The Legalization of Marijuana Explain what were the principle reasons for the legalization of marijuana in Canada
Question:
The Legalization of Marijuana
- Explain what were the principle reasons for the legalization of marijuana in Canada
- Explain the effect on consumption and harm to consumers and on the black market, to date.
The Opioid Crisis
- Explain what has been the common misconception about opioid use, and what recent economic research done in Canada has revealed.
- Explain what policy directions this result suggests.
The Legalization of Marijuana In Canada
The Legalization of Marijuana
Marijuana is one of the oldest known naturally psychoactive substances and has been used
medicinally and recreationally for thousands of years. However, because of the perceived harms associated with it, marijuana was illegal to grow, use and possess in Canada since 1923.
Nonetheless, despite almost a century of prohibition, a survey done in 2012 found that a little over 40% of Canadians claimed to have used marijuana at some point in their life. Marijuana is the most widely used illicit substance in Canada.
Due to the ineffectiveness of the current system of prohibition in Canada, the issue surrounding
legalizing and decriminalizing marijuana over time attracted more and more attention.
Canada had been heading towards legalisation since 1972, when the Le Dain Commission,
appointed by the government, recommended that possession of cannabis be decriminalised. That did not happen. However, although it remained illegal to use marijuana for recreational purposes, the Supreme Court of Canada ordered the legalisation of medical marijuana as of July 30, 2001.
According to a report by UNICEF in 2013, Canadian teens and children were identified as the
highest users of illegal marijuana among 29 of the world's developed economies. With 28% of
Canadian youth (aged 11-15) having used marijuana illegally in the past year, Findings such as this helped persuade the Federal Government of Canada to legalise marijuana. The hope was to push organised crime out of the cannabis business and to keep children away from it. It set 18 as the minimum legal age and planned education campaigns to discourage younger teens from consuming. Some provinces have set the legal age higher.
Before legalization the following Economic, Social and Health Impacts were contemplated:
Potential Economic Impacts
1) As marijuana would now be able to be taxed in the same way as alcohol and cigarettes, it was expected that significant tax revenues would now accrue to government as a result of high demand currently being served by s sizeable black market. The competitive market price of marijuana was considered be fairly low without taxation. Hence the government could impose fairly high taxes on marijuana while keeping the price at a level that was competitive with other intoxicants such as alcohol and cigarettes. (Of course, as we have seen, the precise effects depend on price elasticity of demand.)
Support for this notion was evidenced by the experience in Colorado, where marijuana was
legalized in January 1, 2014. The results from Colorado's first two years of legalization showed that the state government collected $135 million dollars on $1 billion dollar's worth of recreational and medicinal sales.
2) It was expected that legalization could result in the employment of more workers who can grow and package marijuana for sale in the Government approved grow-ops. It also could generate some other job opportunities for individuals who can work in educational sessions and health promotion initiatives to promote safe use of the drug.
However, if there are economies of scale (a proportionate saving in costs gained by an increased level of production), legalization may reduce overall employment in Canada associated with the marijuana industry, because the number of legal jobs generated may be smaller compared to the number of illegal jobs eliminated. So, the net effects in this regard were unclear.
3) Legalization of marijuana could substantially reduce the government spending on drug
incarceration and enforcement costs in Canada. In the years immediately prior to legalization, the marijuana policy and legal framework was associated with government costs of anywhere from $500 million to $1 billion, annually. But of course as we saw in the last lecture, these savings would have to be balanced against potential costs.
Potential Social Impacts
1) As mentioned earlier, the high demand for marijuana in Canada resulted in a sizeable black
market. The notion was that if the government took control of the distribution of marijuana, then legalization would reduce the black market for the drug and the attendant problems it is believed to cause. In particular, the illegal market for marijuana was seen to be a major risk to the well-being of Canadian children. The hope wass that legalization could minimize the children's direct contact with black market activity. Removing this illegal access point through the legalization could be beneficial in terms of reducing youth illegal activity rates, and diminishing the drug dealers' power
over Canadian youth.
2) In addition, there was a belief that legalization could address some of the social problems
associated with the black market for marijuana, such as unsafe environments created by the illegal distribution of the drug, and the negative consequences of criminal labeling for possession of small amounts of marijuana.
It should be noted that prior to legalization there was some scepticism as to the extent that
legalization would reduce the size of the black market activity.
According to a brief article in the Economist in 2018, black market criminal activity would not
disappear right away, in part because neither federal nor provincial governments are prepared to cope with demand for legal cannabis. According to a report by the C.D. Howe Institute, the federal government, which regulates production and health matters, had issued only enough permits to supply 30-60% of demand in the first year,
It was projected that most provinces, which are responsible for regulating the sale of cannabis,
would have few legal retail outlets on October 17th 1018, when legalisation came into effect. In
Ontario, the most populous province, there were be none. At the time, the provincial government, dropped plans to sell cannabis through government-owned shops and would leave sales to private retailers. But the first one would not open until into the new year year. In the meantime, Ontarians were able to buy cannabis online from the government. As it turned out, Ontario opened its first bricks-and-mortar marijuana shops on April 1, nearly six months after legalization.
The Economist quoted Chuck Rifici, chairman of Auxly, a firm that helps others produce and
market cannabis, who said that everey legal gram that is produced will be ocnsumed and when that is gone, consumers will turn to the illicit market. Rifici noted that after prohibition of alcohol ended in the United States in 1933, legal distillers could not meet demand for 15 years, although he expected legal suppliers of cannabis to catch up more quickly in Canada.
Potential Public Health Impacts
Although there is some evidence indicating therapeutic benefits of marijuana use in neuropathic pain, inflammatory bowel diseases, managing symptoms of chemotherapy and treatment-resistant epilepsy in children, marijuana use is associated with adverse health effects.
According to a recent report by the Centre for Addiction and Mental Health (CAMH), the regular
usage of marijuana is associated with some health risk such as: problems with healthy brain
development among youth, progression to use of other illicit drugs, depression or anxiety injury and risk of death from motor vehicle collisions, symptoms of chronic bronchitis, schizophrenia and addiction problems
The Colorado experience showed an increase in recreational drug use after legalization. If
legalization in Canada were to lead to a similar increase in the recreational use of the drug among adults this could, in turn, result in an increase in the health risks associated with substance use.
The Cannabis Act
With the coming into force of the Cannabis Act on October 17, 2018, the Government of
Canada legalized and strictly regulated the production, distribution, sale, import and export, and possession of cannabis for adults of legal age.
What have been the results?
During the Act's development, it was widely recognized that effective implementation of the new legislative framework would require ongoing monitoring to assess early impacts, and flexibility to adapt and respond to emerging policy needs.
For this reason, section 151.1 of the Cannabis Act mandates a review of the Act to start three years following its coming into force, and that a report outlining findings or recommendations be tabled in both Houses of Parliament no later than 18 months after the launch of the review.
In October 2022 the Federal Government. released a report called Taking Stock of Progress:
Cannabis Legalization and regulation in Canada. Some of the results outlined below are taken from that report, others from a CBC News report: The Pros, Cons and Unknowns of Legal Cannabis in Canada 3 Years Later.
In some areas, the reviews are positive. Legalization has resulted in the emergence of a multibillion- dollar industry, new jobs and tax revenue. There have also been fewer cannabis-related drug convictions among young people.
But despite some positive signs, some health experts are concerned that the rapid growth of the industry combined with a lack of recent data about potential public health impacts means we could be missing some warning signs.
We will focus on two things
1) What have been the effects on consumption and harm to consumers?
2) What has been the effect on the black market?
Consumption and Harm to Consumers
1) Since legalisation more Canadians seem to be using cannabis.
According to the government's most recent survey, 27 per cent of participants reported having used marijuana in the past year an increase from 22 per cent in the first cannabis survey conducted in 2017.
Statistics Canada data suggests retail sales in 2020 were just over $2.6 billion, which represented a 120 per cent increase compared to 2019. Rebecca Jesseman, the director of policy at the Canadian Centre on Substance Use and Addiction, says it's too early to assess the impact of legal marijuana in Canada, but an apparent increase in use could be cause for concern.
2) According to Russell Callaghan, a professor in the UBC Northern Medical Program at the
University of Northern British Columbia, who researches the impacts of legalization on a range of public health indicators, many of the concerns around legalized cannabis including potential increased cases of cannabis-induced psychosis and schizophrenia and driving under the influence of drugs have not materialized.
Callaghan says his research on traffic injuries in Ontario and Alberta does not suggest legalization has had a significant effect, at least not yet.
A recent report from Mothers Against Drunk Driving Canada (MADD) says the number of drug-
impaired driving charges is "extremely low" accounting for just 11 per cent of the 5,506
impaired driving charges across Canada in 2019.
Some provinces, such as Ontario and Quebec, saw a significant increase in drug-impaired driving charges that year, but the report attributes that mainly to new laws and enforcement powers.
3) Callaghan says his ongoing research suggests youth visits to emergency departments because of poisoning or overuse of marijuana may be trending upward "significantly." That mirrors American trends in states that have legalized marijuana, he said.
But in terms of consumption and harm to consumers, it is likely still too early to tell. Almost all of the available research on legal marijuana comes from the first six months after legalization. The industry in many provinces and territories looks very different now than it did then both in terms of the commercial availability of cannabis and the range of cannabis products available.
The question is whether or not, as the market matures, the result is a large increase in cannabis
sales, and related increases in cannabis use and harms.
2) The Effect on the Black Market
Prior to governments review of cannabis policy the The Cannabis Council of Canada , which
represents more than 700 licensed producers and processors of cannabis in Canada, produced a
report card on legalization. It gave gives governments a B grade on keeping cannabis out of the
hands of youth and protecting public health.
It gave governments a failing grade in four areas combating the illicit market, taxation policy,
consumer education and awareness, and financial viability.
None of this should be surprising to an economist. One might ask how a legal firm could be
expected to achieve financial viability in competition with illelgal, low-cost operators. In economics is all about price. Unlicensed producers are aided by steep excise taxes imposed on legal producers, and lax enforcement of laws that would curtail black market activity. Illicit producers pay no income or excise taxes and have no rent, cultivation, quality assurance or payroll expenses, as black market dealers are typically self employed.
George Smitherman, president and CEO of the Cannabis Council of Canada, was quoted as saying: "We can't get too excited in a circumstance where the illicit market remains with at least 50 per cent of the business." "If the illicit market is still selling billions of dollars of cannabis, that's a lot of tax revenue that governments aren't getting." (Current estimates of the illicit market are at 43%.)
The organization is hoping to work with policy-makers to implement changes to help the industry, including lifting some regulations and lowering the tax burden. Smitherman says the excise tax is putting significant financial pressure on producers.
Problems created by the continued black market are reflected in cannabis stock prices. Similar to most other cannabis stocks, Canopy Growth (the second largest porducer, behind Tilray) trailed the broader markets by a wide margin in 2022. Canopy Growth stock fell by 72% last year and is now down 96% from all-time highs. Canopy investors have lost $18.5 billion.
Canopy Growth has a well-established presence in Canada and is among the largest marijuana
producers in the world. But since 2019 Canadian cannabis companies have been heavily impacted due to an increase in competition and "cannibalization" from a thriving black market. Over the past two years, Canopy growth's recreational sales have fallen nearly 40%. Canopy is closing operations and cutting its workforce by a third. It has lost $4.2 billion dollars since 2018. Tilray has lost $1.2 billion.
Arguably the legal marijuana industry has some problems of its own making in that it over-
expanded and faces the problem of too many producers chasing too few customers. For example, Cannopy invested heavily in cultivation and new product development and made come costly acaquisitions in the United states and Europe in the expectation of legalization there, which has not materialized. (Their revenues expanded by 7 times, while thier operating costs expanded by 12 times.) The company is now looking to exit an oversupplied Canadian retail market and create a presence in the United States in the hope that marijuana will be legalized at the federal level in the United States. But it is unclear that the price of legally produced marijuana will be more competitive in the United States than it is here. (The same situation with the black market seems to be in existence in California.)
It would seem that given a choice, Canadians prefer to buy illicit marijuana. The lawyer Russell
Bennett at Cannabis Law.ca believes the reason is primarily due to quality. The notion is that
experienced, small scale, unmechanized, organic growers simply produce a better product. He also believes that convenience is a factor: customers get prompt service form a dealer they know.
But in the end what is most important is that they are paying much less, for a superior product.
Again, it's about price. According to Statistics Canada a gram of legal cannabis costs 57 per cent
more than illicit cannabis, once taxes and licence fees are taken into account.
According to Bennett, if the government wants to eliminate the black market, the way to do it is to legalize all marijuana and grant licences to everyone who can grow organic marijuana. In Bennett's view, the reason for the thriving black market is that the government encouraged big business (who know a lot about corporate finace but not much about actually growing the plant) to build a new industry directly on top of an underground industry, the culture of which was considered dangerous.
In his opinion, most unlicensed growers would prefer not to be "criminials" and operate in a legal market. But it is unclear that an economist, who studies the motivations for the operations of "shadow economies" (that were discussed a bit in the article you read for the first assignment) would concur.
The Opioid Crisis
Topic 5 The Opioid Crisis (10 Marks)
The opioid crisis has been so severe in magnitude in North America that it caused overall declines in life expectancy and increases in overall mortality rates. Illicit drug deaths are now the number one cause of unnatural deaths in both Canada and the U.S.
According to Statistics Canada, life expectancy for men in Ontario and British Columbia has
dropped for the first time in decades, likely due to the opioid crisis.
The opioid crisis is present in countries across the globe, but the magnitude of its effects is highest in North America.
Opioids were declared a public health emergency in British Columbia, Canada, in 2016, and from that year through 2021, 29,894 Canadians lost their lives to opioid overdoses. More than two-thirds of those victims were employed in the five years prior to their deaths.
According to the online journal businesshealth.ca, in 2018, one Canadian died every two hours due to opioids. This journal reports that rates of opioid-related deaths have been increasing across the country, especially in Western Canada. It cites statistics from a December 2019 Public Health Agency of Canada report that found that, between January and June 2019 there were 2,142 deaths of which:
94% were accidental.
75% were men.
28% were between age 30-39 years of age.
80% involved fentanyl or fentanyl analogues.
In their view, the opioid crisis is a hidden workplace tragedy, as what is implied in these statistics is that, contrary to stereotypes of drug using street youth, the opioid crisis is a crisis of working men.
According to the PHAC report, only 2% of deaths involved people age 19 and under. In fact, most deaths occurred during men's peak working years, and that a majority were blue collar workers living otherwise comparatively ordinary lives.
A study undertaken by Cheung et al. (2022) published in the annals of the American Academy of
Political and Social Sciences, calculate the economic footprint of the opioid crisis for Canada.
The authors note that while every one of the 15,393 deaths that occurred in Canada in the pre-
COVID-19 and post-crisis declaration years from 2016 to 2019 was a tragic social loss to their
families and friends that cannot be quantified, many of these individuals were also making
contributions to society through the the labor market. And this type of economic loss can be
quantified, as the premature deaths will result in an aggregate loss of economic output through all those individual years of potential productivity.
The results of the study challenge the notion that the opioid crisis predominantly affects
unproductive members of society.
The research used what is known as a Human Capital model. A Human Capital model captures
society's losses when an employed person dies, by modeling an individual's future economic
contributions, also known as years of potential life lost.
The HC model was developed by researchers in the 1960s who sought a robust way of measuring the economic burden suffered by society due to workplace deaths and injuries. Human capital is loosely defined as the training, education and skills that a worker has accumulated. In human capital theory. The human capital model (Becker 1962; Mincer 1962) suggests that an individual's decision to invest in training is based upon an examination of the net present value of the costs and benefits of such an investment.
These researchers answered question of the effect of opioids on the labour productivity by framing it in the following perspective: if a workplace death could be somehow prevented, how much would this person, now alive, have been able to contribute to society?
In this study, two variants of the human capital model were used:
The first model used industry estimates to generate victim earnings profiles: the analysis was linear, and assumed each victim lost 22 working life years and had stable annual earnings. This model estimated lost productivity at $8.8 to $9.9 billion. The loss of 22 working years was arrived at using the assumption that most people work to age 65. The average age of death of opioid victims was 42.
The second analysis accounted for the nonlinearity of earnings with age (it takes into account the effect sof a person's lifecycle). It dropped industry earnings completely and relied on average earnings by age group instead. This second model yielded somewhat larger estimates between $9.6 and $10.9 billion.
These losses were then compared with the equivalent value of a statistical life calculation. This
approach shares similarities to that of the human capital model, in that the goal is to quantify the magnitude of a loss. However, both types of calculations will provide different estimates, with value of statistical life estimates tending to yield larger numerical results.
The value of statistical life (VSL) approach is a different concept than methods that use earnings, like the Human Capital Model, which project forward adjusted earnings streams that are lost when someone dies prematurely. Instead, VSL estimates are determined by the hypothetical monetary amounts that a group of people would be willing to pay to avoid the risk of a death happening to an individual within their group. This is based on the fact that the group, when exposed to the risk of death, would not know which individual among them would die, so they would all pay a little bit to avoid a death altogether. The VSL can help gauge the benefits and costs of policies in a variety of areas, not least among them health policy.
The Government of Canada recommends the value of statistical life to be around $7.9 million for Canadians, with a lower range of $4.3 million and an upper range of $11.6 million (Canada
Treasury Board 2007; Chesnut and De Civita 2009). Multiplying the Canadian VSL values by the
15,393 overdose victims would lead to a low value of $65.7 billion, a central value of $122 billion, and a high value of $178.3 billion.
A contribution that economists can make to a better understanding of the opioid crisis involves
quantifying lost labor productivity to the Canadian economy due to premature deaths from opioids given that there has been a common belief that the opioid crisis primarily affects unproductive members of society. Once the entire burden of the economic loss is understood, the resources needed to mitigate the loss of life and manage the crisis can more appropriately be allocated.
The researchers extrapolating from British Columbian data and found that not only were
approximately two-thirds of victims in Canada working in the five years before they died,
construction workers (21%) and those of middle-age (27%) were overrepresented in fatal
overdoses. Thus, the opioid crisis most affected working, middle-aged males in labor-intensive
occupations.
Again, these productivity loss estimates challenge the notion that the opioid crisis has only affected unproductive members of society.
When it comes to the labor market, the researchers offer several reasons why construction is the most affected industry in both Canada and the United States. (In Canada, 30 percent of employed overdose victims were in the construction industry when they died. The trades and transportation industries have also been heavily affected.) the reasons are as follows:
1)Construction workers and those in the trades are more likely to suffer workplace musculoskeletal injuries than other workers; and they are more likely to be prescribed opioid prescriptions, which can lead to opioid use disorders.
2)Physically demanding jobs often lack proper paid sick leave, which means opioid use disorder
victims often use opioids in order to continue working.
3) Male-dominated industries, such as construction, are less likely to report mental health or
substance abuse problems due to stigma.
According to Cheung et al., solutions for reducing deaths include improving ergonomic solutions for construction workers; improving paid sick leave for trades, transportation, and construction industries and supporting effective injury pain management.
In their view, another challenge of the opioid crisis involves problems with the supply of toxic street drugs in both Canada and the U.S., which has become worse in recent years. There are those (such as the BC Coroners Office) who advocate providing easily accessible, low-barrier, pharmaceutical- grade opioid alternatives and high-quality, fast drug testing services to reduce illicit drug deaths
Cheung et al. Note that the legacy of the "war on drugs" still influences the public perception of
drug users in that drug use is often perceived as deviant and shameful. As we have seen earlier in the course, one of the reasons for support for the decriminalization of illicit drugs for personal consumption is the belief that stigmas on drug use create barriers for people to access potentially life-saving treatment.
It is the view of these researchers that take-home naloxone kits are essential component of
combating the opioid crisis. (Naloxone is a medicine that rapidly reverses an opioid overdose. It is an opioid antagonist.) According to the Canadian Institutes of Health Research (2019) these kits have reversed over 61,000 overdoses. Regardless, the free distribution of these kits has been not without controversy, as there are concerns that the free distribution of kits may lead to increased substance abuse But recent research has found no evidence that such kits have been associated with increased opioid use or overdose.
In general terms, according to the researchers, the government response at the federal level should follow where the numbers are worse within the country. This would mean that Canada should target those provinces where the death rates are highest: British Columbia and Alberta, followed by Ontario and Saskatchewan. Given the fact that provinces in Canada oversee their own public health care, this can also be done by targeting resources within provinces as well, such as towards those working in the construction industry or toward middle-aged males
Business Statistics
ISBN: 9780133899122
3rd Canadian Edition
Authors: Norean D. Sharpe, Richard D. De Veaux, Paul F. Velleman, David Wright