Sunday, August 3, 2008

Tumult in the Cannabis Trade

Who would have thought that cavalier lending practices in the US Sunbelt would damage the second-largest industry in British Columbia?

No, I'm not talking about forestry and lumber. I'm talking about dope. BC Business magazine reckons that marijuana production is BC's second largest industry, contributing $7.5 billion dollars and 250,000 jobs to the province's GDP – less than construction, but more than forestry. Most of the product is exported to the United States. The RCMP estimates that marijuana is being grown in about 20,000 BC homes, not to mention sizable farms in the Interior and large-scale commercial operations in former warehouses and industrial buildings. One academic study concluded that if marijuana in BC were legalized, the province would see $5 billion in additional legal business activity, and could collect $2 billion in taxes.

The ranks of BC marijuana producers have also broadened remarkably. Cannabis cultivation is no longer the exclusive preserve of organized crime, though organized crime certainly continues to thrive in the fetid netherworld of prohibition. Today, however, marijuana production has become a sideline for thousands of otherwise law-abiding middle class citizens.

As a recent BBC report put it, “Much of the revenue derived from BC Bud, as the cannabis crop is known, goes on paying college fees, perhaps buying a second car or making that holiday to the Caribbean just a little bit more affordable.” As a result, “the trade is so large that the police in BC are faced with an impossible task.”

Indeed they are, and the job is getting harder. The RCMP drug section in Greater Vancouver once employed more than 100 officials, but it's now down to 60. The number of tips they receive about grow-ops has also fallen, from 615 in September 2003 to 207 in December 2007.

Does that mean that the number of grow-ops have fallen? Probably it has, says Marc Emery, a leading cannabis advocate and leader of the BC Marijuana Party. For one thing, the rising Canadian dollar has hurt the competitiveness of BC Bud, just as it has hurt film-makers, the forest industries and furniture manufacturers.

In addition, the downturn in the US economy has induced many Americans to try their hands at growing their own pot. Marijuana plantations have been turning up in the National Forests, while laid-off workers and homeowners facing foreclosure have been converting their basements and spare rooms into grow-ops. Even a tiny operation using only a couple of high-intensity lights can earn $20,000 a year for the owner – in cash, and tax-free.

“It certainly is enough to tide people over, no problem,” says Emery, “And two lights are not going to get you into trouble either.”

So there you have it. Predatory and foolhardy lending practices in the US lead to a wave of foreclosures. Wary consumers stop buying. Workers get laid off. Desperate for cash, the victims of the downturn try their hand at illicit agriculture. At the same time, the rising loonie makes BC Bud less competitive, so Canadian growers find their markets contracting.

What's so striking about this story is that it really is not a story about crime and the law. It's a business story, and almost all accounts of the situation treat it that way. In theory this whole industry is illegal, but in practice it's so big that the police can't even begin to control it. Any serious attempt to enforce the law would require an army of policemen, and gobble up so much public money that governments would almost have to abandon such other concerns as health care and education.

So the business is completely unregulated, and the only controls on it are the controls imposed by the markets themselves. As with any business, unfavourable market conditions do affect the industry. Adverse exchange rates and increased competition drive prices down and eliminate marginal producers.

Nevertheless, the market is huge and hungry. It reaches into every social class and every age group, though a recent study from the University of Alberta apparently revealed that marijuana is particularly popular among educated, middle-class Canadians. Do they wish to break the law? Probably not. But do they think this law deserves to be obeyed? Obviously not.

In short, the law has essentially made itself irrelevant. If anything, the law benefits the business. To a large extent, the industry is profitable precisely because it is illegal. All entrepreneurs take risks, but if the risks include jail time, only the boldest entrepreneurs will enter the business – and they'll demand a premium for the extra risk.

The net result of our irrational policies is that we enrich the criminals, criminalize ordinary citizens, and control illegal drugs far less effectively than we control alcohol and tobacco. If those are the effects we want, these policies are perfect.

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