National Column: Legal cannabis is about politics, and big business

by Thomas Walkom

Cannabis becomes legal in Canada on Wednesday. Here are five things to keep in mind.

First, at one level this is a non-event. For the average Canadian, legalizing marijuana and its derivatives is somewhat more momentous than legalizing broccoli.

But not that much more.

As anyone who lives near a high school can attest, the sweet smell of marijuana has long been in the air. True, until Wednesday it will remain technically illegal to buy pot. But, as has been the case for years, users are rarely charged.

Under the soon-to-disappear old regime, those who sell cannabis illegally tend to face harsher penalties. That won’t change. What will change is that the number of legal dealers is set to grow exponentially.

Second, and in spite of what governments say, legalization isn’t about protecting kids and fighting organized crime. It’s about fulfilling a Liberal campaign promise designed to portray Justin Trudeau as a bold, new leader.

Like Trudeau’s promise to run fiscal deficits, it was a politically risky pledge. But it succeeded, particularly among younger voters.

Now that it’s time to deliver, the Trudeau Liberals are insisting their real motive is to protect children from the evils of pot. But if that were the case, the government wouldn’t be making cannabis easier to obtain. It would be making it more difficult.

Third, it’s still a good idea to legalize marijuana. I don’t want to rehash (sorry) the arguments. But those who say marijuana is no worse than alcohol are almost certainly correct.

Reefers aren’t harmless. There is some evidence that cannab’s hinders brain function. And it can’t be good for the lungs to inhale smoke from anything, including marijuana.

But taken in excess, gin can be harmful too. Yet, we don’t ban martinis.

Fourth, legalization is about big business. Or, to be more accurate, it’s about shifting cannabis production and distribution from illegal big businesses to legal ones.

As the tobacco and alcohol industries have shown, mood-altering substances can be immensely profitable. They are cheap to produce (it’s easy to make wine in your basement), yet face what economists call an inelastic demand curve.

Simply put, that means people will continue to buy these mood-altering substances even as their cost rises.

Industries such as tobacco and alcohol also tend to be dominated by a few big players. That’s because they rely on advertising and product differentiation, both of which are subject to economies of scale.

For instance, it’s cheaper on a per bottle basis to advertise beer if the cost can be spread over a large production run. Think Coors.

Canada’s cannabis companies are only starting and their advertising remains rudimentary. It’s not clear who will be left after the market shakes itself out. But the most obvious beneficiaries of marijuana legalization are Big Tobacco and Big Pharma.

Big Tobacco has experience in the field of inhalants and the ability to produce high-quality marijuana cigarettes. Big Pharma has the capacity to isolate the active ingredients in cannabis and market them as either pills or edibles.

But as Coca Cola has shown, Big Soda is also interested. It, too, is an industry that prospers on the basis of economies of scale, advertising and product differentiation.

Fifth, the Americans. Although cannabis is legal in some states, the U.S. federal government still bans its sale and use. This has caused problems for Uruguay, which last year became the first country in the world to legalize marijuana.

Unfortunately for the pharmacies licensed to sell cannabis in that country, banks will have nothing to do with them. The reason: Washington has threatened to penalize any Uruguayan bank that takes part in the cannabis trade.

So far, the big Canadian banks have not been deterred from financing the soon-to-be-legal cannabis market here. But President Donald Trump has yet to cast his baleful eye on Canada’s pot industry. We shall see what happens if he does.

Thomas Walkom is a Toronto-based columnist covering politics.
Follow him on Twitter:@tomwalkom
Copyright 2018-Torstar Syndication Services

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