The rise in tariffs is pushing major cannabis companies, particularly vaporizer manufacturers, to move part of their production away from China, opting instead for Malaysia, Indonesia, and other parts of Southeast Asia to stay competitive.

Michael Wang, Co-CEO of vaping company Ispire Technology, explained that they established a manufacturing base in Malaysia three years ago, anticipating ongoing geopolitical risks and tariff increases.

“Malaysia’s proximity to Singapore’s airport and seaport, along with its special economic zone in Johor and free trade agreements with Europe and North America, made it an ideal choice for stability and business growth,” he said.

Similar to Ispire Technology, Justin Tacy, VP of Marketing at PAX, a cannabis brand selling both cannabis products and vaporizers, also moved part of their production to Malaysia during Trump’s first administration. While dealing with tariff challenges, Tacy is more concerned about their broader impact on the industry and consumers.

“High cannabis taxes, combined with tariffs, raise costs and may push buyers to the illicit market or force producers to cut costs, potentially compromising quality,” he said, adding that the company can still absorb the increased tariff costs without raising prices for consumers.

Some companies, while shifting some production from China to avoid tariffs, also have to deal with the U.S.-Canada war on tariffs.

Fredrik Rading, Co-Founder and COO of Custom Cones USA, runs a business that imports pre-roll paper cones, plastic tubes, and glass tubes mainly from China and Indonesia and exports some of these products to Canada. The company also utilizes triangle shipments, sending goods to Indonesia before importing the final product to the U.S. However, rising tariffs have prompted a shift from Chinese plastic tube suppliers to a U.S. vendor that can “make a price that matches the landed cost of a product from China,” though completely replacing Chinese manufacturers remains challenging.

On the export side, Rading said, “Canadian clients are nervous about tariffs and are looking to reduce reliance on U.S. suppliers. Some have even downgraded us to a backup vendor, preferring Canadian alternatives. Our export volume is probably around 15%, and I wouldn’t be surprised if it drops to around 10%.” To mitigate costs, the company is exploring direct shipments from Indonesia to Canada.

Reliance On China’s Manufacturing Hub

Companies are working to reduce reliance on China, but it’s not easy. China has everything cannabis companies need for their production lines, built up over years of experience. Moving production to other Southeast Asian countries is tough because China controls certain key components and has specialized knowledge that’s hard to replicate.

Michael Brosgart, president of cannabis vaping company Active, explained that two years ago, they diversified production of cartridges, all-in-ones, batteries, and automation components for filling and capping from China to broader Southeast Asia, reducing regional risk, stabilizing costs, and improving supply chain reliability. However, while not directly impacted by tariffs, they are facing logistical gridlock and new importation rules resulting from the tariffs.

“We’ve seen increased delays at U.S. ports as Customs and Border Protection works through evolving import rules and documentation requirements,” he said. “In the face of all that, having diversified production outside of China has made all the difference.”

However, shifting production from China to other Southeast Asian countries faces short-term challenges due to continued reliance on China’s efficient supply chain. While avoiding tariff increases is beneficial, smaller-scale production brings added costs, logistical hurdles, and longer timelines. However, as supply chains evolve, countries like Malaysia and Indonesia will become more competitive with China in the long run, according to Wang.

“For example, in the near term, products made in Malaysia cost 15% to 20% more than those made in China. However, when a 45% tariff is applied to Chinese goods, Malaysia gains a significant advantage—almost a 30% cost benefit overall,” he said.

How U.S. Tariffs On China Are Shaping The Cannabis Industry

While the tariff increase on certain Chinese products may negatively impact the cannabis industry in the short term, some companies believe it will adjust in the long term.

Tacy explained that tariffs may drive up prices, pushing consumers to the illicit market and forcing small businesses to close because they can’t absorb the costs, leading to industry consolidation that could stifle innovation and reduce competition. Brosgart added that, however, in the long term, higher costs could be a turning point for the industry, pushing it to develop a more distributed, resilient supply chain, reducing dependence on any single country, which will ultimately strengthen the sector.

However, if Trump’s trade war aims to use tariffs to restore manufacturing to the United States, it may not work well for the cannabis industry.

Wang explained that U.S. manufacturing would require full automation to be viable, as high labor costs make small-scale production inefficient. To remain competitive, it must focus on long-term, high-volume automated production, as any changes disrupt the process.

In that sense, Brosgart said his company has invested in automation and built efficient production processes, but high U.S. labor costs and reliance on Chinese components remain hurdles.

“With continued innovation and supply chain adaptation, we see a path to manufacturing taking place in a variety of jurisdictions best placed to do so, including potentially the United States,” he said.

However, as the vape supply chain is highly specialized, Tacy explained that the necessary expertise doesn’t exist in the U.S. today.

“It’s not a possibility. It’s not about the costs; it’s about the availability of companies capable of doing the development work,” he said.

Rading explained that onshoring his glass tube production in the U.S. isn’t feasible due to a lack of domestic suppliers and high order volumes. While tariffs pushed plastic tube production to the U.S., glass tubes will still come from China.