Economics professor predicts NB will lose money selling pot

University of Regina Economics Professor Jason Childs has studied the legalization of cannabis

An economics professor startled participants in a seminar at Mount Allison University on Friday when he pulled a $50 bill from his wallet and offered it to anyone who could get him one gram of marijuana within an hour.

A few hands went up when Professor Jason Childs from the University of Regina asked how many students or faculty members could meet that challenge and at least a couple of hands were raised when Childs asked who could buy him that gram within half an hour.

Childs was making the point that cannabis is readily available in Canada even though it will remain an illegal recreational drug at least until July.

“Anybody who wants it can get it now,” he said, adding studies show that 20 per cent of Canadians “are regular consumers of this illegal product.”

Illicit market won’t go away

Childs, who is one of the authors of an academic study on legalizing cannabis in Canada, predicts that the well-entrenched illicit market will pose a tough challenge for the provinces and territories that will begin overseeing sales of marijuana after the drug is legalized this summer.

The New Brunswick government has announced that legal cannabis will be available in up to 20 stand-alone stores run by NB Liquor in 15 communities across the province including Sackville. The stores will operate under the name CannabisNB.

“I don’t think the New Brunswick system is going to displace the illicit market,” Childs said. “One year from now my prediction is the illegal market will be happy and healthy.”

Price of pot a crucial factor

Although New Brunswick has yet to announce how much recreational cannabis will cost, Childs figures the government plans to sell it for $10 a gram after paying half that to acquire 13,000 kilograms each year from three suppliers.

He said the current price on the illicit market is about $6 per gram and while customers will probably be willing to pay more for high quality, safe cannabis, he doubts they would pay 40 per cent more.

“The illicit market is not going to disappear anytime soon,” he said, “and displacing it will be central to long-term success.”

Losing money selling drugs

Childs added that after factoring in labour and overhead costs and sharing tax revenues with the federal government, marijuana sales will be far from the golden goose that many politicians had hoped.

“I think it’s very, very likely the New Brunswick government will lose money selling drugs,” Childs said as seminar participants chuckled.

He added that the government may have to lower prices to compete, taking losses in a long-term effort to destroy the illicit market.

Childs said New Brunswick should have licensed a limited number of private stores to sell cannabis as Alberta is doing.

He argues that private retailers have more incentive than government-run stores to compete with the illicit market by keeping prices down and ensuring quality and variety.

“I’m very comfortable saying New Brunswick got it wrong. It’s going to go badly,” he said. “That’s not the way to run a business.”

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2 Responses to Economics professor predicts NB will lose money selling pot

  1. Rima Azar says:

    Interesting article. Thank you.

    I am not an expert of cannabis legalization (or use, I must admit :)) but I do have a few questions:

    1. Assuming Dr. Childs’ prediction is accurate, I wonder whether or when will the government have the chance to adjust its implementation strategy and practice (after a first review, for instance)?

    2. Successful or not, I wonder on what projects or areas will the money earned go on? Who would take such decisions? Will the Government consult with the population like with the lottery system in some jurisdictions?

    3. I also wonder what happens in the case of transportation of cannabis from one province to the other? For instance, purchasing in Sackville (NB) and using it in Amherst (NS) or vice versa? Any hidden extra fees (e.g, fines)? Of course, I do not mean when someone is driving whilst consuming the product… I mean buying the product like we do with alcohol.
    4. Smokers (of just cigarettes) often feel guilty because somehow we make them feel badly about their behaviour, which will negatively affect their health. We even have strict rules and laws, messages on packets, fear-inducing ads, divesting from tobacco companies, etc. Is cannabis going to be legally available with health warnings about lung diseases (or other), as those with tobacco?

  2. Demian Hammock says:

    “He argues that private retailers have more incentive than government-run stores to compete with the illicit market by keeping prices down and ensuring quality and variety.”

    He is right! Economics #101 just the same way Alberta and its Government makes way more money with its liquor stores.

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