By Eric Crampton 06/05/2020


The draft cannabis legislation, as written, is better than prohibition. Even without amendment, those inclined to vote should vote for it.

There’s still a lot in it that I don’t like though.

The prohibition on growers also running retail operations, presumably intended to prevent large commercial grow operations with vertically integrated retailers, will also prevent anyone from running the kinds of cellar-door operations that have been very important in wine tourism.

Sure, cannabis is nothing like wine. But is it that hard to imagine folks spending a morning at a grower’s in Northland, seeing he fields, meeting the growers and workers, touring the facilities, sampling some of the product , having a bit of lunch maybe with a nice wine, ordering some for delivery back home, then bicycling over to tour a different one in the afternoon?

A whole lot of that would be illegal under the legislation as drafted.

The grower is not allowed to run a licensed consumption facility. Licensed consumption facilities are not allowed also to have alcohol. And prohibitions on advertising would likely make it hard even to put up a normal product list with descriptions and prices within the shop. The names of products and prices are fine; any additional notes wouldn’t be.

Russell Brown, who’s more a fan of the legislation than I am, also worries about this part

The bottom line of the section quoted above also embodies a more recent approach: a ban on vertical integration, which has been an element of reform in Mexico. No business will be able to both produce cannabis and sell it to the consumer, which restricts market dominance.

The economist Eric Crampton has already noted that the vertical integration ban would preclude “cellar door” type operations, where a producer could show and sell farm-grown cannabis to visitors (which would undoubtedly be popular with tourists). But I think there are larger impediments to that, most notably in the banket ban on advertising – including advertising inside R20 stores. You won’t be able to smell or see your weed – or even a picture of it – just a price list.

It’s not clear to me the extent to which even attributes of of the products will be able to be described, to tight is the advertising ban. But the particular effects of any given cannabis strain strain are governed as much by which terpenes are present as by THC level – weed that smells like cheese will have a very different effect to weed that smells like piney or citrusy, believe or or not – and anyone buying it needs some way of knowing that.

I do think there’s a level where this gets infantilising. If we’ve decided, as a nation, that adults can use this drug, then not letting them see it or get information about it, even on licensed premises, until they’ve bought it – when they will be free to look at it, smell it and consume it, even right there on the spot – just seems a bit silly.

And the cap on the quantity of cannabis that can be sold in the commercial market will make it very hard for the market to respond to changes in demand that can come with, for example, the return of tourism. Quantity restrictions will push prices up whenever demand is higher than normal, and that will encourage shifts back into the illegal or informal market. If the government had any intention of setting excise to try to maintain retail prices to consumers around where they are now, it’ll be harder to do that under the quantity restriction.

The cap is likely to turn into a sinking lid where the cap is supposed to be set with a view to the purposes of the Act and the Harm Reduction Strategy, all of which focus on minimising the harms of use.

The Authority has to decide among potential growers vying for a share of the annual production cap. They’re meant to take into account factors listed in Section 85, including representation of communities traditionally harmed by cannabis, generation of social benefits and employment.

Those applications come in for the share of the annual cap, so every year there will be costly application processes trying to prove the social worthiness of one grower relative to another.

There’s no mention of potential tradeability of permits; it’s presumably prohibited where the point of the permitting process is to make sure that the portions of the cap are divvied up according to the preferences of the Authority as guided by the Act. But that also could cause problems if a grower experiences crop failure in one year, for example. With wine, if one part of the country has a great year and another part is a bit average, it all washes out. If there’s drought hitting apples in Hawkes’ Bay but Central Otago’s fine, then we get apples from Central instead. Nobody has to reallocate permits in accordance with social worthiness.

This whole thing looks rather ripe for rent-seeking.

And while the regime at least doesn’t punish those under the age limit for being in possession of cannabis – or at least avoids criminalising them – it would criminalise social supply to 19-year-olds in cases where, for example, a parent may prefer to provide a bit from their own home-grown supply than have the kid rely on informal supply from less savoury folks. Sure, in theory, illicit supply’s supposed to be wiped out. But suppose you have an 18-year-old at home that you know is getting weed elsewhere and that it’s dodgy-as. Unless you’re able to find and dob in the kid’s supplier, you can’t really block that access route. And you can’t supply small amounts of better product for supervised consumption.

And if you regularly have guests over who consume cannabis, be careful about Section 177: you could be considered to be running an unlicensed premise for the purpose of cannabis consumption even if no money changes hands.

On the good side though:

  • Excise would be based on weight and potency rather than ad valorem;
  • Edibles will be allowed – though I don’t see any mention of the standard-dose kinds of packaging that have been useful elsewhere;
  • There’s a review 5 years into the regime to see how it’s working;
  • It isn’t as bad as prohibition.

Featured image: Don Goofy, Flickr CC.