for Europe, wait until you see cannabis coming in by land, sea, and air.
Europe also has thousands of miles of borders by land and sea with a variety of poor countries. Basically, access points to Europe are 10x more abundant than the US and Mexican border.
History would pay a roll as well, if you followed the Euro crisis of a few years ago, it was Germany setting the rules and everyone else had to follow. There is ill will toward the northern, prosperous EU countries compared to the less productive southern European countries. It will be German legalization verse everyone else once cannabis gets rolling in the EU. The incentives financially to cheat and use the black market will be overwhelming for the residents of dirt-poor countries. The incentive to “do as Germany says” will fall on deaf ears regarding cannabis enforcement if every town mayor, immigration officer, and police chief if getting their share of the action.
Yes, the EU will be a massive cannabis market, but will also be susceptible to the largest illicit market on the planet. The EU having poor members and being surrounded by poor countries will help create high volume “weed corridors” of shipping and selling illegal cannabis.
Think California only x10. Instead of an ocean on one side of California, what would it look like if you put Haiti, Costa Rica, the Dominican Republic, and Brazil next to California as borders instead of the Pacific Ocean? That is pretty much what the EU is looking at as they try to create a unified cannabis industry with rules and enforcement.
Making money in cannabis is a long game, sit tight, watch legalization and import/export numbers from around the world to get a feel on who will win and who will lose in the international weed game.
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