Shades of grey in cannabis debate
New Zealanders get to vote in a referendum on the legalisation of recreational cannabis alongside September’s election. And as that date approaches, we can expect a rising cacophony of noise about which way to vote.
Already the noble message of harm reduction is intoned most often in the halls of power.
Labour Party eminence grise Helen Clark is vocally in favour of legalising because of harm reduction and so is Chloe Swarbrick, the Green Party MP leading her party’s push for change. ‘‘Just to ban things,’’ Clark said at an event held by her eponymous think-tank last year, ‘‘does not stop people using them.
‘‘What it does mean is they use them in conditions where the supply is accessed through criminal networks.’’
Swarbrick agreed: ‘‘[Currently] we have unknown people, consuming unknown substances, in unknown places, purchasing off unknown people.’’
All true. But there is an inverse to the banning wisdom: just to legalise something does not start people buying it.
What if we threw a legalisation party come September and everyone still turned up with their $25 tinny? What if some older people and women switched to buying their weed from licensed, regulated retailers with fixed opening hours and tax liabilities, and the vast majority of the roughly half million New Zealanders who surveys say used cannabis in the last year, just carried on as before?
That is not quite what has happened in Canada, the only first world country to fully legalise recreational sale, but it is not too far off. Nearly 18 months after legalisation, it is estimated roughly three-quarters of the country’s cannabis is still produced on the black market.
Included among the legal sales are medical sales and home production for personal use. The overwhelming majority of ordinary retail buyers is yet to switch. There were teething problems that exacerbated the problem: A chronic shortage of legal supply in the months after legalisation; and a retail model that varies across the country’s provinces, with a shortage of store-fronts in some areas.
But the bigger problem is simple, old-fashioned economics.
Michael J Armstrong, associate professor at the Goodman school of business at Brock University, put it this way: ‘‘You have got a group of established producers; you have got a group of established retailers; and, you have got a group of established consumers.
They like the product and they like the price. You have got to give them a reason to switch.’’
The most intractable impediment is price. The price of legal cannabis is much higher than the black market stuff. In the order of 80 per cent, according to Statistics Canada, the country’s national statistics agency. For the fourth quarter of 2019, the price of legal cannabis averaged C$10.30
(NZ$12.16) per gram. The illegal price ran in the order of C$5.73
(NZ$6.77). The agency bases its illegal market prices on crowdsourced data, so the accuracy is less certain, but observers say the broad brushstrokes are largely reliable.
Perhaps at the heart of Canada’s black market problem is what Armstrong calls the ‘‘pharmaceutical model’’. By this he means a stringent set of rules and regulations, just shy of those for actual pharmaceutical grade manufacturing and distribution.
‘‘Very high standards are applied to growers and processors. The laboratory testing is very rigorous. Tolerance for contaminants, even trace amounts, is very low. Things like potency are very closely controlled.’’ All of that, he says, and strict efforts to keep growing licences out of the hands of those with criminal records, means black market players never made the leap to legitimacy. The reality is that stringency adds cost that helps make legal products uncompetitive. And that is before government adds sales taxes and likely a hefty excise tax to boot.
There is already a push in Canada for a rethink. As legal cannabis producers are now experimenting with bargain weed, slashed to as little as $4.49 a gram, there is rising pressure on the government to revise the minimum excise, set at 10 per cent of the retail price or the minimum levy of one dollar.
Chopping tax and cheapie deals probably are not what people imagine when they think of the benefits of a legal regime; but they are likely to be a reality.
The New Zealand Government is working on legislation to enact change should the referendum call for it. It released a draft bill in December and promised to flesh it out in the first half of this year.
It contains sweeping stipulations like a state licensing regime to control all stages of production from growing to final sales, so it is difficult to tell just how strict the regime would be.
Similarly, tax has yet to be tackled. The Cabinet has promised the input of an advisory committee including the chief executives of government departments like Health and Justice. Hopefully they will throw in a few seasoned economists for good measure.