Common Sense on Cannabis

I’m running to lead the BC Liberal Party on a platform of new ideas that work for people, families, and small businesses.

If you'd like to help, please register to vote for me here. You can also donate here. 

I think it’s time for a pragmatic new approach to cannabis. British Columbia, the home of “B.C. Bud,” should be leading Canada and the world in this newly legal industry and prospering as a result. Instead, we’re seeing a multi billion dollar economic engine falter.

The BC NDP is tinkering around the margins of their flawed approach while regulated retailers struggle to survive in the face of cannibalization by both government stores and unregulated retailers. 

Timid incrementalism isn’t good enough.

I would fundamentally rethink BC’s failing provincial approach to the regulated cannabis sector to achieve the goals of legalization: eliminate an illicit market, keep cannabis away from kids, and protect public health and safety. If we don’t, we will keep losing billions of dollars in economic activity to the unregulated cannabis industry, to other provinces, and to the international market. That means higher taxes and less family-supporting jobs. 

As a start, I would audit and reform the BC NDP’s money-losing cannabis distribution bureaucracy.  We also need to see better transition of unregulated growers from the informal economy into the regulated market. Let’s face it. They aren’t going to stop growing cannabis but there is an opportunity to regulate and tax them in a balanced way. And I’d apply common sense economics - including tax policy - to close the price gap so that both buyers and suppliers have good reasons to choose the regulated market. 

The federal Liberals brought in cannabis legalization and the Conservatives have said they would not reverse it. The toothpaste is not going back in the tube. We can brush our teeth with it, or squeeze it down the drain.  

Transitioning B.C.’s unregulated cannabis sector into a functional industry where common sense, individual initiative, and the rule of law prevail is a huge opportunity. But John Horgan’s BC NDP is dropping the ball. They don’t seem to understand how markets work and are prioritizing transactional politics over pragmatic policy. 

The underground cannabis industry, with annual revenue estimates ranging from $2-7 billion, has historically been a cornerstone of B.C.’s shadow economy, producing as much as 70 per cent of Canada’s cannabis. Larger than our other legal sectors such as the thriving wine or craft beer industries, the unregulated cannabis sector employs thousands of people, supports many rural communities, and comprises one of the province’s largest export industries. 

However, according to the Business Council of British Columbia, “the missing tax revenue [from the shadow economy] means that law-abiding households and businesses must shoulder a greater tax burden to pay for public services used by all.”  

That’s not fair, and we don’t just pay with higher taxes. This lack of attention to the sector is causing real harm to people right now. We pay with blood on the streets and young people lured into gang life: shadow economies have a lot of downsides, but the most costly is the danger and violence involved, often catching innocent bystanders in the crossfire.

We need to fight organized crime with early deterrence and aggressive enforcement. But smart economics can also target a root cause. 

The bigger the underground cannabis market, the more gravy there is for gangs that control or “tax” production, distribution centers, online dispensaries, and dial-a-dope operations that typically deal in cannabis alongside hard drugs.

Jurisdictional issues and municipal hesitation have restricted consumer access to regulated retail. For example, Surrey mayor Doug McCallum campaigned on blocking cannabis stores “until we get crime under control,” a powerful message in a city wracked by gang violence. But that old school thinking has unintended consequences: it rolls out the red carpet for cities to instead be monopolized by unregulated distributors - including gangs who then fight over territory. You end up encouraging the exact criminal element you had intended to avoid.

Years after legalization, only a quarter of cannabis sales in B.C. happen through legal channels. People buying or selling cannabis are like people buying or selling anything. They don’t do what politicians and bureaucrats want based on theories or ideologies. Buyers make their own purchase decisions, influenced by access, quality, and price. Suppliers do a cost/benefit analysis of their own and decide how to operate.

Rational cannabis consumers won’t pay twice the price to support an ill-conceived, money-losing, government-run cannabis distribution bureaucracy that is seemingly more focused on rewarding the BC NDP’s friends in the BC Government Employees Union than achieving its policy goals. 

Only the BC NDP (who never met an industry they didn’t want to unionize), could hand themselves a distribution monopoly and still manage to lose money selling drugs while regulating, hobbling, and competing with law-abiding entrepreneurs!

John Horgan’s efforts to shut down unregulated retailers have been an expensive failure. And all the while, regulated retailers, on the other hand, have been barely surviving under burdensome taxes, regulations, bottlenecked security clearances, duplicative government markups, and policies that no sane policymaker would enact unless they wanted retailers to fail. Of course, since the Government’s own stores are competing with the very retailers it regulates and supplies as a forced monopoly, that’s not an abstract question. 

Is it any wonder that legacy craft growers, whose products sell easily in a long-established unregulated market, continue to opt out of the regulated market? It’s simply too bureaucratic and doesn't make financial sense for them. They don’t want to spend days or months completing thousands of pages of paperwork, nevermind coming up with the startup capital needed in the regulated system (given their history, they rarely have access to bank borrowing). 

If growers do move into the regulated sector today, they find themselves trying and failing to sell their products to a BC government monopoly that has acted as a gatekeeper against small batch producers. Ask yourself: in exchange for a government stamp of good housekeeping, would you choose to fill out endless forms and make a fraction of the money for practicing the same craft you’ve been perfecting for years or decades? 

Most politicians are afraid to admit it for fear of looking soft on crime, but part of legalization is drawing down the size of the informal economy by implementing policies where participants in the unregulated green economy - like craft growers - can migrate into the regulated market and operate compliant, taxpaying businesses that benefit from clear asset ownership, security of contract, and recourse to the law instead of gangs in the case of commercial disputes.

Instead, many legacy growers are now being co-opted back into the unregulated market, where entrenched underground distribution channels exist, the risks and rewards are familiar, and they don’t have to deal with a bureaucracy that doesn’t understand them or their product. The result is yet more competition for regulated retailers who are trying to do the right thing. 

As BC fails to get its act together, a massive transfer of economic activity and wealth is happening. Well-financed Ontario and Alberta players are both scooping up market share and buying up BC producers. BC’s historical 70% market share has been cut down to 25% of production licenses and an even smaller share of regulated growing capacity. Ontarians, Albertans, and eventually Americans will benefit from those jobs and tax dollars for decades to come, instead of British Columbians. 

It’s like BC started cannabis legalization as the banker in Monopoly, with hotels on Boardwalk, and managed to lose. 

Here’s how I would start fixing it, with guidance from experts in economics, drug policy, and policing.

I would review, reform, or replace the BC NDP’s bureaucratic, inefficient, money-losing distribution model with a more common sense one that works for producers, retailers, and consumers. I would start by asking the Office of the Auditor General to conduct a value for money performance audit of the NDP’s counterproductive cannabis boondoggle. 

While working collaboratively with the federal government and recognizing that medical cannabis falls squarely under federal authority, I would exercise British Columbia’s constitutional right to regulate trade and industry within the province. That means exerting greater influence over the larger recreational cannabis industry, and making sure it works for British Columbians. We need to give unregulated growers rational reasons to migrate into the regulated marketplace - for example streamlined licensing, transition supports, farm gate sales, and direct sales to regulated retailers. 

I would be unafraid to use common sense economics - including reducing wholesale markups and rethinking tax policies like the 20% vape tax on cannabis - to close the price gap and set the right incentives for both buyers and suppliers to rationally choose the regulated market. The 2020 BC Liberal platform excluded even medical cannabis from an across-the-board PST cut; I would not have done that. In the long run, closing the price gap and shifting market share to the regulated market will mean more jobs, a larger tax base, more tax revenues (which should be properly shared with municipalities to cover their costs), and less people buying unregulated and potentially unsafe products. 

Cannabis has been and will continue to be a massive private sector industry in BC, whether people like it or not. We need to use common sense to finish bringing it into the light so that people are safe, there are more opportunities for entrepreneurs, and governments rather than gangs collect the tax revenues.