Tom Flanagan is professor emeritus of political science and a distinguished fellow in the School of Public Policy, University of Calgary. He is a former campaign manager for conservative parties.
"Friends around the campfire and everybody's high." – John Denver, Rocky Mountain High
Following referendum approval in 2012, Colorado is now the first North American jurisdiction to offer legal sale of marijuana. Its regime is regulated free enterprise. Licensed retailers buy from licensed producers and sell to anyone who is at least 21 years old. The legal possession limit for consumers is one ounce (28 grams), except for "medcard" holders, who can possess two ounces. Anyone may grow up to six marijuana plants for personal consumption.
A study by the respected, liberal-leaning Brookings Institution has praised Colorado's implementation of the referendum decision to legalize pot. At a stroke, it has created a new tax-paying industry, standardized the quality of marijuana products and reduced the need for law enforcement. It is also promoting tourism – there is now a weekend charter bus service from Dallas to Denver and back. But if things are going well, they are not perfect.
Illegal street sales are still common, caused by artificially high prices in the legal market. These result from a special 25-per-cent excise tax approved by voters in another referendum, to carry out the politicians' promise that taxing legal marijuana would help fund school construction. In the retail outlet I visited, the minimum price was $20 a gram, compared to a street price of $10. Forced to sell at higher prices, the legal stores are trying to cultivate a high-end market with a diversity of products. The outlet I visited resembled a hybrid between a pharmacy and an upscale jewellery store, with expensive bottles of cannabis oil displayed in crystal vials. That's great for well-to-do tourists looking for a unique experience, but not so good for locals who just want to get high on Saturday night. For them, the street still beckons.
Also contributing to the black market are the medical retailers, who have been in business for more than a decade. Not being subject to the excise tax, they sell at much lower prices. One medical retailer was advertising a "Monday Munchies" sale of two ounces for $350 (about $6 a gram). Medcard holders don't have to be Steve Jobs to figure out that they will almost double their money by buying marijuana on sale and selling it on the street. Contrary to early expectations, but not surprising in light of the regime that was actually adopted, the medical grey market is increasing after legalization.
Although the Colorado experiment with legalized sales is just nine months old, two conclusions stand out.
First, price matters. A high price for legal marijuana, even if driven by a laudable desire to earn tax revenue for schools, will perpetuate both the street black market and medical grey market. It's similar to the way in which sky-high tobacco taxes in Canada have created a black market for cigarette sales. Artificially high prices create black markets even in totalitarian states, let alone in relaxed democracies such as Canada.
The second lesson is that free enterprise, with appropriate regulation for health and safety, can handle the sale of products once deemed to belong in the realm of vice. In withdrawing from prohibition of alcohol in the 1920s, the Canadian provinces burdened themselves with government sales monopolies. Nearly a century later, only Alberta has fully moved liquor retailing into the private sector; other provinces may allow private sales of certain products, but not across the board. Government monopolies, once created by legislation, are difficult to dismantle.
I believe Canada will eventually legalize the possession and sale of marijuana. When that day comes, it will be wiser to turn it over to private enterprise than to create yet another ponderous Crown corporation.