Given the popularity of its products, it’s odd that America’s cannabis industry feels so brittle. Smoke shops seem to teeter on the edge of annihilation due to a constellation of government and societal pressures. But Trump’s tariffs present a new kind of danger—one that threatens the materials, manufacturing, and supply chains that keep the counterculture’s lifeblood flowing.
Although they scan as tough guy economic policy, tariffs are likely to weaken America’s markets, according to the majority of economists. Whether that pain is worthwhile, however, remains debatable. Harsh trade policies could provoke short-term market corrections or trigger a recession. Either way, price tags on several smoke shop standbys are going to swell.
The way retailers, distributors, and product makers respond to the chaos of policy proposals and the cold reality of a remade global trading system could decide the next decade’s winners and losers. Demand for cannabis products won’t cease, but how and what customers buy certainly will. Understanding the most likely effects of the tariffs is crucial to planning for changes in customer preferences.
Chinese Manufacturing: The Biggest Hit
Nothing strikes the industry harder than taxes on Chinese imports. A great many U.S.-based brands rely on China’s factories to manufacture their wares and paying an extra 25% or more to bring those goods home erases profit margins.
But while the effect is large, the response will be predictable. For more cannabis businesses, it might feel like déjà vu. The last time Trump imposed tariffs on China, a 10% hike back in 2018, the intended effects didn’t take. American manufacturing decreased, prices rose, and the trade deficit ballooned. In fairness, much of that was blamed on the pandemic—and it’s important to note that Biden opted to keep them in place.
But while the first term shocks were modest, they still changed the industry. Companies like Pax and Aspire pulled some of their manufacturing out of China and plopped it into other places in Southeast Asia. Whether the administration decides to impose tariffs on these new manufacturing sites (as he’s done in India) is unclear. Regardless, it’s unlikely that vapes will never fully leave China: too many components, including materials like borosilicate and product packaging, come from there.
To abandon Chinese factories also often means settling for lower-quality goods. Once upon a time, “China-made” was basically synonymous with “garbage.” Now, however, with years of experience, most Chinese manufacturers have stepped up their game to an impressive level. Places like Malaysia, Singapore, and Indonesia have built impressive operations in a short window, but without experience, their quality control isn’t as finely tuned.
If prices of high-quality vapes rise once again, will consumers stick with them? There are certainly cheaper (and illegal) alternatives available everywhere. Enforcement crackdowns across the industry could reduce the supply of knockoffs, but no one seems to be concerned about it. Even before the tariffs, the future of vaping felt cloudy. And though it’s comforting to believe nicotine products are recession-proof, nobody wants to find out exactly how true that is.
The Can Crush
Aside from nicotine pouches, hemp beverages were the buzziest counterculture products of 2024. As Americans shook off the hangover from overspending on alcohol during the pandemic years, canna-drinks emerged as healthier alternatives. But just as the market was preparing to take off, tariffs threatened to ground the flight.
On February 11, President Trump announced a 25% import tax on aluminum, regardless of its country of origin. With just one month to prepare, canna-drink companies rushed to adjust their predictions and business models. While international operations can absorb the shocks by buying in bulk, the move sent small companies into a spiral. Because many cannabis-adjacent businesses lack access to traditional banking services, their options are limited. Tariffs forced several to choose between ratcheting up prices or joining forces with corporate bottlers, sacrificing control and profit.
The U.S. imports about 60% of its aluminum (or bauxite, the mineral used to produce aluminum) from Canada. But the Great White North isn’t just an ore dealer. It’s also the potash supplier to nearly every major U.S. hemp farm.
Potash is an element-rich fertilizer, and Canada’s supply rates are unarguably the best in the world. (Russia is the second-leading supplier, but their offering is lower in quality, higher in greenhouse gas production, and there’s a lot less of it.) Tariffs raised the cost of buying potash by about $100 per ton, which is a body blow for hemp farmers. Already operating on thin margins that run between 2 and 10% at best, hemp farmers don’t have the extra cushion to afford higher prices. And while the U.S. retains its own potash stockpiles, the supply chain isn’t mature enough to handle farmers’ needs.
Realizing the size of the impact it would have on the agriculture sector, the Trump administration lowered the tariffs on Canadian fertilizer. As of April 1, there were no tariffs placed on potash that meets the USMCA rules and only 10% tax on the rest. However, it’s unclear how much potash falls under those distinctions.
In the meantime, farmers had no choice but to make prudent changes to their growing strategies, such as using less potash, growing smaller yields, or abandoning hemp for a more reliable crop. Those choices are a lot to ask of the industry. According to several reports, most hemp and cannabis farms aren’t profitable. Raising any cost is going to cause a few to fail or switch to something else, lowering supply and driving up costs.
The way retailers, distributors, and product makers respond to the chaos of policy proposals and the cold reality of a remade global trading system could decide the next decade’s winners and losers.
A New Economic Theory
Despite sky-is-falling predictions, not everyone in the industry forecasts gloomy weather. Many believe that Trump’s tariffs are part of a larger effort to remake the global economy in a way that ultimately strengthens America’s position. Tariffs, they claim, are simply a tool to bring other countries to the negotiation table.
Admittedly, it can be hard to see the grand strategy behind the ping-ponging proposals emanating from 1600 Pennsylvania. When a tariff is announced at 9 am and then delayed at 3 pm (as was the case on February 3), it doesn’t exactly bolster confidence in executive planning (or function). Still, the idea behind it is economically sound. In a November 2024 paper, Stephen Miran, Chairman of the U.S. Council of Economic Advisers, stated: “There is a path by which the Trump Administration can reconfigure the global trading and financial systems to America’s benefit, but it is narrow and will require careful planning, precise execution, and attention to steps to minimize adverse consequences.”
Whether the Trump team can stick the landing remains to be seen. But prices on goods at the smoke shop aren’t likely to drop, even if the plan is pursued to perfection. As Miran points out, tariffs are blunt instruments that, at their best, create market inefficiencies. If they resurrect American manufacturing, it might make their drag on consumer prices worthwhile, but they certainly won’t make goods less expensive for consumers.
For most businesses, however, the danger comes less from tariffs than the threat of a new world order. Even the harshest taxes can be managed with deft planning and acumen. It’s the chaos that throws a wrench into the machinery of modern business. And on that front, it may be a long four years.
The Other Side
An Argument for Tariffs
It is a true honor to have been invited to write for HeadQuest “HQ” magazine. While I have not been in this industry long, I have had an extensive career path that has allowed me to run $200M companies and sales forces in 13 countries and leverage almost every type of marketing conceivable. That experience has given me significant insight into how businesses run, and markets operate, as well as a generous amount of gray hair. I am excited to share my experience, insight, and advice in a new monthly column on how I see this market evolving and growing. Hopefully, it will help you succeed in retail, manufacturing, or even development.
Tariffs are a drug, too!
Cheap products are addicting especially for first world countries that are hooked on consumption and indulgence. The absence of tariffs allow products to flow in from other economies without any checks or balances. Is that important? Do we care? Or is the price of the almighty iPhone all that matters at the end of the day?
There has been a lot of chatter over tariffs these past few weeks, and plenty of articles have been written. Almost every one of them focuses on the negative impact of tariffs, becoming political quickly and ending up with the cost being passed down to the consumer. All true. But with all things, there is always a second side of the coin. I think the years I have lived and the mistakes I have made have given me a gift: the recognition of balance in the world. Tariffs also have an upside. There are dozens of just as compelling reasons to have them as there are not to have them.
While I could go on and on, I am going to give you two rock-solid reasons why tariffs are important and required for a balanced global economy and humankind.
First, and I believe most importantly, tariffs maintain a balance in manufacturing capabilities. They are an equalizer for countries that don’t care about basic needs, job growth, or even such crazy ideas as a livable wage. China allows employees to be captive in work camps; they don’t enforce wage controls and even punish employees of private companies for leaving their posts. As a result, they can make things cheaper and easier to consume. So, we allow it to happen. Our manufacturers go out of business and sell the manufacturing equipment to foreign entities. Manufacturing jobs represented about 32 percent of American jobs in 1953. It halved to 16 percent in 1990. In the 20 years from 1990 to 2010, it nearly halved again, from 16 percent to 9 percent. Safe to say manufacturing in America is marginalized. Why do you care? Well, we now rely on China for almost every product we consume. Even when we say it is made in America, the parts still come from overseas. Nothing to worry about in good times, but during the COVID pandemic, we had no latex gloves, masks, aspirin, and MRI replacement parts. That should scare you to death. How do you fix it? We charge tariffs to encourage US manufacturers to make some of these products here.
Secondly, tariffs help mitigate environmental impacts. Most countries that hang their hat on manufacturing don’t enforce environmental laws. Why? They are expensive to adhere to. Cleaning wastewater and filtering air is not easy or cheap and drives the costs of products up. China and India produce three times more greenhouse gasses than the US. They do this because while we talk about environmental concerns, we don’t act on them. They dump toxins into the ocean, pour poisonous gasses into the air, and don’t consider the cost of the damage to the Earth in their prices. Tariffs force countries to respect the values of other nations. Don’t pollute, or we are tripling the cost of your products coming into America. That is impactful and works.
I ran a manufacturing facility that exported products to 41 countries around the world. We of course priced out manufacturing in other countries but could not get the quality we wanted. I can say with ridiculous certainty that other countries tax our products significantly more than we tax theirs. Mostly for reason number one above, but it is time we started flexing our consumption muscles to force our agenda into the world.
