Economics of Illicit Drugs

Economics of Illicit Drugs

The economic justification of laws legalizing or prohibiting cannabis continues to draw significant research interests. The fight against illicit drugs has led to the establishment of different policies targeting the producers, transit, and consumer countries. One of the concerns is the growing number of criminal networks that respond to the demands, albeit regulatory restrictions. Auriol, Mesnard, and Perrault (2019, p. 2) estimate the black market to be worth over 142 billion dollars. As such, arguments for cannabis legalization have gained momentum with the pro-legalization groups positing that legalizing cannabis is a more effective crime reduction approach than its prohibition. This persuasion has enticed various countries, including Canada, that have decriminalized cannabis recently. Nonetheless, there are rising concerns over the regulatory encounters that seem to be limiting the economic and social prospects. This paper applies economic theories to analyze the arguments of Bear (2019) in Fear still rules cannabis regulation. The discourse evaluates Bear’s argument within the lens of economic theories and concepts.

An Overview of the Article

In the article, Fear still rules cannabis regulation, Bear (2019) evaluates the social and economic implications of marijuana legalization. The author estimates legal cannabis sales at $100 per month, contributing to eight billion dollars to Canada’s Gross Domestic Product (Bear, 2019, para. 2). The author argues that these substantial financial implications do not warrant the desired social justice, particularly to the convicts of drug offense before its legalization. Furthermore, the illicit market still flourishes due to the considerable population of price-sensitive consumers who want to spend less while maintaining their daily doses of marijuana. Nevertheless, the establishment of private stores in Ontario has increased the sale of legal cannabis. Demographic outlook reveals that a majority of the new cannabis consumers after legalization are middle-aged men, 45 years and older.

The flawed execution of the Cannabis Act creates doubts about the likelihood of cannabis legalization yielding the anticipated benefits. According to Bear (2019, para. 12), cannabis legalization was supposed to have significant social achievement by improving policing and reducing police incidents by up to 50,000 a year. However, the author feels that provincial regulatory controls have limited access to legal cannabis. He also argues that the new market model has created harsh penalties, reduced rights during traffic stops, and limited access to variety (Bear, 2019, para. 10). As a result, communities that suffered criminalization of cannabis seem to be least poised to realize the benefits of legalization.

Economic Theories and Analysis of the Article

Demand-supply principle and Keynesian theory are applicable in analyzing the prevailing situation in Canada following cannabis legalization. The demand-supply principle explains the interaction between demand, supply, and price in an economy. The theory posits that product prices tend to be high when the demand exceeds the supply, and vice versa (Malyshkin, 2016, p. 1). The proponents of this principle believe that supply and demand forces pull against each other until the market finds an equilibrium price. Therefore, factors that influence demand and supply in an economy affect the equilibrium market price of a commodity.

Against the backdrop of demand-supply principle, restricting access to legal cannabis without reducing its demand drives the prices upwards. According to Bear (2019, para. 7), provinces are implementing Cannabis Act differently. Although the country has legalized cannabis, the feds still control its production, distribution, and sale. Furthermore, the number of legal retail stores remains relatively low. Bear (2019) indicates that the overall use of cannabis has only increased from 14 to 16%, albeit its legalization. On the one hand, restrictive policies reduce access to variety, driving up the prices of legal cannabis and drives a sizeable proportion of frequent consumers to illicit suppliers. Therefore, overly restrictive policies on cannabis production and distribution reduce supply, leading to high prices of legal cannabis.

The price elasticity of demand also provides meaningful insights into the economic dilemma surrounding cannabis legalization in Canada. Riley, Vellios, and Walbeek (2019, p. 2) define price elasticity of demand as the responsiveness of the quantity demanded to changes in prices. Cannabis consumers are price-sensitive. Davis, Geisler, and Nichols (2016, p. 1171) estimate the price elasticity of demand for cannabis to range between -0.67 and -0.79, indicating that a one-percent increase in cannabis prices translates to between 0.45% and 0.79% changes in quantity demanded. These figures verify the assertions of Bear (2019, para. 5) that the demand for cannabis has only increased by about two percent (from 14 to 16 percent). Therefore, the regulation of cannabis production, distribution, and sale in Canada keeps the prices high, accounting for an insignificant increase in demand even after decriminalization.

Keynesian theory is also useful in conceptualizing cannabis legalization issues in Canada. This theory counters the ideation of a market as a self-correcting system. Keynes holds that markets are typical of inefficiencies, which make it difficult for the aggregate demand to meet the supply produced (Jahan, Mahmud, & Papageorgiou, 2014, p. 54). This theory advocates moderate government interventions through fiscal and financial policies. Within the Keynesian framework, moderate government regulation of the cannabis market is justifiable as a way of reducing cannabis-related crimes. The author notes that before decriminalization policy, marijuana-related crimes were among the reservations that pro-prohibitionists cited. As such, Keynesian philosophy supports government regulations that would reduce unauthorized access to the drug. Thus, the theory vindicates measures that destroy the economic incentives of illegal suppliers, allowing genuine sellers to sell their products in the legal market at low prices.

Keynesian perspective backs government efforts to regulate the cannabis market. In line with this argument, the Canadian government should institutionalize policies that reduce the economic incentives of the black market. Moreover, the government should increase legal cannabis stores across the country to increase access to both frequent and infrequent consumers. The theory also suggests that the government should control the prices of legal cannabis to ensure that legal suppliers do not exploit consumers. In this regard, government regulation of the cannabis market should focus on increasing legal access to the commodity at a reasonable price.

Conclusion

Cannabis legalization in Canada is a remarkable social policy with substantial economic and social implications. Since the adoption of the Cannabis Act, policy analysts from social and economic disciplines have expressed doubts about the possibilities of realizing the envisioned benefits. The concerns revolve around the restrictive regulations that have continued to push consumers to consider illicit suppliers rather than legal stores across the country. The demand-supply principle attributes the high prices of the commodity to low supply compared to the rising demand after decriminalization. Since the consumers are price-sensitive, they purchase less from the legal suppliers and consider the black market, which appears to them as an economically viable alternative. As such, Keynesian theory advocates regulatory policies that can increase the lawful supply of the commodity at controlled prices while reducing the economic viability of the black market.