Weedonomics: What Canada Can Teach Us About the Business of Getting High

At what price? Statistics Canada is surveying people for more information about cannabis prices/Statistics Canada

This sort of regime, with high barriers to entry and strict controls on supply and distribution, represents the nightmare of American cannabis free market advocates.  They point out that such practices are just another example of how the nanny state could snatch defeat from the jaws of victory for the consumer.  After all, artificially restricting legal distribution outlets and supply as well as maintaining the harsh criminal penalties for dealing outside the legal recreational regime, Canadian federal and provincial governments have virtually ensured that a truly open and competitive market environment cannot exist.  Canada bad, free market good.

But these criticisms miss the point of Canada’s legalization goals and underestimate the uncertainty that still clouds widescale liberalization of recreational marijuana laws.  Contrary to the fevered dreams of recreational cannabis advocates and business opportunists, expanding the pool of smokers, whether tobacco or cannabis, is still not a desirable public health outcome.  Despite youth seeing cannabis as safer than alcohol, researchers are still learning about the negative effects of long-term usage.  And that means that Canada, and the states that follow, are engaging in major test of public health principles – and gambling that the positive socio-economic effects of legalization far outstrip any potential damage caused by a spike of long-term users.

In its final report, Canada’s Task Force on Cannabis Legalization and Regulation put minimizing harms of use as the top priority when taking a public health approach to regulation.  In particular, the task force was preoccupied by keeping recreational marijuana out of the hands of minors and vulnerable populations.  The subsequent restrictions on distribution, competition and marketing of such products is not a result of incompetence but of conflictual dual purposes – to ensure that products remain unenticing and out of the reach of minors while also supporting a growth industry which provides a new and burgeoning source of tax revenue.

This wishy-washiness may seem a Canadian failing but even the most 420-friendly states in America have followed a similar path.  Colorado, long hailed as the American model of legalization, has been slapping a 2.9 percent state sales tax, 15 percent retail tax, 15 percent excise tax and local taxes on sales of recreational marijuana.  Furthermore, Colorado regulates and taxes each of the 600 dispensaries allowed to operate in the state.

Colorado’s approach actually does the impossible – make Canadian excise taxes seem reasonable.  And, even more weirdly, experts on the American side of the border are starting to make the argument that taxes for recreational marijuana are not high enough based on states where legalization has already occurred.  For instance, UCLA’s Brett Hollenbeck and Yale’s Kosuke Uetake argue that taxes in Washington State might be too low with the state leaving revenue on the table – not to mention failing to dissuade anyone from partaking in the sin market.

So how can American markets find a “sweet spot” for gaining maximum revenue on recreational prices?  According to UCLA, state governments should look into higher taxes and state-owned dispensaries.  America, enjoy your socialist weed.

Truth be told, every state looking to legalize is making an educated guess.  As UCLA admits,“[n]o one is certain of the most effective tax structure for maximizing state marijuana revenues without sparking… unintended consequences” given the limited academic study into the legal industry.

The only difference between Canada and US states is that Canada has demonstrated a more consistent national philosophy underpinning its recreational cannabis strategy by choosing public health as the central justification of legalization.  In legalizing and regulating the marketplace, Canada argues, it can better control who participates in the marketplace, shutting out youth, vulnerable populations and the black market.  And the revenue gained from taxation acts effectively as a Pigouvian tax – mitigating negative social externalities.

Contrast this with New York State’s Marijuana Legalization Impact Assessment which sometimes reads as a document with a result in mind rather than a neutral assessment.  With fantastical headings such as Marijuana may reduce opioid deaths and opioid prescribing and Marijuana has intrinsic health benefits and risks, it begs the question whether the authors understand that recreational usage is about harm reduction, not self-prescription and whether they even appreciate the continuing distinction between medicinal and recreational cannabis use.

Time will tell if Canada can actually achieve its goals but the question underpinning US legalization is whether politicians like Andrew Cuomo have cohesive social health goals in mind – or whether this is just another cash grab with no plan.

Jason Chung is the Co-Founder of The Deductible and a faculty member at New York University’s Tisch Institute for Global Sport.

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