In April, the leadership of all 193 UN member nations will gather in New York City for a UN General Assembly Special Session on the World Drug Problem, UNGASS 2016.
This UN meeting can and probably will set a new policy direction for the global cannabis marketplace. The results of the assembly will determine whether black markets will persist for marijuana or whether the world’s marketplace for cannabis will be a legal one. Other drugs will also be part of the overall discourse, not just cannabis.
UNGASS, in my opinion, must create a framework that facilitates the creation and expansion of white markets, with necessary supports including trade and commercial freedoms.
The UNGASS assembly has an opportunity to right a historic wrong. Countless lives have been damaged or lost because of cannabis prohibition, and injustices persist today. Cannabis has not been able to fulfill its promise from a medical, industrial or recreational standpoint because it has been marginalized and criminalized.
The cannabis black market itself is an outcome of prohibition. Not only is violence all too often an inherent part of a black-market environment, but compared to white markets, the lack of quality control and other elements make black markets destructive to the very consumers they seek to serve.
Government should work to remove trade barriers and avoid the mistakes made in the past by enacting tariffs and other forms of market distorting policies that only serve to drive up consumer prices, thereby ensuring the black market maintains its current grip on distribution. In addition, high tax rates set by governments intent on reaping the harvest of increased revenues further strengthen the likelihood of a continuing black market
TIME Business asked in 2013, “Will High Marijuana Taxes Encourage Black Markets?” The article pointed to a proposed 50% federal excise tax on legal cannabis production in the US and cautioned, “One can’t expect the black market to disappear overnight if taxes and regulations make legal marijuana prohibitively expensive.”
This danger remains quite evident in the current US environment. Even now, a US federal law passed in the ’80s to ensure that drug dealers couldn’t receive tax breaks is making it almost impossible for legitimate cannabis producers in Colorado, Washington and other states to make a profit even though sales are booming. As a result, federal tax on legal cannabis businesses can be up to 70 percent versus 30 percent for other businesses.
The Daily Beast, in reporting on this situation, wrote, “If the government fails to cut businesses a break, legal marijuana could be sold on the black market to dodge taxes – just like cigarettes bought down South and sold in high-tax New York.”
The article concluded that, “We’re moving toward more-common sense drug regulations after the height of the war on drugs, but there is still a lot of madness left to clean up.”
UNGASS 2016 can do a great deal to reduce this “madness.” But without careful consideration of commercial variables, valuable opportunities may be missed and black markets inadvertently strengthened.
Tax policy, as mentioned, is one important area to rationalize. But in order to replace regional black markets with a fully global marketplace, the UN must encourage the evolution of a cannabis industry that responds to larger realities, especially involving cultivation and distribution.
Certain equatorial regions provide the ideal natural environment for cannabis cultivation. The cost differential between operations located here and those in non-equatorial locations is massive: pennies per gram versus dollars. Grow cannabis in colder climes and you end up with a high-cost product grown unnaturally in artificially created indoor environments. Grow in equatorial climes and you end up with a lower-cost, healthier product cultivated in open-air greenhouses utilizing free sunlight and rainwater.
It really is quite simple. The cannabis plant needs a consistent 12 hours of light and 12 hours of darkness to stimulate and maintain the flowering cycle. At the equator, the sunlight provides this cycle automatically – for free. Anywhere a few degrees or more north or south of the equator and this natural, environmentally positive environment no longer exists. That’s when supplemental lighting and artificial environmental controls become necessary. And that means not only higher-cost cannabis in dollar terms, but also higher-cost cannabis in terms of its inherently negative environmental impact.
If the industry is allowed to fulfill its natural form, cannabis will be exported from regions at the equator and imported by those areas with less-hospitable climates. Importing nations, while unable to compete from a cultivation standpoint, will certainly contribute to our collective benefit, nonetheless. Research already underway around the world will expand, facilitated by ready access to high-quality, naturally grown cannabis, inevitably leading to new medicines, better delivery methods and related products with dramatic benefits.
The benefits of such a structure will be tremendous. An industry fully congruent with marketplace realities will be an increasingly powerful one.
Thus, the global cannabis blueprint now being prepared by the UN should logically encourage the export of cannabis from climatically ideal countries to those regions less suited for cultivation and standards must be put in place that require environmentally sustainable farming practices.
Those countries unable to meet such standards should not be encouraged to further degrade our global environment through environmentally damaging practices. Nor should they be allowed to perpetuate a continuation of the black market by requiring citizens to purchase only cannabis grown in-country at excessively high costs.
In a white-market environment a rational cost structure can be cultivated and expanded whereby the state gets its share, exporters, importers and producers get theirs, yet because cost-efficient cultivation and production methods are supported, consumers have access to a product at a cost that does not push them back into the black market.
Consider the global cut flower market as an example. Colombia and a few other countries dominate that industry because they enjoy climate and certain other comparative advantages that make cultivation more feasible there than elsewhere. Thus, even though the product must be shipped thousands of miles, import by regions lacking such advantages makes sense. This is a normal profile and one cannabis could and should assume.
Adam Smith once stated, “Little else is requisite to carry a state to the highest degree of opulence … but peace, easy taxes, and a tolerable administration of justice: all the rest being brought about by the natural course of things.”
If barriers to cannabis cultivation and distribution are removed and the industry is allowed to assume its natural, commercial profile, then the promise of cannabis will be realized “in the natural course of things.”
No great effort is needed to offer the world the plant’s medical, industrial and recreational benefits. The solutions are simple and the opportunity is available.
UNGASS offers nations’ leadership the ability to lay the groundwork for a reasonable structure that allows cannabis to be cultivated in the proper climes and then distributed via import/export within the context of marketplace realities.
If this is not done, inefficient, expensive and environmentally damaging regional growing patterns will continue to be pursued, the cost of legal cannabis will be high, black markets will persist and governments will not realize the fiscal benefits that are within their grasp. The industry’s larger promise will be retarded.
But if the marketplace is allowed to work, the world will once again be able to benefit from this wonderful plant as it did for thousands of years, and until recently, without the devastating consequences that ensue from prohibitionist policies.
Editor’s note: High Alert Investment Management, of which I serve as chief investment strategist, is an active investor and consultant to cannabis industry companies.
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