Business·Analysis

Lessons from pot about legalizing other drugs in Canada: Don Pittis

The Canadian cannabis experience is leading harm-prevention experts to examine how to break the economic link between enforcement and high drug prices.

Can cannabis laws lead the way toward ending a lucrative — and devastating — business?

The results of a drug bust by Chatham-Kent police in Ontario are shown. An unintended effect of drug crackdowns is that a risk premium pushes up the price of illegal drugs, making the returns higher for those who avoid getting caught. (Chatham-Kent police)

Economists have been among the most insistent that the prohibition of drugs and alcohol doesn't work.

In what many have observed as a perverse symbiosis between enforcement agencies and the producers of illicit drugs, cracking down on the substances people use to addle their brains only makes producing them more lucrative.

U.S. economist Peter Reuter, a scholar known for his early research on the illegal drug market, observed this relationship when it came to cannabis and cocaine.

"The relatively high prices of these drugs historically are a consequence of enforcement," he wrote in the abstract for a 1986 paper titled Risks and Prices: An Economic Analysis of Drug Enforcement.

More than 30 years later and despite billions spent to stem their use, illegal drugs, especially opiates, continue to devastate communities. The death toll in Canada — more than 10,300 in less than three years — is large enough that health experts warn it may be having an effect on Canada's overall life expectancy.

Facing a deadly opioid epidemic, British Columbia is facing pressure to decriminalize drugs. There may be lessons to be learned from cannabis. (Rafferty Baker/CBC)

Now an increasing number of experts are observing Canada's legalization of cannabis for lessons — a kind of trial run for getting drugs out of the hands of organized crime.

There are plenty of critics who say that, so far, Canada's legalization has been a failure, partly because governments refused to learn from the experience of places like Colorado that led the way. Among them are Ian Irvine, an economist at Montreal's Concordia University.

"The illegal market is really being wiped off the map in Colorado," said Irvine. "There were two things necessary for that: One is accessibility and the other was price. But here we still have high prices and have low accessibility."

Government missteps

Government bungling may be partly to blame. In Ontario, for example, after many delays, 25 retail licences were granted by the province, but to date, nearly half have failed to open.

That lack of access is helping to keep the illegal drug sellers in business. Irvine says similar mistakes are being made across the country.

When it comes to price, Jean-François Crépault, from the Toronto-based Centre for Addiction and Mental Health, is no supporter of low pricing or other free market measures to take on criminal suppliers.

While libertarians might see a free market for drugs as a good thing, those like Crépault, who advocate liberalization as a harm-reduction measure, view legalization or decriminalization more as a necessary evil: It is a means of preventing worse damage.

Just as with tobacco and alcohol, governments can use taxes to set prices low enough to dissuade consumers from seeking other sources, but high enough to discourage consumption. 

And rather than liberalizing the rules around cannabis advertising to bring them in line with alcohol standards, Crépault favours reining in alcohol promotion to make it more like weed.

According to Crépault, the legalization of cannabis has led to a re-examination of substance use and abuse in new contexts. There are already U.S. studies that show legal weed can act as a substitute for opiates and alcohol — both of which are more damaging.

When it comes to legal cannabis, Quebec offers legal prices lower than other provinces. But the variety of retail models playing out across Canada offers an interesting opportunity for those looking to learn what works and what doesn't. (Don Pittis/CBC)

"The legality of a substance, or the legal availability of it, should be at least roughly proportional to the level of harm," said Crépault, citing the concept behind a new European drug strategy.

Under a policy like that, alcohol would be more tightly regulated than psychedelic drugs, such as MDMA and ketamine, which Crépault says are seen as less risky than alcohol for adults and may also offer therapeutic effects.

While critical of Canada's stumbling cannabis legalization process, Michael Armstrong, a business professor at Brock University in St. Catharines, Ont., says that recent data from Statistics Canada shows people are willing to pay more for a legal product.

While the illegal market will never disappear entirely, Armstrong predicts that once legal shops have expanded enough, offering enough of the right product, at the right quality to satisfy demand, illegal pot will be about as common as illegal wine.

"I expect it will be very much the same, eventually," he said.

Cannabis vs. opiates

Armstrong also suggests that busting illegal dispensaries before people have a legal alternative will be a waste of police resources — and will merely drive the illegal trade deeper underground. But once there are enough pot shops in operation, a crackdown could push illegal prices close enough to their legal alternatives, making the black market not worthwhile.

Then, with the legal price as a ceiling, the symbiosis between enforcement and criminal income will be broken, he says.

Despite the obvious differences between cannabis and street drugs like heroin, there are many lessons to be learned from marijuana's legalization, said Rebecca Jesseman, with the Canadian Centre on Substance Use and Addiction.

People from around the world are coming to Canada to study the different provincial and territorial legalization models as they develop, she said, to see what works and what doesn't.

For instance, the issue of quality control, which has attracted some buyers to legal cannabis stores, applies even more so when it comes to opiates, which are now so often adulterated and made deadly with substances like fentanyl

In some places in Canada, including Vancouver's Crosstown Clinic, patients are provided with medical-grade heroin for supervised injection. Other places offer testing for purity and strength.

As with cannabis, access is crucial, especially for those with addiction.

And while we must wait until the legal cannabis market develops further to be sure, Jesseman believes Canada's experience may show that legal sources really do drive out illicit producers by removing the risk premium.

What's more, when even the most brutal and expensive means of rooting out illegal drugs fail, legal cannabis offers an example of what may be possible.

"There are many different distribution models we can look at, and I think the important thing is to consider each substance on its own properties, merits and impacts," said Jesseman


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About the Author

Don Pittis

Business columnist

Don Pittis was a forest firefighter, and a ranger in Canada's High Arctic islands. After moving into journalism, he was principal business reporter for Radio Television Hong Kong before the handover to China. He has produced and reported for the CBC in Saskatchewan and Toronto and the BBC in London. He is currently senior producer at CBC's business unit.

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