Turning New Zealand’s Black Market Cannabis Economy Green


What happens to the economy, the criminal gangs, the growers and the dealers when an illicit drug is legalized?

Whatever form it takes, legalization is likely to mean the use, production, sale and supply of cannabis is allowed with restrictions. As with tobacco or alcohol, age and point of sale restrictions still leaves room for a black market to continue with supply to underage users.

Trying to gauge the size of the black economy is difficult; almost as hard as trying to paint a picture of a green economy if cannabis were decriminalized or legalized.

The black economy now

There isn’t really any agreement about the size of the black economy for cannabis in New Zealand.

The Drug Harm Index, published last year, estimated the number of dependent cannabis users at 26,000, with another 250,000 casual users, consuming an overall 27,000kg of cannabis per year, or 100g on average per user.

Around $40m from illegal cannabis was ploughed backed into the criminal underworld, the report said.

In New Zealand, the cannabis market involves gangs, small-scale and ad hoc producers, and dedicated non-violent growers with indoor and outdoor operations. It is difficult to estimate the scale of gang involvement but one report, albeit an old one, estimated around half of all criminal groups here were involved in cannabis production and supply.

What if it was taxed?

The index estimated the potential tax take avoided by the illegal cannabis market was $214 million.

The report said police spend $90m a year on cannabis offenders and more than $100m a year on prosecutions. Estimating potential tax from the Kiwi trade in weed, the report said GST could be $68m and company tax more than $145m, based on an overall market worth $558m.

But predicting the scale of potential ‘green economy’ is not as simple as applying the black market estimates to a regulated model. There are so many variables relating to supply and demand that would be affected in largely unpredictable ways by legalization. Economically, it’s only really possible to gauge the impact in countries where the law has changed significantly.

Where the black market would live on

Massey University associate professor Dr Chris Wilkins said there would always be a black market for the illegal supply of cannabis, or any illicit substance, to underage users.

“In just about any model, under-18s will be buying from the black market.

“We’re just going to have to deal with that,” Wilkins said.

Potentially, changing the law also meant bringing people operating in a criminal environment into a regulated market.

He said it would be short-sighted to consider people with previous drug convictions as unsuitable for a regulated market, as they could offer skills and expertise, while moving from an illegal environment to a legal one.

“It’s a chance to bring in people who have worked in a clandestine environment. That could be a benefit to society,” Wilkins, who is also the lead researcher at drug research center SHORE, said.

But where would we start?

Wilkins believes we should look to the regulation of pokies and gambling in New Zealand to inspire our approach to legalizing cannabis.

While it is difficult to speculate on the likely effects of law changes without knowing the regulatory model, a non-commercial system with a health-based focused – similar to the pokie trusts – was his preference.

A strict, not-for-profit, health-focused model.

Wilkins said the impact on organized crime was uncertain, possibly over-estimated, but there was good reason to believe that by regulating, or legalizing a cannabis market, the changes would crowd out the black market gangs.

They can’t compete with commercial production and large-scale growing.

The Colorado example

Hundreds of millions of dollars in taxes have poured into state coffers since Colorado and Washington legalized cannabis in 2012.

By 2015, cannabis was the second largest tax revenue source in Colorado, with US$121 million (NZ$166m) in combined sales and excise – three times that of the liquor tax take.

Now it’s over US$200m, with sales over the US$1 billion mark for the one state, with a population of 5.5 million people.

That tax take is more than the New Zealand Police spend on cannabis-related arrests, pre-charge warnings and diversions, and about the same amount again spent on management of cannabis offending in the courts and prisons.

The Colorado model created 20,000 jobs, pushed out black market gangs, and generated worldwide interest.

Legalizing also led to a raft of connected industries springing up including specialist law firms, a cannabis news site run by the Denver Post – The Cannabist – and consultants.

Cannabis producers an ‘important part’ of Canada’s economy

In Canada, cannabis remains illegal unless approved for medical use, but the government is considering legalization under a proposed Cannabis Act.

The act would involve the introduction of a federal licensing system, with strict criteria for applicants who want to produce, distribute or sell cannabis.

One objective is to “protect against the infiltration of the legal supply chain by organized criminals or gangs” and a report to the government said the best available evidence suggested crime groups were not heavily involved in the existing illicit cannabis market.

Research results varied – many public and media reports talk about cannabis, organized crime and biker gangs in the same breath – but an evidence-based summary found most people involved in the industry were non-violent with minimal involvement in crime.

“Cannabis producers, both small and large, are an important part of the economy and should be considered as valuable contributors to the policy process,” the report said.

“These are, generally speaking, individuals who want to participate in a legal market premised upon thoughtfully constructed regulations.”

What did we learn that could be applied to NZ?

Private sector consultancy MPG (the Marijuana Policy Group) investigated the economic impact in Colorado, where legal cannabis was on par with the gold mining industry, grain farming, and tobacco sales by 2015.

The rapidly growing industry was underpinned by dramatic supply shifts. Crucially, the black market morphed into a legal market.

In its report, the group found the transition from the black market to the regulated market was sometimes misrepresented.

“It is important to understand that a large majority of the market growth in Colorado is not due to secular growth in demand, but rather a transition from the unregulated market to the regulated market.”

Some people home brew, and occasionally people grow tobacco, but most consumers buy alcohol and cigarettes from licensed sellers.

If a similar regime were introduced here, consumers would probably prefer to buy legal cannabis from a regulated industry, Wilkins said.

Wilkins said there were other important areas to research, such as the use of cannabis alongside alcohol and tobacco, as some preliminary research suggests legalization could help reduce rates of alcohol use and tobacco smoking if the product was a non-smokable cannabis vapor, or edible.

This was the fundamental question:

“Are the harms from occasional use bad enough to justify making all cannabis use illegal?

“In the same breath, tobacco is one of the highest health risk products available. Not too many people are saying we should prohibit it. We’re trying to limit that market and similarly with alcohol and yet, nobody is saying let’s prohibit alcohol.

“If you accept there are a lot of high-risk things we allow people to do, it doesn’t mean we ban them from doing it.”

How would illegal growers adapt to a legal environment?

University of Canterbury criminology professor Greg Newbold​ remembers South African and Fijian marijuana and Lebanese hash being available in New Zealand in the 1970s.

Homegrown cannabis did not really get started until the 1980s, with cannabis plant seizures increasing from 1984 and peaking in 1993.

New Zealand’s cannabis market has been largely self-contained since the 1990s.

The impact on producers growing illegally and how they would adapt to a decriminalized environment, or a legal one, depended on the regulatory system, Newbold said.

A heavily-taxed private sector system, such as the US-style state tax, generating millions of dollars in profits, would motivate criminals to produce cannabis.

But a government-regulated system with restricted cultivation was more likely to deter people from producing.

Cannabis produced in New Zealand is mostly grown in small to medium-sized illegal operations. These growers would find it difficult to compete with a regulated industry, he said.

“It’s difficult to speculate with decriminalization unless you know what would replace it. If they taxed it then there’s an incentive for people to grow it themselves,” Newbold said.

“If you look at tobacco, there were people growing it illegally because of its tax – but it wasn’t a major problem. Making cigarettes that are smokable requires a whole lot of complicated treatment.

“If they did it in New Zealand [with cannabis] the commercial guys would make marijuana plants very smokable, so the homegrown stuff probably wouldn’t be able to compete with it.

“Say you have a farmer who is just topping up his income by growing a bit of hooch, they’d probably say that little golden goose is finished and they would just milk cows.”

Newbold said there were a “hell of a lot” of Kiwis growing a few plants and police seemed to have eased off cannabis eradication operations to concentrate on, for example, the methamphetamine trade.

Economically then, switching from a black to a green economy involves sweeping changes to the law, the production and manufacturing processes, regulation, support industries, and social attitudes.

Without any definitive way forward for New Zealand’s regime, though, the future remains hazy – for now.

News Moderator: Ron Strider 420 MAGAZINE ®
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