Mexico could ease Canada’s cannabis problem

The plan to drive illegal cannabis growers out of business is going slowly.

The problem is supplying enough legal cannabis to lower retail prices. Eventually illegal sellers will be a quaint memory, something like the bootleggers of alcohol of the past. For that to happen, a plentiful supply of cannabis has to be available and it’s going to take years for that to happen with Canadian growers only.

image: Greenhouse Canada

The cost of legal cannabis remains nearly 50 per cent higher than potleggers according to crowd-sourced data obtained by Statistics Canada. The cannabis store Kamloops seems to fairly well-stocked but in some parts of Canada like Quebec, stores have had to close on some days of the week due to lack of supply.

One way to lower retail prices immediately is to reduce taxes; a solution favoured by the cannabis industry. In addition to provincial sales taxes, the federal government charges one dollar per gram excise tax and an annual cultivation fee of 2.3 per cent of revenue.

Some jurisdictions in the U.S. with legal cannabis markets, such as California, are considering such temporary tax reductions to lure customers away from the illegal market after disappointing early sales.

I don’t think lower taxes are the solution. The whole idea of legalization of cannabis is generate revenue so that other taxes could be reduced. Like other “sin taxes” on recreational drugs such as tobacco and booze, taxes on cannabis provide revenue on a product not currently taxed.

Regardless, Canada has no intention of following the U.S. lead. A Canadian Finance Department spokesperson said: “There are no planned changes to the existing duties at this time (Globe and Mail, February 4, 2018).”

Another way to reduce legal cannabis prices is to increase supply.

Mexico plans to legalize cannabis. The new interior minister of the Obrador government has introduced draft legislation to regulate cannabis. Mexico has been studying Canada’s model of issuing licences for the cultivation, processing, packaging, sale and possession of cannabis.

Mexico has something going for it that Canada doesn’t -climate.  Cannabis doesn’t need to be grown in greenhouses there. The president of Mexico’s National Association of Cannabis Industries says:

“We’re going to be able to create a new industry based on new regulations, to produce cannabis for the rest of the world – our geographic situation and our labour [pool] gives us a major advantage (Globe and Mail, November 8, 2019)”

Enthusiasm is mutual on this side of the border. Canada’s Canopy Growth Corp. is looking at investing in Mexico. Their co-CEO said:

“We think [Mexico] is a real opportunity. When you’re on both sides of America with really well-positioned products, this could be a very good platform to reflect both sides of the border with the U.S. and enter an economy that is substantial.”

However, Mexico faces hurdles. Much of Mexico is controlled by drug cartels who oversee the growth of illegal marijuana. Seizing control of agricultural land will be a challenge. Also, Columbia is also poised to compete in the legal cannabis market and have a workforce experienced in its growth.

Of course, Canada’s fledgling cannabis industry needs to be protected but controlled importation could help our supply problem.

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