Some Weed a Day Keeps the Slump Away

“A multi-billion dollar industry going from BLACK to WHITE”

Background

As of 17th October 2018, Canada has become the first country in the G7 group of the world’s leading economies and the second country in the world, after Uruguay, to fully legalise the recreational consumption of cannabis. Canadian adults, above the age of 18, are now able to purchase and consume the drug from federally licensed producers as well as grow up to 4 plants per residence (not per person) for personal use from licensed seeds or seedlings. (1) Fresh or dried cannabis, cannabis oil, and plants and seeds for cultivation will be allowed, initially, whilst edible products and concentrates will be legalized later on.

How? and Why?

The push to legalise cannabis started nearly five years ago, as the current Prime Minister Justin Trudeau campaigned for leadership of his Liberal Party. His rationale for legalising marijuana was to facilitate better regulation in order to both, protect the youth as well as impede the activities of organised crime. (2)  With the legalisation have come harsher penalties for illegal distribution.

Figure 1. Justin Trudeau, the Prime Minister of Canada

Let’s get (a) high (GDP)

The world will be watching as the Canada forays into the cannabis industry. It will be an acid test for whether governments will be able to successfully cut out illegal drug sales; transfer billions of dollars in revenue to an emerging industry; generate taxes and create jobs. In this article, we will briefly explore the economic effects of the policy: its effects on the country gross domestic product (GDP), the labour market and its social impacts.

 

Effects on GDP

Statistics Canada, Canada’s national statistical office projects that Canadians will spend C$1 Billion on legal cannabis by the end of the first quarter. (3) Estimating through the use of consensus data that 5.4 million people, 15% of Canada’s population, will buy cannabis in the legal market in the first quarter. Toronto Dominion Bank(TD), the largest bank in Canada by total assets, (4) had increased its 2018 Q4 GDP growth forecasts from 2% to 2.9% after including Cannabis data into its statistics. TD forecasts that the emerging industry will boost GDP by as much as C$8bn. (5) Another study by Deloitte, a professional services firm, forecasted that, eventually, the industry could contribute up to C$22.5bn to the local economy. This figure includes the production, sales, paraphernalia, tourism, and business taxes.

Effects on labour force

Dubbed the “Green Rush” everyone from “mom-and-pop” operations to venture capitalists are rushing to get in on the ground floor of this potentially new “gold mine”. Investments in the industry have grown exponentially in the past year, which has led to the creation of thousands of new jobs, ranging from low-skilled retail jobs to high-skill jobs such as those of scientific researchers. One such example can be seen from Canopy Growth Corp., one of Canada’s leading medical marijuana companies (ticker symbol: WEED), where the company had about 1000 employees prior to legalisation and opened up to 600 jobs to prepare for the new demand. (6)

Beyond the core production jobs, jobs are being created in supporting industries such as food and beverage, finance and tourism. Companies such as Heineken NV’s Lagunitas craft-brewing label has launched a brand specializing in non-alcoholic drinks infused with THC, marijuana’s active ingredient. (7) Coca-Cola is reportedly in talks to develop marijuana-infused drinks. (8) Finance companies are also getting in on the action through the development of marijuana-related financial products. One such example would be the Horizons Marijuana Life Sciences Index ETF created by fidelity investments which have surpassed C$ 1bn in assets under management. (9)

 

However, the legalisation may cause a shortage of labour in other industries and in turn negatively affect the economy. An example of which would be the impact of the legalisation on the oil and gas industry which contributes to a large part of the Canadian economy. Employees in the industry handle volatile chemicals, operate heavy equipment and work with high-pressure pipes and valves. In short, it can be a dangerous job if safety procedures aren’t followed. Thus, in the past companies have followed strict drug testing policies. However now companies fear that workers may not be able to pass the test disqualifying them from working. (10)

 

Social effects

The social effects of the legalisation of marijuana are yet to be observed. Even though there has been a substantial increase in cannabis research over the past two decades, the drug’s long-term effects still lack in-depth scientific data.

 

Whilst some researchers are touting marijuana’s health benefits, as a healthier alternative to chronic pain management. Conversely, others are issuing reports on how marijuana users may be at increased risk for mental illness and addiction. (11)  Besides the health implications, research reports suggest a possible “gateway” pattern from marijuana to harder drugs. (12) If true, the effects on the country’s economy would be disastrous. Potentially leading to a future generation riddled with problems such as violence, crime, financial issues, housing problems, homelessness and vagrancy.

Conclusion

Based on initial forecasts I believe that the Canadian economy would benefit from the legalisation of marijuana. However, in the long term many variables, such as how successful the country is in implementing and enforcing the stricter laws as well as how successfully Canada tackles the social issues that crop up, could potentially adversely affect the economy. We can only observe the variables to see what sort of impact they will have in the future.

 

References

  1. Government of Canada: What you need to know about cannabis https://www.canada.ca/en/services/health/campaigns/cannabis/canadians.html Accessed on 13th Nov 2018
  2. LA Times: Canada is about to legalize marijuana. How did that happen? Justin Trudeau, for starters http://www.latimes.com/world/la-fg-canada-marijuana-20181004-story.html Accessed on 13th Nov 2018
  3. Bloomberg: Legal cannabis sales could top $1B in Canada’s opening quarter: StatsCan https://www.bnnbloomberg.ca/legal-weed-sales-could-top-c-1-billion-in-canada-s-opening-quarter-1.1141231 Accessed on 13th Nov 2018
  4. Wikipedia: https://en.wikipedia.org/wiki/Toronto%E2%80%93Dominion_Bank https://en.wikipedia.org/wiki/Toronto%E2%80%93Dominion_Bank Accessed on 13th Nov 2018
  5. Toronto Dominion Bank: Quarterly Economic Forecast Sept 2018 https://economics.td.com/domains/economics.td.com/documents/reports/qef/2018-sep/qefsep2018_canada.pdf Accessed on 13th Nov 2018
  6. CBC News: Pot companies on hiring spree ahead of lucrative legal market https://www.cbc.ca/news/business/pot-cannabis-marijuana-jobs-canopy-growth-medreleaf-1.4718771 Accessed on 13th Nov 2018
  7. Time: The Company Behind Corona Beer Is Investing Nearly $4 Billion in Legal Pot http://time.com/5368243/corona-mariguana-cannabis-canada-investment/ Accessed on 13th Nov 2018
  8. CNBC: Pot stocks jump after report says Coca-Cola and Aurora in talks to brew marijuana-infused drinks https://www.cnbc.com/2018/09/17/pot-stocks-jump-on-news-that-coke-and-aurora-plans-to-brew-weed-drink.html Accessed on 13th Nov 2018
  9. CNBC: Marijuana ETF in Canada passes $1 billion in assets as weed stocks light it up https://www.cnbc.com/2018/09/07/marijuana-etf-in-canada-passes-1-billion-in-assets.html Accessed on 13th Nov 2018
  10. Bloomberg: Legal Weed Could Mean a Worker Shortage in Canada https://www.bloomberg.com/news/articles/2018-01-31/stoned-on-an-oil-rig-legal-weed-puts-canadian-companies-on-edge Accessed on 13th Nov 2018
  11. Washington Post: POT HOLES Legalizing marijuana is fine. But don’t ignore the science on its dangers https://www.washingtonpost.com/news/posteverything/wp/2018/05/25/feature/legalizing-marijuana-is-fine-but-dont-ignore-the-science-on-its-dangers/?noredirect=on&utm_term=.3dc52cb00836 Accessed on 13th Nov 2018
  12. National Institute of Drug Abuse: Is marijuana a gateway drug? https://www.drugabuse.gov/publications/research-reports/marijuana/marijuana-gateway-drug Accessed on 13th Nov 2018