Cannabis sales won't balance budget

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Those counting on help from cannabis sales to balance the provincial budget are in for a disappointment.

As far as Statistics Canada can tell, cannabis prices in this country have been dropping for the past three years, perhaps the past dozen years. Since weed-market watchers in the United States have found roughly the same thing, it’s probably true.

Canada’s provincial treasurers, along with private investors in the cannabis trade, may still be able to turn a profit, but the bonanza that used to beckon has probably evaporated already.

Canada’s national statistics agency studied the cannabis market as best it could. The data are scanty and not highly trustworthy since most cannabis production and sale is, for the moment, illegal in Canada.

The main thing that’s been happening in the cannabis market, it seems from U.S. sources, is that production increased enormously in Oregon and California when those states began to permit the growing of marijuana. With abundant supply, prices dropped. Since Canadian growers export $1 billion worth of their output, the glut in the U.S. affects Canada as well.

By StatsCan’s estimates, about 4.9 million Canadians bought cannabis in 2017, which would be around 13 per cent of the national population.

Nova Scotians were the highest per capita users, consuming 27.1 grams per capita. British Columbia at 24.6 grams per person and Alberta at 24.1 grams per person were the next heaviest-using provinces.

Heavy weed consumption did not, however, mellow the public mood in those two provinces, which have been screaming abuse at each other over the Trans Mountain Pipeline expansion.

Quebec consumers enjoyed Canada’s lowest cannabis prices last year, around $6.19 per gram.Users in Nunavut and the Northwest Territories were paying over $10 a gram. StatsCan is cagey about estimating what the prices used to be, but it believes prices in all provinces and territories dropped in 2016 and again in 2017. The trend has been generally downward since 2005.

Dropping prices should make it easier to extract the cannabis trade from the hands of organized crime. Why would the gangsters want to run the trade if the profits are shrinking?

Prime Minister Justin Trudeau’s government, however, also wanted to keep cannabis out of the hands — and the bloodstreams — of young people. Lower prices may frustrate that goal by bringing the drug within a price range adolescents can afford.

Provincial governments will regulate the cannabis trade once Mr. Trudeau’s new rules take effect. They may be able to jack prices up, both to enhance their revenues and discourage consumption. Their pricing power will, however, be limited by competition with the large informal sector that now dominates the market. Consumers will not happily pay $8 a gram at the government store if an independent dealer is selling for less.

Provincial finance officials have been gleefully counting up the large sums they will rake in once Mr. Trudeau gives them cannabis monopolies alongside their liquor monopolies. They should not spend the money yet. When the feds last year offered a 50-50 split of marijuana tax revenues, they said they wanted all of it, then settled for 75 per cent. They were then, however, assuming a retail price around $10 a gram. In a retail environment where a dealer can potentially offer lower prices, however, the government stores won’t move much product at $10. They may have to scale back their expectations.

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