Pubdate: Sun, 17 Apr 2016
Source: Sunday Star-Times (New Zealand)
Copyright: 2016 Sunday Star-Times
Author: Richard Meadows


Money From the Sale of Cannabis Plants and Resin Would Have a Huge 
Economic Impact on Society. Richard Meadows Reports.

Auckland's Hemp Store is looking flash. It's added a little cafe 
during its move to the gentrifying K Road area, on the hill above the 
CBD. Inside, manager Chris Fowlie is spinning discs and making 
coffees. All manner of balms, bongs and books line the shelves. 
Tables are set up at the perfect rolling height. Fowlie knows which 
way the smoke is blowing. He was in Colorado the day cannabis became 
legal. Three other states have followed suit, and about 20 more plan 
to put it to the vote this year. Canada has promised to legalise pot. 
Victoria has just become the first Australian state to give medicinal 
use the green light. "That makes it unstoppable here, and I think the 
Government recognises that," says Fowlie.

Besides the international sea change, there could be half a billion 
reasons compelling New Zealand to follow.

Economists sniffed out the potential gains long ago. More than 500 
top boffins - including Nobel laureate economist, Milton Friedman - 
signed a letter calling for legalisation in the United States back in 2005.

The combination of cost savings and tax income would generate a 
fortune, they said.

The crime bill

While the US led the war on drugs, prohibition has also come at a 
cost for New Zealand. A new Drug Harm Index (DHI) released this month 
found police were spending about $90 million a year on 
cannabis-related "interventions", with another $109m of costs in the 
courts and justice system.

Back in 2011, the Law Commission recommended legalising medicinal 
cannabis, and less punitive measures for recreational use.

Among other anomalies in the current law, possession of a bong (a 
glass pipe used for smoking) is technically punishable by a year in 
jail. Based on prison costs of $250 a day, that would total $90,000 
of taxpayer dollars, or funding for six breast cancer surgeries.

The effect on society

The criminal system also comes at a high personal cost, with several 
thousand people prosecuted for cannabis possession or use each year. 
Drug Foundation executive director Ross Bell says the number has more 
than halved in the last few years. While it's almost de facto 
decriminalisation, relying on police discretion is not enough.

"The law has a huge negative impact on Maori families," says Bell. 
"They don't get the diversion or pre-charge warnings that other 
people get." Youth are also over-represented, and Bell says 
convictions weigh on education and job prospects.

"We're actually punishing people for a lifetime. It becomes this 
intergenerational problem."

The tax story

Politicians love to be seen as tough on law and order. But if there's 
one thing they love more, it's the clinking of tax dollars streaming 
into the coffers.

The new DHI estimates just how much revenue the government is missing 
out on. It puts foregone GST at $68.3m, and company tax at $145.8m. 
That's based on an overall market valued at $558m worth of natural 
and synthetic cannabinoids (the chemical compounds found in cannabis).

New Zealand might be the land of the long green cloud, but the true 
size of the market is hazy. The DHI figure falls roughly in the 
middle of a $190m estimate from 2001 and reports putting it closer to 
a billion dollars. The wilder numbers can involve valuing helicopter 
crop busts as if the entire plant, 'cabbage' and all, was sticky, 
street-ready bud.

"Bless them, but the police always overestimate the scale," says Bell.

Whatever the real number, cannabis is a huge cash crop. As the 
nickname suggests, weed is easy and cheap to grow, with much of the 
black market price related to risk. A US study found the cost per 
pound could be as low as US$70 (NZ$100) in a legal commercial 
greenhouse. On the higher side, estimates range to US$400 or us$500 a pound.

If the cost of pot fell sharply, Economics 101 suggests consumption 
would increase. Any tax windfall could be destroyed by a blowout in 
health and social costs.

The academic perspective

Massey University's Chris Wilkins has a doctorate in economics, and 
has spent years researching drug use and policy.

"The overall lesson from decriminalisation is it doesn't seem to have 
resulted in a large increase in use," he says.

Legalisation could be a whole different ballgame, depending on policy settings.

"Colorado is probably the frontrunner, but even then it's way too 
early to answer some of the important questions," says Wilkins. "What 
impact does it have on use and dependency?" The NZ Initiative's head 
of research Eric Crampton, reckons it's possible to legalise without 
increasing health costs. The key would be keeping the price of 
marijuana at the same level by loading an excise tax on sales.

"If price to consumers doesn't much change, consumption won't much 
change." Colorado now collects more excise from marijuana than it 
does from alcohol, investing it in the likes of new schools, drug 
education and youth programmes.

In a New Zealand legal market, production and distribution costs 
could drop to about $100 to $150 an ounce, and possibly lower. That's 
much cheaper than the black market price of $350; a gulf which 
Crampton suggests could be filled with a combination of GST and excise.

According to the DHI, New Zealanders smoke their way through a 
staggering 27,440 kilograms of cannabinoids a year. That's just shy 
of a million ounces, meaning the tax haul from consumers could be 
around $200m to $250m. Add the company tax and police and court 
costs, and the total take is over half a billion.

However, the numbers are impossible to predict with any degree of 
accuracy. Police would still need to enforce a regulated cannabis 
market. Wilkins says there are a huge number of unknowns about what 
that would look like. Tax, age restrictions, and licensing would all 
influence the degree to which the black market shrinks away.

It's possible users might have to register to buy cannabis, which 
would be off-putting. But Wilkins still reckons the legal market 
would be attractive. Buyers would be able to choose the potency and 
strain, get better health information, and avoid dealing with criminals.

There's some grounds to think legal dope could be priced at a premium 
over the black market, Wilkins says.

"I think the majority would be quite happy to go to a legal outlet, 
and pay a little bit more."

While Colorado has a booming pot tourism industry, it's unlikely 'Bud 
and Breakfasts' will be popping up here. Tourism Industry Association 
boss Chris Roberts, says people are unlikely to fly across the world 
purely to use cannabis. It's a long way to come for a joint. But 
Roberts says a few Aussies might make the trip and it could be 
factored into choice of destination more generally.

The export market has brighter opportunities. New Zealand products 
tend to attract a 'clean, green' branding premium, and Fowlie reckons 
pot would be no different.

"We grow some of the best cannabis in the world."

Crucially, New Zealand could supply its northern neighbours during 
the off-season, he says.

The US is already looking to invest big bucks in plantations in the 
likes of Uruguay or Australia to keep up with demand.

Fowlie says the New Zealand climate means cannabis can be grown 
outdoors. There's already horticultural expertise, and infrastructure 
from sophisticated greenhouses using leading science.

"Instead of growing tomatoes for $5 a kilo, you can grow cannabis for 
$5000 a kilo."

The raw product itself is only the tip of the iceberg, with 
tinctures, oils, medicines, nutraceuticals, and edibles starting to 
become big business too.

The politics

Associate Health Minister Peter Dunne says the war on drugs has been 
"an abject failure". He's leading a New Zealand delegation to a 
crucial United Nations meeting this week, which could result in 
changes to prohibitionist international treaties. However, Dunne says 
legalisation is not on the Government's agenda. Legal weed remains a 
pipe dream for now, but Fowlie is patient. He co-founded the Hemp 
Store 20 years ago, and has been advocating for cannabis reform for 
even longer. If or when it finally arrives, he'll be ready and waiting.
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MAP posted-by: Jay Bergstrom