Originally published May 11, 2017 on Huddle Today
There’s been a lot of pot talk in New Brunswick over the last year.
A big reason for this is the provincial government sees it as a way to spur economic growth. There have been several stories published over the past few months about how the provincial government views the marijuana industry as “economic salvation” or that it’s “betting” on the sector to bring jobs to the province. New Brunswick is running a deficit of $192 million this year and the debt stands at around $14 billion.
Yet, some argue that this green rush may not be as huge as government and others hope it to be, even when recreational marijuana becomes legal next year.
Ray Gracewood, chief marketing officer for New Brunswick-based medical marijuana producer OrganiGram, says though the province has done a great job of being ahead of the pack in embracing marijuana’s economic opportunities, it certainly won’t solve all of the province’s economic woes.
But it will help he says.
“It’s unreasonable to think that one industry can solve what many consider to be a macroeconomic issue in New Brunswick, but it’s clear that the opportunities will be great across several different platforms within the industry,” says Gracewood. “New Brunswick has as good a chance as any province to become a leader in the space given the right economic conditions for companies to set up shop here. It will be interesting to see how the province approaches prospective businesses.”
It’s how New Brunswick will approach prospective business and regulation around recreational pot that concerns Jackson Doughart, research coordinator at the Atlantic Institute for Market Studies. He says it may be tempting for provinces to add additional taxes to recreational marijuana to an attempt to maximize revenue, but that’s not a good strategy.
“I guess the main concern from an economic point of view is that in order for it to be much of a bonanza, they’d have to tax it pretty highly, and if they did that, then obviously [there’s] a lot of incentive for people to continue buying it on the black market,” says Dougart.
There’s research to back this up. A recent study by the C.D. Howe Institute think tank suggest government can not regulate recreational pot and have high revenues. The report estimates legalized cannabis would generate around $675 million in 2018 in combined federal and provincial revenue through existing sales taxes in Canada. However, if the individual provinces plan to put their own additional taxes onto it, that risks customers continuing to buy from the black market.
Using a $9-per-gram example, study author Rosalie Wyonch estimates about 90 per cent of Canada’s weed market would be legitimate if existing sales taxes were the only taxes applied since the price would be comparable to current street prices. But if governments seek to raise their total tax revenues on pot sales to around $1 billion, Wyonch says black market sales would grow to around 50 per cent of Canada’s marijuana market. Even adding on just $1 per gram would leave about 35 per cent of the market unregulated.
This would be counterproductive for the federal government since one of the big reasons for legalization was to stop organized crime.
“It’s simple market dynamics,” says OrganiGram’s Ray Gracewood.
“Many recreational users now purchase within the black market, so our industry challenge will be providing a safer, more consistent and better-packaged product. To make the legal adult recreational framework effective, we’ll need to ensure pricing is in line to offer value that appeals to all consumers.”
But Jackson Doughart says this will be hard to do if the provincial government decides to both regulate recreational marijuana, as well as sell it, similar to the way it does with gambling and alcohol now.
“To me, the government can either be the regulator of a controlled substance or not. If it is, then that position is compromised if it’s also the dealer effectively,” he says.
“So with alcohol, for example, the government is in the position of having to deal with health consequences and social consequences of its use, but it’s also profiting from its sale.”
Though nothing has been announced yet on how recreational weed will be sold in New Brunswick, the possibility of the province going this route is a real one. Brian Harriman, CEO of NB Liquor, which is a government crown corporation, has said they would consider selling marijuana in their own dispensaries, separate from their liquor stores.
“I see a problem with government trying to play the game and referee it at the same time. Part of what worries me is I think the provinces are licking their chops at the possibility of being able to get in as a supplier for marijuana, but all of this contradicts all of the regulations the government is talking about implementing,” says Doughart.
“For example, penalties for people providing marijuana to people underage and penalties for using marijuana and driving. It’s still going to be a heavily controlled substance in many ways and I see a bit of confusion there if government is going to be in this role of setting and enforcing rules, while also effectively being an entity that financially benefits from its sale.”
Doughart argues the smarter move is for the provinces to set core ground rules, then let the private sector develop the market from there.
“Given what’s happened with the government introducing the Cannabis Act, smart provinces will set the basic ground rules and then allow a market to develop on its own and not try to be the supplier,” he says. “But I think there’s this appetite right now where people think that New Brunswick with its problems with debt, deficit and revenue, they will want to try to get in on this as a means of catching up.”
Yet, this narrative that one industry is going to save New Brunswick is nothing new. The Bricklin, call centres and hydraulic fracking have all be described throughout the years as the “economic salvation” for New Brunswick. None of them were and Doughart says weed probably won’t be either.
“The problem with New Brunswick’s economy is not that they have not yet found a miracle product. The problem with New Brunswick’s economy is too much government and high taxes. It’s one of the highest tax jurisdictions in North America … This is another opportunity for government to grow, I think,” says Doughart.
He argues that governments should focus on setting the correct “fundamental rules” around what role government plays in the economy.
“There isn’t going to be one big policy that’s going to fix everything. You need to the get the policy regime right, the fundamentals right,” says Doughart.
“I’d say instead of focusing attention on how to turn one miracle product into something that’s going to save the economy. The more important thing is to try and come up with a better fundamental philosophy for what government’s role is in the economy.”
Though marijuana won’t solve all of New Brunswick’s economic woes, Ray Gracewood says it’s important to remember there’s more to the recreational marijuana industry than just producing it. He says the province still has an opportunity to be a leader in the industry.
“The opportunities are so much greater than simply growing the product– the future includes research, product innovations, added value products, tourism, the list goes on and on,” says Gracewood.
“We’re just starting to scratch the surface of what’s possible.”
With files from the Canadian Press.