Subsidies for pot? Probably
Best headline of the year so far goes to The Economist for “StatCannabis,” which introduced its story on Statistics Canada’s recent efforts to discover basic facts about the Canadian cannabis industry.
Legalization of a big but so far uncounted part of the economy presents an interesting problem for national income accountants. If the industry comes up from underground on July 1 and all sorts of new economic activity gets recorded for the first time, that’s going to look, misleadingly, like a spurt in GDP when all that’s really happened is an extension of the national accounts’ reach. So StatCan has been doing its best, using a gamut of techniques, to figure out how big the cannabis business is today and how much it has grown since 1961.
Its conclusion is that cannabis is very big. In fact, it’s slightly bigger, in terms of value added ( VA), than the brewing industry (with VA of $ 3.0 billion versus beer’s $2.9 billion) and it’s three times bigger than the tobacco industry, which was good for only $1.0 billion in 2017.
On the other hand, total consumer spending on cannabis was “only” $5.7 billion, compared to $22.3 billion for beer, wine and spirits and $16.0 billion for tobacco. The main reason for the difference between value added and consumption spending is that Canadians buy a lot of imported tobacco and alcohol.
“The majority of the household spending on cannabis (over 90%) was for non-medical purposes,” StatCan reports. And then it adds, deadpan: “The purchase and consumption of cannabis for non- medical purposes is currently not legal in Canada.”
Speaking of imports, Stat Can estimates that total imports of cannabis last year were $ 300 million. That compares with estimated exports from Canada of $ 1.2 billion. That’s a big reversal from the 1960s, when most of the cannabis Canadians consumed was imported.
Hmm. Reading those numbers — value added a big percentage of overall production, exports substantially bigger than imports, an industry with a growing positive trade balance — you begin to think industrial- policy mandarins are going to fall in love with dope. Isn’t that exactly the sort of business they’re always trying to encourage: lots of domestic value added, impressive export potential, net import- replacing? Plus, it’s agriculture and you know how much politicians love agriculture. How long, do you suppose, before a legalized Canadian cannabis industry starts receiving government subsidies?
Another interesting fact about cannabis production in Canada: It was higher in 2014 than 2017, $3.3 billion versus $3.0 billion. But the main reason for the decline is that prices fell. In fact, according to StatCan’s historical data, pot prices peaked in 1989 and have been on a downward course ever since. The stuff cost an estimated $ 12 a gram then, but can now be had for $ 7.50 a gram on average across the country. For the almost three decades since 1989 its price fell 1.7 per cent per year while consumer prices in general rose 1.9 per cent a year. Know anything else whose price has fallen steadily since 1989, except computers?
Last week StatCan introduced its new interactive web hub that among other things provides up- to- date crowdsourced information on pot prices across the country. Last year, weed was cheapest in Manitoba at $6.65 a gram and most expensive in New Brunswick at $ 8.05. ( That doesn’t count the territories, where it was $9.52. In B.C., where you might think it would be cheapest, it was $6.94 a gram.)
Now that government is getting involved in the cannabis business, and in a much bigger way than it has to, does anyone think pot prices will continue their long- term decline? Will pot, like bytes, be cheaper and cheaper as the years pass? No, didn’t think so. Judging by milk, chicken, liquor and tobacco, four other products in whose production governments are intimately involved, pot prices will only rise. Legal pot prices, that is.
Given a choice between the status quo on the one hand and legalization, with an expensive product sold in government stores by unionized public sector workers ( in certain provinces, including Ontario) on the other, the option of leaving things as they are is very tempting. But a status quo in which, by StatCan’s guesstimate, 4.9 million Canadians use cannabis despite its being illegal, isn’t great, either. That’s almost 15 per cent of the population regularly defying a law that is itself enforced irregularly. Law is society’s rigging. We shouldn’t waste it on lost causes.
It’s a world of second bests. Legalization probably means the number of users rises to 20 or 25 per cent of the population, maybe more. And governments will have a whole new sector to engage in yet more follies of bungling and mismanagement. The status quo, with haphazard and therefore unjust enforcement of a law many Canadians don’t see the point of, is still probably worse. But with every announcement of a new regulation or tax on marijuana, that becomes a closer and closer call.
GOVERNMENTS GET A WHOLE NEW SECTOR TO ENGAGE IN FOLLIES OF BUNGLING AND MISMANAGEMENT.