The new trade agreement between Canada, the United States and Mexico could allow for a North American cannabis market to be established, trade experts say, provided America joins its northern and southern neighbours in ending federal cannabis prohibition.
Canada already has a legal pot regime. In Mexico, recent Supreme Court rulings have given the government a constitutional obligation to establish its own legal pot market within a matter of months. Once the United States Mexico Canada Agreement (USMCA) takes effect as the new continental trade framework, Vince Sliwoski says descheduling cannabis in the U.S. will allow pot to cross international borders as easily as other commodities.
“Because federal legalization in the U.S. is a ‘when’ and not an ‘if’, USMCA could provide the platform for three-state cannabis trade,” Mr. Sliwoski, professor of cannabis law and policy at Lewis & Clark Law School and managing partner of Harris Bricken’s Portland office, wrote in a recent blog post. “No one is really talking about cannabis and USMCA, but it is likely that cannabis will be traded in the USMCA framework.”
While the full text of the deal set to replace the North American free-trade agreement (NAFTA) has not yet been released, Mr. Sliwoski argues USMCA will apply to cannabis the moment America no longer considers it to be a Schedule One drug. According to the U.S. Controlled Substances Act, schedule one drugs are believed to have zero medical value and includes heroin and ecstasy along with cannabis.
“They wouldn’t have to actually amend the [USMCA] agreement because [cannabis] would just be treated like a commodity that is a bit more heavily controlled,” Mr. Sliwoski said in an interview. “Think of something more akin to tobacco than tomatoes. Countries have all sorts of funky rules about tobacco with different tariffs on it and I think cannabis would simply be treated like that.”
Progressively diminishing cannabis trade restrictions is a key goal of the legal cannabis community, particularly in Canada where the outdoor growing season is short and indoor growing costs are high. North American industry insiders have long argued the ability to move cultivation to a country like Mexico, where year-round outdoor cannabis cultivation is possible, would mean dramatic cost reductions and an increasingly efficient supply chain.
Legalization in the U.S. remains the only major variable standing in the way of establishing a more globalized cannabis industry, Mr. Sliwoski said. While substantial uncertainty continues to surround the exact form U.S. legalization will take - critically whether it will rise to the level of full-blown descheduling of cannabis or stop short at simple decriminalization - America is broadly expected to at least loosen its federal cannabis prohibitions within the next five years.
Nearly a dozen individual states already allow recreational cannabis consumption with more expected to approve legalization measures in 2020. In Oct 2018, researchers at the University of Colorado, Boulder and the Santa Fe Institute utilized an analysis of 170 pieces of legislation that started as state laws and were eventually adopted federally to predict U.S. legalization will arrive as soon as 2022 and no later than 2028.
Once that occurs and cannabis “becomes legal in all three countries of North America,'' Toronto-based international trade lawyer Mark Warner said “that final step” of including cannabis in existing trade deals “becomes relatively easy.”
“Once you get to U.S. legalization,” Mr. Warner said, “you are probably 90 per cent of the way there.”
The required base of political support in the U.S., Mr. Sliwoski said, is already there. As an example, he points to pro-cannabis Senator Ron Wyden (D-OR) already being a member of the Senate’s USMCA trade committee.
Sen. Wyden introduced a bill in June that would allow for cannabis trading between states with legal cannabis markets and Keith Chu, a spokesperson in his office, said the Senator also supports the idea of eventually allowing international pot commerce as well.
More likely to come before legalization is American lawmakers will continue to “nibble around the edges” of cannabis legalization,” Mr. Warner said, noting pending legislation that would allow for cannabis businesses operating within legal regimes at the state-level to access federally-regulated banking services. He disagrees with Mr. Sliwoski’s claim that USMCA would not require updating to include cannabis - all three countries would need to support adding cannabis to the list of covered products, Mr. Warner said - but he also believes some level of North America-wide cannabis trade is possible even before U.S. laws change.
“Cannabis comes in incrementally through various provisions of the USMCA already,” he said. “The free movement of professionals, intellectual property claims, those will be addressed first.”
Another barrier that could slow or even stop the establishment of a North American cannabis market would be the international treaty obligations of all three countries. Part of the reason the Cannabis Act only allows for the export of medical cannabis, Mr. Sliwoski said, is because Canada is a signatory to the United Nations Convention on Narcotic Drugs, which “expressly allows exports but only for medical markets.”
While the U.N. body responsible for maintaining the convention has been inching towards removing cannabis from its list of prohibited substances - as the World Health Organization formally recommended in 2018 - progress has recently stalled. In the meantime, the U.N. has been publicly scolding Canada for its legal cannabis regime, arguing it already violates the treaty.
The repercussions of that ongoing violation, however, have yet to rise beyond the level of sternly-worded statements and Mr. Sliwoski said they likely never will.
“It would probably help a lot if that U.N. treaty were revised,” he said, “but Canada and other countries will just continue to violate it until then.”
The only other issue that Mr. Warner said could derail North American cannabis trading ambitions is the potential for protectionism.
“Given [cannabis] is such a growth area, the question is whether countries will be tempted to be protectionist about it,” he said. “In other words, will the U.S. say ‘yes, we have legalized cannabis, but we want to keep all the jobs here? That is where it could get tricky.”
More than just tricky, Mario Torres says protectionism will be a likely element of the legal cannabis regime in Mexico.
“What we have seen from all the drafts in Mexico thus far is they are going to be pretty protectionist in their own cannabis industry,” said Mr. Torres, a lawyer in the cannabis practice of Brazeau Seller LLP who works with clients looking to operate in Mexico and Latin America. He says it is still far too soon to say what form - if any - North American cannabis trade might take in the coming years.
“I just don’t know if there is going to be the political will to do anything on the cannabis free trade front,” Mr. Torres said. “Until you have federal legislation in the U.S. and something concrete in Mexico, it is just way too early to see how trade between the three countries in North America on cannabis would really shake out.”
That uncertainty does not phase Mr. Sliwoski. In his blog post on the subject, he asks “Do we think all of this is realistic?” only to immediately answer “absolutely, and it could happen in any number of ways.”