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Oh Canna-da! Implications of Canada Legalizing Cannabis

Uncle Sam’s hat finally legalized pot. We all knew she would do it first. Canada’s always been the liberal girl with the glasses at the party, and we expect her to be a little more progressive. Still, we got Colorado and Washington first, a strong testament to our state’s rights, values, and complete disregard for the Fed’s agenda.

So what will be the financial implications of Canada going green? Let me preface this article by saying that in speaking on markets, nobody knows exactly what’s going to happen, and that’s a good thing. What we can do is look to what has happened with other places that have legalized.

What about Amsterdam?

Many first think to the Netherlands, but the Dutch never actually legalized cannabis; they just stopped caring. European apathy is a trait some Americans will never truly appreciate, because we just can’t understand it. So it’s illegal, despite the fact that the weed available in Amsterdam is a driver for their tourism industry. More money is good, jah, but don’t put it past the Dutch to find some problems with it too. Many locals complain about the party image and the kind of people it brings. Don’t wear blinders, drug tourism does not bring crime. Will many Canadian businesses benefit from the influx of tourists? I’d bet on it. Maple syrup will be a huge hit. Will there be more strange men from out of town getting trashed in Canadian streets? I’d bet on that too.

So what nations have legalized? Really only one, and it’s not considered a “Super Nation” like Canada (I heard this term, “super Nation,” used by a mainstream media outlet… I think that’s being pretty nice to Canada).

Yay for Uraguay

Uruguay has legalized. One of the first on gay marriage as well, which seems to travel through legislation hand in hand with cannabis. They have some rules limiting sale of production and consumption, but this makes sense considering they are central in an illegal drug trafficking intensive continent. Interestingly, Uruguay has had some marijuana shortage issues due to low profit margins from the plant and inability for farmers to scale due to regulation. Additionally, many banks in the area still forbid banking marijuana producers. Despite these setbacks, there have been many positives: people who want cannabis can grow it themselves without fear of arrest. Uruguay officials ascertain that 12,000 people have been removed from the illegal market for drugs, which reduces profits of illegal cartels in the area. Interestingly still, Uruguay hasn’t benefited from the cannabis tourism, because the forbid the sale of marijuana to tourists.

The low profit margin stifling sales in Uruguay is a good spot to zero in on. Many of us local smokers and/or producers initially got into the industry because there is money to be made: the illegality of cannabis creates an inefficiency, that inefficiency creates expensive product, and expensive product creates jobs. Illegal jobs. Many of us thrill seekers have enjoyed high profit margins while getting high on our own supply. Upon legalization and scalable production the price of cannabis will go from our beloved $15.00 a gram to $1.00 a gram, as seen in Uruguay. That means the marijuana farmer goes from living big to living in the barn with the potato farmer, who’s commodity is priced competitively and traded on the New York Stock Exchange. No more middle-men either. The fun of picking up the pound and distributing it to friends in ounces is no more… there’s just no social interaction getting it. Lame!

Closer to home

We also have case studies of Colorado and Washington, which happened close by, and generated immense tax revenue for their states. Producers in these states quickly saw that illegal markets were more profitable than local, and as a result banks still give them a hard time. High legally grown cannabis now flows out of legal states, thus providing better black market products in southwest Florida. Expect northern US states like Montana, North Dakota, and Minnesota to be a big illegal market for Canadian growers and traffickers.

Looking at the big picture, the common theme we see in analyzing the economic outcomes of legalization is that results are closely tied to the legalization that surrounds legality. Some nations haven’t legalized cannabis but still get the drug tourist boom, while others have legalized but limit its public exposure. If you are looking to benefit financially from Canada’s legalization, it pays to carefully follow the laws that develop around its rollout. Unfortunately, the government has had their fingers in marijuana for far too long to just let it go to the free market, and there will never be a time when you can just grow a field of marijuana like you can a potato or carrot. There’s too much money in it, and too much control.

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