Canada vs. Cannabis: An Economic Showdown (TBM)

15 05 2011

Canadians have a reputation, whether it’s good or bad is debatable, for smoking marijuana all the time, with some of our neighbors down south thinking that it’s legal in the Great White North.  A country full of pot-smoking hippies is all Canada is to most Americans.  What they don’t realize is marijuana is Canada is far from making every Canuck a stoner, and in fact the only way one can get it legally in Canada is through a medical prescription.  The legalization of medical marijuana has been around for 10 years in Canada, available for illnesses like glaucoma and epilepsy, to ease the pain of chemotherapy, and even to induce its infamous “munchies” on patients with little appetite. The question that everyone is asking now is whether Canada should take marijuana to the next level or not.

Right now, the economic system for marijuana is failing, because we have tried to impose a temporary solution on the “problem” of cannabis use for too long.  The prohibition of pot has created a system where the country allows no supply to be made, sold, or used in the country; but just ask 3 out of every 20 Canadians and they will tell you the demand is there, and that consumers are willing to pay for their share.  This system failure is similar to that of a price floor, where there is not enough supply to meet the demand, and consumers must either do without, or turn to another outlet to get what they want.  This has lead to the black market of marijuana trade in Canada.  Canadians have seen this happen before during the alcohol prohibition of the 1920’s, where many Canadians turned to black markets that were selling various alcoholic drinks because they saw the profit that was to be made.  Eventually, alcohol was legalized and taxed, to the profit of the government and the destruction of the black markets.  Legalization solved so many problems, so why wouldn’t it work with marijuana?

If we look at this from an economic standpoint, the trade of cannabis in Canada is an estimated $20 billion per year, creating 250,000 jobs in production alone.  The tax revenue Canada is missing out on is a whopping number.  Not only could the government tax the sales of marijuana in Canada with sales taxes like the GST and PST, or HST (depending on your province), along with an excise tax that could be put on the retail price of marijuana, but the government could also make money through increased volume of income taxes.  The 250,000 people employed by the cannabis industry are not claiming this income due to the illegal practice in which it was acquired, growing and distribution; legalize pot, and that income is not only legal, but nice and taxable.  Looking at HST and excise tax averages for cigarettes across Canada, the estimated tax revenue to be gained via marijuana legalization is approximately $11.8 billion, give or take a couple billion.  The money gained from the cannabis industry would not only be routed away from the black market, but also be used to further the country as a whole by the government.

Some say that marijuana is a drug too dangerous to be let onto the market.  They say the addictive power of the tetrahydrocannabinol (THC) in the pot is addictive, and leads to usage of harder drugs within pot smokers, and that the cancerous properties are too much to risk having out on the shelves of stores for any good to come out of the legalization of cannabis.  What people don’t realize is that compared to other drugs, even alcohol and tobacco, cannabis is safer for the body and the mind.  Cannabis does not cause cancer as often as tobacco, it does not damage the body as severely as alcohol and tobacco do, and it is less addictive than both alcohol and tobacco.  In fact, even caffeine is more addictive than cannabis!  The harm cannabis will do to someone is less than that of other legalized drugs, so there is no reason to exclude it because of that.  The idea that marijuana is a gateway drug is only a problem because the same black markets that push pot on people also try to get users addicted to harder, more addictive drugs like cocaine and heroin.  The destruction of the black markets through legalization would prevent people from being exposed to these hard drugs, and cannabis would no longer be a dangerous gateway drug.  Lastly, concerning laws, alcohol and tobacco laws limit the age of those allowed to use those drugs, and the same would go for weed.  Laws would need to be in place for driving while under the influence of marijuana, along with ways to test on the roadside for such intoxication.  The safety of everyone should not be compromised when legalizing cannabis.

Overall, the prohibition on marijuana is holding the government away for billions of dollars in revenue, and destroying lives through exposure to hard drugs through the black market.  Marijuana should be made legal, with laws to protect the users and those who do not wish to partake, just like alcohol and tobacco laws.  Marijuana should be taxed once legalized, to generate revenue for the government, and discourage use, like the tax on alcohol and tobacco.  It’s a safe drug that we could make a lot of money on, so why not legalize it?

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5 responses

18 06 2011
Steven Iarusci – ISP « The Blog for WLMac Economics

[…] Journal 7: Canada vs. Cannabis: An Economic Showdown […]

18 06 2011
jwang909

You make a very practical and effective argument for the legalization of Marijuana Steven! Your points about the toxicity of THC vs the detrimental effects of Tobacco and Alcohol is very influential!

If I were to offer any constructive criticism it would be that there is more monetary gain than just the tax revenue. Think about how much money all levels of policing would save by cutting out an entire portion of their activities. Mairjuana busts and grow-ops cost the country lots of money in policing, enforcement, court dates and the cost to keep the prisoners in jail. Furthermore, think about what would happen to marijuana related crime rates if marijuana suddenly became legalized.

18 06 2011
John Wang – ISP « The Blog for WLMac Economics

[…] Comment 3 […]

18 06 2011
dylanhuber

I though that the arguments you made in this journal were well reasoned and very practical. There was a certain flow in this piece which made this easy to comprehend. I found your statistics you used in the 3rd paragraph very convincing.

I think your journal would benefited from more sources then amount that you used. It is obvious that you know a lot on this subject but I think that some of the facts should have been supported by a source. I would have liked to know how you think marijuana should be sold and where the sourcing of marijuana should happen. Would the sale of marijuana occur in convince stores or would something like an LCBO be established? Would there be importing of marijuana or would it be from local or national sources? If it was imported, would the drugs still be purchased from places like mexico where the drug lords control the entire supply of marijuana?

Aside from my questions, I think this was extremely well done journal that came to it’s point clearly and very effectively.

18 06 2011

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