Canada Confronts Cannabis

On June 19, Canada’s Senate passed the Cannabis Act. Beginning on October 17, Canadians over the age of 18 will be permitted to carry up to 30 grams of marijuana in public and grow up to four plants at home. Cannabis retailers will be allowed to operate, subject to federal, provincial, and territorial regulations and taxation. Cannabis concentrates and edibles will be available about a year later.

That makes Canada only the second country, after Uruguay, to fully legalize marijuana. Supporters of the new law, including Prime Minister Justin Trudeau, claim that it will reduce underage drug use, eliminate illicit dealing, and lessen the harms of arrest and prosecution, while providing substantial tax revenue. How likely is it that Canada will achieve those objectives, and what are the risks of legalization?

Canadian officials can learn from both U.S. successes and U.S. mistakes as they try to design tax, regulatory, enforcement, and public health measures in order to reap the benefits of legal marijuana while managing the very real risks. There are now years of evidence from the United States—where states such as Colorado, Oregon, and Washington have replaced prohibition with regulation—about the impact of legal marijuana on markets, revenues, and public health. (In the United States, cannabis remains banned by federal law, thus preventing the creation of national-level legal producers.)

The experience of legalization in the United States shows that prices will be low. Low prices, combined with ease of access and aggressive marketing, create a threat to public health by stimulating “problem use.” Legal marijuana will eventually crowd out illegal marijuana, but enforcement measures against the illegal product are necessary in the short term. Tax revenues are likely to be modest, and the tax system under the Cannabis Act creates an unwanted incentive to increase potency. 

WHY LEGAL CANNABIS IS CHEAP

U.S. experience has shown that marijuana will be dirt cheap. Today, the illicit-market price of a gram of marijuana is $10–$15 in the United States; it is somewhat lower in Canada. A gram generates about 15 hours of intoxication for users who haven’t built up a tolerance (although this is only a very rough estimate). At that price, marijuana is already a more cost-effective intoxicant than alcohol, and it will only get cheaper once it is legal.

In Colorado and Washington, shortages of licensed product initially drove the price of licit marijuana to nearly $30 per gram. Growers, with visions of huge profits dancing in their heads, crowded into the business. But cannabis—even high-potency cannabis—is cheap to grow if you can do it openly, and competition relentlessly drives prices down toward production costs. The legal supply in those states quickly outran consumer demand, and prices dropped significantly. The current, after-tax price of a gram of legal marijuana in Colorado and Washington is $6–$7, and bargain hunters can get a highly potent product for much less; one store in Seattle offers a weekly special of a quarter of an ounce (seven grams) for $15.

The bottom is by no means in sight. Growers in Washington are trying, and often failing, to sell their cannabis to middlemen for $1 per gram, and some are going out of business. Oregon, with a population of three million people, has an excess supply estimated at one million pounds of marijuana, and the average retail price in the state is about $5 per gram. Desperate growers are reportedly selling it for as little as 25 cents per gram to processors who convert it to a concentrate. In a few years, the price of a joint (or the equivalent in a concentrate) may well be measured in pennies.

CANNABIS USE DISORDER

Cheap marijuana creates a threat to public health. Casual use isn’t very sensitive to price: even when marijuana costs more, a once-a-week smoker might spend only $100 per year, so his or her pattern of use won’t vary much as the price changes. Heavy use is a different story. A three-joint-a-day smoker—and there are millions of them in the United States—might spend $3,000 or more on a year’s supply at prevailing illicit prices. At that price, cost becomes a limit on consumption, and lower prices lead to heavier use.

The existence of a large population of frequent users—people who report smoking marijuana 25 days or more in the course of a month—is a relatively recent phenomenon. A quarter century ago, there were fewer than one million daily or near-daily cannabis users in the United States; today, there are eight million, and they make up about one-third of those who used marijuana in the past month.

That increase started before the legalization process, and most of those daily or near-daily users are in states that haven’t fully legalized the drug. One likely reason for the increase in heavy use is the falling price of getting stoned, even illegally. The price of a gram of illicit marijuana didn’t change much over the period in question, but average potency, measured as the percentage of THC (the chemical in marijuana that produces the high) in the product, went from the mid-single digits in the 1980s to the midteens today, making frequent intoxication more affordable.

Daily marijuana use isn’t, by itself, a problem: a single puff at bedtime is no more harmful than a single glass of wine with dinner. But unlike alcohol use, where the overwhelming majority of drinking occasions involve low doses not intended to produce intoxication, marijuana use is geared toward getting high. That’s especially true for frequent users, who on average consume about three times as much cannabis per day of use as occasional users.

Daily intoxication is likely to be a problem. Of the eight million Americans who report daily or near-daily use, about half also report experiencing symptoms of cannabis use disorder (CUD), as defined by the Diagnostic and Statistical Manual of Mental Disorders. These symptoms include using more cannabis, or using it more frequently, than is wanted or intended; trying to cut back and failing; discovering that cannabis use interferes with other interests and responsibilities; and finding that it causes conflict with people the users care about. Cannabis accounts for about one-quarter as many cases of substance use disorder as alcohol, but it is ahead of any other drug. It is true that even a fairly severe and long-lasting bout of CUD isn’t likely to be as damaging as a bad opioid or alcohol habit. But that’s not much comfort to the people who find themselves with a cannabis problem, or to their families. And the myth that cannabis is not addictive dies hard, making cannabis users less aware of the risks they face.

All of that makes the falling price of cannabis a cause for concern. If the drug gets cheap enough and loses some of the stigma it still bears due to prohibition, it’s possible to imagine CUD becoming as common as alcohol use disorder.

USE BY MINORS

One argument offered for legalization is that it will make it harder for juveniles to get marijuana, because legal stores, unlike drug dealers, will enforce age limits. That argument doesn’t hold water. Experience with alcohol shows that enforcing age limits is better than ignoring them, and cannabis stores should certainly face the loss of their licenses for selling to minors. But the alcohol experience also reveals that juveniles can readily find adults—relatives, friends, dating partners, acquaintances—who are willing to sell or give them the product they can’t buy for themselves.

Canada should thus expect adolescents to have easier access to marijuana after legalization than they do now. But at least in the United States, the big growth in use has been among adults: even in the states where cannabis is legal, use by minors remains below its peak in the late 1970s. And when one weighs the harm from cannabis use against the harm of arrest and incarceration, it becomes clear that aggressive efforts to punish adults who give or sell marijuana to minors (or to punish the minors themselves) are likely to do more harm than good.

Cheap marijuana creates a threat to public health.

SUBSTITUTION

Advocates of legalization have also argued that the availability of cheap, legal marijuana will reduce the abuse of other drugs, such as alcohol and opiates, because it will compete for users’ time and money. Since marijuana is safer than alcohol and most other drugs on almost every dimension, such a result would be a net social benefit.

Unfortunately, the evidence from the United States is mixed. On alcohol specifically, it is highly discouraging. A quarter century of rapidly declining cannabis prices and soaring heavy use hasn’t dented heavy drinking; absolute alcohol use per capita has been virtually constant. Nor have the states with legal cannabis seen declines in their alcohol tax revenues or the number of drunk-driving crashes.

On the other hand, it now seems very likely (although not certain) that increased access to cannabis reduces opioid use and opioid overdose deaths, but it isn’t yet clear how big that effect is or how it works.

TAXING CANNABIS

One implication of the strong probability of falling prices is that Canada’s current tax plan will neither prevent an increase in heavy use nor raise much money. The new law taxes cannabis at ten percent of its retail price or $1 per gram, whichever is greater. If the Canadian market follows the U.S. pattern, most marijuana will sell for under $10 per gram and thus will be taxed at just $1 per gram. That would bring in less than $1 billion per year in taxes, or about one-third of one percent of the Canadian federal government’s total annual revenue.

Taxing every gram at the same rate regardless of potency creates a tax incentive for selling more potent strains. Using high-potency cannabis increases both the risk of accidental overintoxication (which is funny until it happens to you) and the risk of developing CUD. High-THC cannabis also tends to be low in cannabidiol (CBD), which appears to act as a psychological buffer against the anxiety-inducing properties of THC. Marijuana with a high THC-to-CBD ratio increases the risk of dysphoria and panic.

In the United States, legalization advocates hoped that the licit market would favor less potent strains, but so far, the opposite has been the case. Daily or near-daily users—whose heavy use tends to make them pharmacologically tolerant to THC and who therefore need more potent material to feel the effects they seek—account for 85 percent or more of cannabis consumption. Legal stores, like illegal drug dealers, cater to their market, and they’ve learned that low-potency marijuana sells slowly.

The obvious solution is to tax on the basis of THC content, rather than either price or gross weight, and to make the tax high enough to keep the price of newly legal marijuana near the current price of illegal marijuana. Ideally, the tax would start out low and stay low while the licit market gets established and the legal supply catches up with demand, and then it would rise (to about $50 per gram of THC) to keep the after-tax price steady and thus prevent the further growth of heavy, problem use.

Taxation to keep prices high and regulation to restrict marketing are the two steps best calculated to limit the growth in problem use; what is called “drug abuse prevention education” has little efficacy in the face low prices, wide availability, and heavy promotion. It’s the liberal version of “thoughts and prayers”—mostly a placeholder for an absent policy.

ORGANIZING RETAIL CANNABIS SALES

Because the minority of cannabis users who consume the drug almost every day account for the bulk of total sales, the legal cannabis industry won’t be able to support itself by selling primarily to responsible, casual users: by definition, they don’t use enough to be desirable customers. Instead, the industry will be financially dependent on users who are chemically or psychologically dependent. Like sellers of alcohol, cannabis retailers will have strong incentives to promote problem use: “cannabis use disorder” names their key market segment.

Thus, a commercial, for-profit cannabis industry will not be a friend to public health.

A not-for-profit distribution system could be designed to provide convenient access for moderate use by adults without promoting problem use. The “cannabis clubs” in Spain—modestly sized consumer cooperatives that grow or buy cannabis on behalf of their members—have no owners or shareholders and therefore no pressure to maximize sales.

Some provinces in Canada, including Ontario, have chosen the other noncommercial alternative: making cannabis retailing a state monopoly, while leaving production in private hands. That approach, like the co-op one, keeps greedy entrepreneurs from taking financial advantage of the fact that some people lose control of their cannabis use. However, it doesn’t keep greedy revenue collectors from doing the same thing, as the U.S. state lotteries demonstrate.

The Liquor Control Board of Ontario—which will now also become the province’s cannabis outlet—is the largest alcohol retailer in the world, and among the most aggressive. If retailing is to be a state monopoly, control of that monopoly should reside in a department of public health, not in an agency pressured by its political masters to generate as much revenue as possible. No province or territory has yet decided to move in that direction.

MARKETING LIMITS AND NORMS OF CONTROLLED CONSUMPTION

Whether the legal availability of cannabis is a benefit or a bane depends strongly on the norms that develop around its use. One simple step would be to define, and promote, a dose of THC equivalent to a “standard drink” (a can or bottle of beer, a glass of wine, or one shot of spirits), which would allow cannabis users, like drinkers, to measure their consumption just by counting.

And marketing—by public and private entities alike—should be rigidly limited to the distribution of factual information about product types, chemical composition, price, and location. No billboards, no music videos, no bikinis.

It would also be valuable to promote norms of moderation, if possible. The fact that most marijuana users consume the drug to get intoxicated is a product of social history, not pharmacology. The extent to which people drink for the purpose of getting drunk varies enormously from culture to culture: the “Mediterranean alcohol-drinking pattern”—drinking mostly wine and with meals, as opposed to the “Nordic pattern” of drinking beer or spirits apart from meals—produces lots of drinking but relatively little intoxication, health damage, or violence.

Perhaps the most dangerous mode of cannabis consumption is “dabbing”: dropping a piece of solid cannabis concentrate (“wax,” or “shatter”) onto red-hot metal to flash-vaporize it and breathe it all in at once. The consequent rapid onset of extreme intoxication can cause a user to pass out or have a panic attack. There’s a strong case for banning the sale of solid concentrates entirely.

ENFORCEMENT UNDER LEGALIZATION

One goal of legalization is to reduce the burden of arrest and incarceration on cannabis-related charges. Over time, that will happen on its own, simply because the legal market will mostly displace the illegal market by outcompeting it on price, quality, and availability. But trying to make it happen right away, by cutting back on enforcement even as the illicit market still flourishes, is a mistake. Both Colorado and Washington, which cut back on enforcement early on, have now found it necessary to ramp it back up.

That was partly because illegal growers were producing in those states to sell to consumers in other states where cannabis remains illegal. Under national legalization, Canada won’t have that problem, but illicit growers will still maintain some share of the domestic market (consider that in Washington, illicit marijuana still accounts for between one-quarter and one-third of total sales, although that share is shrinking), and they will be able to export to places in the United States where marijuana remains illegal.

How quickly the illicit market shrinks will depend in part on law enforcement pressure. Paradoxically, legalization increases the value of enforcement against the remaining illicit market: after legalization, instead of simply shifting demand from one illegal drug dealer to another, enforcement can move buyers from the illegal market to the legal market. Once illicit production has been suppressed, it won’t come back, and enforcement will require little effort. But it does have to be suppressed.

“Stoned driving” is another problem for law enforcement. Opponents of cannabis legalization have been aggressive in warning about the risks of driving under the influence; some of them seem to want to effectively recriminalize cannabis use through the motor vehicle laws. Enforcement agencies are being pressed to train officers as “drug recognition experts” and set up highway checkpoints resembling those used to catch drunk drivers, and legislators are being asked to pass laws punishing driving under the influence of cannabis as severely as driving under the influence of alcohol.

This concern seems to be overblown. Driving while stoned is about twice as risky as driving sober. Driving while drowsy, or distracted, or with a noisy child in the back seat, is at least as dangerous as that, and driving while using a hands-free cell phone is much more dangerous. All those things are legal.

Driving under the influence of alcohol at the legal limit increases one's driving risk about eightfold, and the risk rises rapidly with blood alcohol content. Only those very high risks can justify the ferocious penalties now imposed on drunk drivers; treating cannabis impairment the same way would be a bad mistake, especially in the absence of a reliable chemical test for intoxication equivalent to the Breathalyzer for alcohol.

All of that suggests that stoned driving should be a traffic offense, like speeding, not a crime, like driving drunk. Enforcement efforts should concentrate on shrinking the illicit market, not preventing driving while high.

THE RESEARCH AGENDA

As U.S. regulators could tell Canadian regulators, no one knows nearly enough about cannabis to regulate it properly. Marijuana is a far more complicated drug than alcohol, with dozens, or perhaps hundreds, of active compounds. Right now, scientific knowledge about how different mixes of molecules influence the minds of consumers is in a very primitive state. Only laboratory research with human subjects can provide information on how to get the benefits of cannabis while avoiding the risks. Legalization makes that research possible, and it would be a shame to let the opportunity pass.