USMCA and Cannabis Trade

Last week, amid the impeachment turmoil, President Trump and Democratic leadership somehow agreed on a landmark international trade agreement. The package is generally referred to as USMCA (U.S-Mexico-Canada Agreement), or sometimes as NAFTA 2.0. Although the White House has not yet released a final copy of USMCA, its contents are widely known. As expected, USCMA will not include mention of cannabis. This does not mean that cannabis (specifically, non-hemp cannabis, aka marijuana) won’t make its way into North American trade. In fact, USMCA could become a promising forum for cannabis trade policy.

USMCA was first announced in September of 2018. Around that time, certain commenters argued that cannabis should be included in NAFTA 2.0, including former Mexican President Vicente Fox. At that time, Canada was rolling out its program of federal legalization; Mexico was seemingly close behind (Mexico will launch its program in 2020, as explained here). Under USMCA, the U.S. will be sandwiched between two trading partners that have begun to treat cannabis similarly to other produce commodities; and many states within the U.S. have legalized cannabis to boot. Because federal legalization in the U.S. is a “when” and not an “if”, USMCA could provide the platform for three-state cannabis trade. There are a couple of ways this could happen.

The first route is straightforward: cannabis will come in through a rutted pharmaceutical path. Democrats succeeded in paring back original USMCA text calling for “biologic drugs” to receive 10 years of intellectual property protection, but the new USMCA intellectual property chapter is said to include more stringent protections for patents and trademarks than NAFTA (including for biotech). Because cannabis patents are now prevalent and because FDA has begun to approve cannabis drugs, USMCA is primed for cannabis to some extent already.

The second route requires some legwork, but ultimately is more comprehensive. Like NAFTA, USMCA will include a Free Trade Commission (“FTC”) comprised of delegates from each party-country. Those delegates will be tasked with monitoring and implementing USMCA. Crucially for cannabis, the FTC may form “working groups” for particular topics. There will be no limitation as to what might be addressed in a working group: rather, the delegates can work on whatever seems relevant.

It is not uncommon for trade topics to get hammered out first inside of regional trade agreements, and cannabis would likely follow this path. These new “disciplines” are eventually then raised at the World Trade Organization or in other treaty contexts. With respect to USMCA, the initial focus for cannabis would be to identify principles or rules for a coherent policy to form a North American market for the cannabis trade. Given that the U.S. is also a party to the Central American Free Trade Agreement (CAFTA), that treaty could be folded into the process.

Do we think all of this is realistic? Absolutely, and it could happen in any number of ways. Here in Oregon, for example, pro-cannabis U.S. Senator Ron Wyden sits on the USMCA trade committee. The Pacific Northwest has a prominent role in trade policy—especially with Canada—so the required base of political support is already in place. Oregon has shown thought leadership on cannabis export generally, and state officials coordinate well with Mr. Wyden and other federal representatives. Industry should push here.

The FTC path would also require convincing each USMCA country to staff a working group. In the U.S., staffing for USMCA (as with CAFTA and similar treaties) would come through the Office of the U.S. Trade Representative and via congressional trade committees. Expect high interest from Mexico and especially from Canada to build out cannabis channels: each country will have a generational head start on the U.S. with respect to cannabis as a national, scaled commodity. In fact, Canada is a leader in cannabis export today.

No one is really talking about cannabis and the USMCA, but it is likely that cannabis will be traded in the USMCA framework. This will happen both inside and outside the pharmaceutical context, just as cannabis is traded domestically in the U.S. today.

For more on the international cannabis trade, check out the following: