Pubdate: Sat, 09 Sep 2017
Source: Globe and Mail (Canada)
Copyright: 2017 The Globe and Mail Company
Authors: Rosalie Wyonch and Anindya Sen
Page: B4


Ontario has announced that it will restrict retail of recreational
marijuana to LCBO-run stores. Only 40 of these locations will be in
place by next July 1, the federal target date for decriminalization,
with a total of 150 locations expected by 2020. While this plan gets
some things right, it is a missed opportunity and nearly the most
ineffective possible choice to accomplish the goals of minimizing the
black market and protecting public health.

First, while 40 retail locations may sound sufficient, compare that
with the at least 100 retail storefronts and delivery services for
marijuana currently advertised in Toronto alone. Having few retail
locations means that access to recreational marijuana will be
inconvenient for a significant number of Ontarians. Recreational
consumers are highly unlikely to switch their dollars to the regulated
market if there isn't easy access. This will mean that there will be
significant opportunity for the black market to continue operating in
all the areas without enough legal stores to meet market demand or
that are inconvenient to access. (By contrast, there are more than 650
liquor outlets in the province.)

The government has missed an opportunity to turn existing businesses
into allies in the regulated market instead of competitors in the
illicit market. These businesses, though operating illegally, could
have been leveraged as a means of distribution through licences to
bring them from the grey market into the legal one. Unfortunately,
with this announcement, it appears that currently operating marijuana
businesses will remain black market. The hundreds of businesses and
the employees that staff them would face penalties if they continued
to operate. Further, to levy penalties against these illicit
businesses will require significant justice and police resources. And
since there won't be enough regulated retail outlets to meet market
demand, it is likely that at least some of these businesses will still
find it profitable to operate.

The province missed the opportunity to have a competitive market for
retail marijuana. Independent businesses have an incentive to locate
where market demand isn't being met and competition between businesses
constrains operating costs and keeps prices low. Lower prices in the
legal market make it more likely to be competitive with the existing
black market.

The province's decision to enter the market also implies considerable
resources will be expended in the construction and maintenance of
stores, higher salary expenditures and other overhead costs. These
will be met at the expense of other sectors, which will receive lower
government funding.

However, it is reassuring that the province has chosen to separate the
retail of marijuana and alcohol to minimize the possibility of
co-consumption. Further, setting the minimum age to purchase
recreational marijuana at 19, instead of the previously contemplated
minimum age of 25, is a good move. Since a large share of demand for
recreational marijuana comes from people between 19 and 25, setting a
higher minimum age would have meant that young people were more likely
to be exposed to the illicit market and potentially contaminated
product, as well as ensuring the continuation of illegal markets.

Over all, the province missed significant opportunities to minimize
the black market and make sure that Ontarians have access to safe and
regulated marijuana. The choice to have few retail outlets and no
competition will not serve to minimize the black market. Instead, it
will result in significant resources continuing to be spent on
fighting a black market that has been left with ample room to operate.

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Rosalie Wyonch is a policy analyst at the C.D. Howe Institute. Anindya 
Sen is the director of the Masters of Public Service program and a 
professor of economics at the University of Waterloo.
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