2018-07-11

Black market marijuana: Will it be a thing of the past with legalization?

by Mike Girard

As a newly elected leader of the federal Liberal Party of Canada in 2013, Prime Minister Justin Trudeau announced that he and his party would support the legalization of recreational marijuana.

It turned out to be brilliant politics, but is it good public safety policy?

What would legalization of recreational cannabis mean for the bottom lines of those who currently dominate the black market? Will a regulated, recreational cannabis market make it unprofitable and not worth the risk for the illegal dealers, as it has in Colorado?

Tim Cullen, CEO of the Colorado Harvest Company, saw the black market in his state change quickly after legalization. His company received two of the first 12 recreational grow licences made available by the state of Colorado in 2013.

According to Cullen, "Very quickly, the value for risk ratio stopped favoring the guy down the street, and most just went legit. On the other hand, the black market adapted and took advantage of regulations regarding how many plants a person can legally grow. This allowed them to still cultivate a lot of product which now gets exported out of state."

Colorado Harvest Company was founded in 2010 to serve the state's medical cannabis market. When recreational cannabis use was legalized in 2013, his company was one of very few in a position to get in at the outset.

Legalization of recreational cannabis in Colorado didn't lead to a suddenly cannabis-crime-free haven. Nor was the black market wiped out, although fewer may continue to earn a living from it. And those that remain will be the ones able to adapt and find new markets for their product.

Which is what happened in Colorado.

However, it isn't a Wild West for cannabis anymore. What allowed Colorado officials to manage the growth of the industry while addressing public policy issues that emerged from the early years of legalization was having a legal framework. They used the latter to craft public policy to find solutions rather than spending resources focusing on criminal policy issues.

Lewis Koski is currently a Senior Director at Freedman and Koski, a Denver-based policy group that works extensively with governments on marijuana legalization. In 2013 Koski served the State of Colorado as the deputy senior director of enforcement for the Marijuana Enforcement Division that existed with the Colorado Revenue Department.

He oversaw the initial transition years, from enforcement of a prohibited substance to enforcing the rules of use governing a regulated adult-market product, little different from beer or wine.

"Legalization provides a mechanism to address issues and problems that emerge, and for which you can't always predict at the outset. Things are going to happen, but just as tax revenue from the sale of tobacco and alcohol is invested in public education resources, the same can and will be done with cannabis," said Koski.

Koski used as a model the anti-smoking public education campaigns that have led to fewer North American teens picking up smoking today than at any other time in generations. Those are the sorts of things that can be adjusted for and dealt with new revenues earmarked specifically for public education.

Nova Scotia's Minister of Justice Mark Furey made similar comments in an in interview with LighthouseNow. He said he is confident Nova Scotia Premier Stephen McNeil's Government Cannabis Control Act will help policy makers and police officers by providing new mechanisms and resources to address the organized crime elements inherent within the black market.

Before elected to office, Furey spent his career with the RCMP.

Like Koski, Furey stressed that "it would be unrealistic to assume that a black market in cannabis will ever disappear entirely. It will adapt, it may never be what it was, but some form will live on."

Can the Crown under-sell the dealer? Many experts say price will play a significant role as to whether or not the black market is squeezed out of the business.

Experts that have commented publicly on the matter believe that the market for illegal weed bottoms out if the product is taxed too heavily. A C.D. Howe report published in 2017 noted if only the federal and province sales tax were applied it "results in over 90 percent of the marijuana market being regulated, and $675 million in annual revenue.

"However, if the government were to generate $1 billion in revenue, only about half of the market would be regulated, leaving over 300 metric tons of consumption in the black market. Any increase in taxes beyond this level serves to increase the share of the black market and generates little additional revenue."

N.S.PC Leader Karla MacFarlane doesn't think the government can compete with the black market.

"I'm not convinced that the Liberal government will be able to compete with the black market in terms of accessibility and price. The Liberal government initially only rolled out nine facilities leaving huge gaps across the province where Nova Scotians wouldn't be able to buy legal pot, therefore, the black market would have thrived."

N.S. NDP Justice Critic Claudia Chender (MLA, Dartmouth-South) also took issue with the limited number of retail outlets saying: "the McNeil Liberals' choice to only open 12 stores throughout the province leaves room for the black market to continue to operate."

Asked if he believed the government could compete and beat the black market, Minister Furey said, "I am confident that we will have a superior product at a competitive price and that it will compete with the black market."

Both Koski and Cullen said that consumers are willing to pay a little bit more for a legit, regulated, safe, quality product that they don't have to look over their shoulder for consuming.

Neither Koski nor Cullen, believe current tax rates on Nova Scotia's government grass would keep people from entering the legitimate market place.

The decision to legalize recreational market looks like it will have a negative impact on the cannabis black market in Nova Scotia, but whether that impact will be felt right away, or whether it will take time and tweaking public policies to get there remains to be seen.

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