China’s Massive CBD Output Matched Only by Its Own Missed Opportunities

CBD cosmetics china

By Oliver Bennett, Special Contributor

By nearly any measure, China would seem to offer a natural global bazaar for all sectors of the cannabis industry. With an estimated population of 1.44 billion (more than 4.3x that of the United States) in an expansive upper-middle-income international economy, its hunger for business has largely exceeded the pace of its institutional development, yet it was the world’s only major economy to achieve positive growth in 2020.

China is already recognised as the world’s largest hemp producer (growing more than two-thirds of the planet’s output), though it exports nearly all of that while strictly maintaining prohibition of high-THC cannabis. Following years as the USA’s main source of hemp imports, China is now being required under a new trade deal to buy a lot more of the nonintoxicating cannabis crop from the U.S.

While that news is welcome to American hemp cultivators, it tempers enthusiasm of industry advocates and investors alike that China has domestically clamped down on CBD: In March, the country first proposed the notion of a ban, before its National Medical Products Administration this month banned cannabis compounds in cosmetics, including CBD oil and leaf. Products have been pulled from shelves in the clampdown, and the industry is starting to move elsewhere.

There are certain concessions within the ban. Products imported or manufactured before May 28 may still be sold, but the government’s action reinforces an increasingly authoritarian strand towards cannabis that conflicts with China’s more eagerly forward-thinking business environment.

Stakeholders are keenly aware that as recently as 2015, cannabis was allowed in the Chinese cosmetics sector, kicking off high demand in the CBD beauty category and stirring up influencer activity exploding across platforms like Weibo and Little Red Book. By last year, the value of domestic CBD value reached about $118 million USD with brands like Simpcare (founded in 2019) growing into huge beauty brands. Lacking a legal domestic market, such demand seems certain to mutate.

Before now, China has long had strict cannabis laws while allowing its hemp and CBD industries to bloom. Indeed, Chinese companies have reportedly owned over half of the world’s patents for cannabis-related products, indicating a ready response for profitable new business sectors.

Even prior to the 1980s, when China still categorized cannabis as a narcotic, government policy lent a relatively blind eye toward the use of cannabis, with the China National Narcotics Control Commission launching a campaign to reduce cases of cannabis use among younger people.

When the People’s Republic of China was established in 1949, cannabis was generally tolerated, but as the century progressed and the international war on drugs gained currency, destruction of plantations commonly occurred during the 1990s. Quite a departure from the ministrations of the one-party state, China’s fierce laws have been attributed in part due to the nation’s complicated history with colonialism and the opium wars. China went far enough as to mete out the death penalty to cannabis traffickers – despite culture with ties to cannabis and hemp culture reaching back hundreds of years.

The country’s  post-war prohibition on hemp was lifted in 2010, establishing its ambitious production, though it is  subject to is geographic zoning, kept apart from highways and tourist attractions. Most hemp producers are in the Yunnan and Shandong provinces – Dali City in Yunnan has long been famous for its cannabis – though there are campaigns mounting to increase cultivation in a range of provinces.

Unsurprisingly, the Chinese government maintains powerful oversight on production – (though plants are allowed up to 0.3% THC, a more liberal standard than in some European countries). The mass production has led to widespread export of Chinese CBD  to Europe – albeit not always with a good reputation. China is also one of the world’s most significant medical cannabis producers even while its domestic use is prohibited.

The overall policy seems to tolerate cannabis for export, but in no measure for domestic consumers, given guidance by Liu Yuejin, deputy director of the National Narcotics Control Commission, that “China will more strictly strengthen the supervision of industrial cannabis, block all loopholes, and improve various management systems.”

Cannabis is currently so strictly outlawed that China has applied its attention to nationals living abroad: In 2018 Chinese diplomats issued a letter to Chinese citizens, urging them to avoid using cannabis.

Nevertheless, if contrarily, inward investment remains afoot. Singapore-based industrial hemp company CannAcubed has reportedly had talks with Lingchen Security Technology (a subsidiary of Chinese tech company Tencent) to create a system tracking production of CBD and THC through their extraction processes – information shared with the authorities. Glenn Davies of CannAcubed reportedly anticipates medicinal cannabis being legalised in China, creating a market of vast scale.

For the time being, China’s restrictive measures stand in stark contrast to those in Europe (where a mature CBD market has developed), and where obstacles keep falling as regulations are simplified.

While China seeks to limit the use of cannabis products in its home market, it may continue to ramp up production for foreign trade as with Europe. For so long as it chooses to, it will be missing a vast economic opportunity at home amid a frustrated market hungry for the benefits of CBD and other cannabis products.