Thanks for Your Advice Mr. Capone

Because of the pending Liberal decriminalization of the possession of 15 grams or less of marijuana, the Law of Unintended Consequences strikes with full force to create a farce, if not a tragedy. Don’t get me wrong, I support the notion that the marijuana laws should be loosened, but the current legislation needs rethinking. In a nutshell, the legislation increases demand for marijuana by effectively lowering the cost to consumers but leaves the status of production unchanged.

The simplest economics ensures that the price for marijuana paid by consumers will tend to fall, and the price received by growers will tend to rise, as demand increases. This in turn will induce an increase in production -- illegal production. Furthermore, current producers will reap a temporary, and lucrative, windfall as their current production is suddenly more valuable.

I have nothing against producers of marijuana as a group. They are only providing what the free citizens of Canada and the United States want to buy. However, because it remains illegal to produce marijuana (a single plant produces a 100 gram bud), organized crime and others who find marijuana production a rich source of finance for other more unsavory activities are also beneficiaries of the federal legislation. To the extent that we facilitate purveyors of murder, extortion, intimidation, and their ilk, we should take pause. The windfall profits they can anticipate are in proportion to the increase in price and the current quantity of production.

If we conservatively ignore additional consumption arising from any new consumers and look only at the roughly 2.25 million Canadians (over the age of 15) currently describing themselves as marijuana users, suppose that each were to consume one more cigarette a month. At 0.5 grams per cigarette, that is about 6 grams more per year per consumer. This is 13.5 million more grams a year or 3,500 kilos. At wholesale prices of $2,800 per kilo it amounts to roughly $10 million, or at retail prices of as much as $20.50 per gram, that is $260 million. Well it isn’t enough to pay for the federal gun registry, but it is a nice little gift nonetheless.

Two further unintended behaviours may save the federal policy of decriminalizing marijuana possession from passing along windfall profits to organized crime. First, it just may be that the law has been such an ass for so long, that everybody already has access to what they want to smoke -- just ask your teenagers if they could obtain pot in their high school if they wanted it -- so that the decriminalization de jure is already de facto.

Second, with the stunning efficiency of private entrepreneurship, supply response to the increase in local Canadian demand may be so massive that all the new production will snuff out any potential windfall profit. It is ironic that the mitigation of federal policy preventing windfall profits for organized crime groups may lie in the efficiency and adaptability of the current crop of illegal producers many of whom are not linked to organized crime.

Let us think of an historical analogy. The US had prohibition against alcohol production and consumption during the 1920s. Suppose (the famous economist) Al Capone had suggested legalizing consumption but not production. Wouldn’t (the other famous economist) Elliot Ness have been the least bit curious why? I suspect Mr. Ness would have realized that Mr. Capone already had a good production infrastructure and a stranglehold on distribution, and would be delighted to supply the new demand. Mr. Capone really did not want to supply legal product. International distillers from Canada and the rest of world would have poured in and killed his profit. So who exactly has been giving Mr. Cauchon advice?

As is typical of so many government policies, you often get (what I hope are) unintended consequences from what is to all appearances a reasonable action. Although we may share in the social value of freeing marijuana consumers from the threat of what has become arbitrary criminal prosecution, by keeping production illegal, the windfall profits will flow to some of the last people on earth we would want to have supplying the market.