Could the Ontario government actually lose money selling pot?: Robyn Urback – CBC News

Is it possible that the Ontario government will be the only entity in the history of civilization to actually lose money selling drugs?

Perhaps “only” is an exaggeration. We all knew that dealer in high school who smoked more than he sold, leaving him ultimately in the red. Or that guy whose mom found his stash and confiscated his product, compelling his frustrated customers to shop elsewhere.

But by and large, those who enter the marijuana business — which, for now, is still illegal — do so with the understanding that there is money to be made. Good money. The stuff practically sells itself, in fact.

But when you are a government known for its crippling overspending and regular financial boondoggles, the notion that one could actually lose money selling marijuana becomes a plausible outcome.

Marijuana monopoly

Ontario has revealed what could quite possibly be the most complicated, cumbersome, expensive legalization plan conceivable — one that is certain to maintain the black market while at the same time burdening itself with massive overhead and organizational costs.

Instead of pursuing the cheaper, easier option of developing a licensing framework for existing dispensaries and taxing the revenue — sort of like the province does with tobacco sales and, to a lesser extent, The Beer Store — Ontario will create a new government-owned and -controlled enterprise, which will have a monopoly over pot sales in the province. As such, it will be responsible for everything: purchasing, distribution, retail space, training, payroll and so forth, following the existing framework of the province’s LCBO liquor stores.

The fatal assumption made by the province here is that a government-run marijuana monopoly will function the way its existing government-run alcohol monopoly does. It won’t. For starters, it’s much easier to produce your own marijuana than it is to distil your own vodka or make whiskey in your bathtub. Any idiot with a grow light and some seeds can do it — and they have been doing it for years.

That’s the second point: the last major black market for alcohol in Ontario died with the repeal of the Ontario Temperance Act in 1924. The LCBO works, for better or for worse, because it’s the only thing many of us have ever known. The government’s new pot monopoly, however, will have to compete with an already robust and flourishing black market.

One could argue that the LCBO, in its early days, had to compete with a robust and flourishing black market also, but that black market didn’t have the benefit of one-day shipping on Amazon Prime and private Facebook messaging. Today’s market might not be so easily extinguished.

1 store for every 93,000 people

In order for this government-run operation to eclipse the black market, its product needs to be at least as accessible and affordable as what is currently available to recreational users. By this scheme, it will be neither.

Ontario proposes opening just 40 retail outlets in the province in 2018, the first year marijuana would be legal (if it becomes legal, but that’s a separate discussion). By contrast, the government estimates there are around 70 to 80 dispensaries in Toronto alone, and those dispensaries typically don’t close at 6 p.m. on Sundays and on all statutory holidays.

Ontario announces legal pot sales plans2:11

Eventually, Ontario plans to have 150 stores by 2020, which is roughly one store for every 93,000 people by today’s population. Will that be enough to satisfy market demand? Who knows!

Wait — what am I saying? We do know: absolutely not.

Marijuana will also be available for purchase online, but if it’s anything like the LCBO’s online delivery service — which means buying now, after you’ve reached the minimum threshold, and receiving in a few days, after you’ve paid exorbitant shipping — it will exist only to remind Ontarians why they still have their dealer’s number. If people can’t get what they want from the province’s stores, they will look elsewhere.

What’s more, for a government that professes to be extremely concerned about people driving under the influence of marijuana, the limited number of retail outlets seems like it would actually exacerbate the problem by forcing Ontarians outside major city centres to drive long distances to pick up the product. 

What’s the magical price?

Then there’s the cost factor. Finance Minister Charles Sousa said at a press conference Friday that the price of pot will be low enough to compete with the black market, while not too low as to encourage consumption. In other words, this Goldilocks price will at once sustain a fleet of unionized workers and the government’s characteristically bloated bureaucracy — to say nothing of the startup operating costs — but also be low enough to rival illegal suppliers (but not too low, of course).

Marijuana Divides Alaska Town

Despite the likely higher cost and inconvenient access, some Ontarians would be more comfortable buying marijuana from a government-run store. (Mark Thiessen/Associated Press)

If you believe this magical price exists — and bless you if you do — then you believe that the Liberals’ last budget was “balanced,” too.

Despite the likely higher cost and inconvenient access, some Ontarians will insist that they’ll be more comfortable buying marijuana from a government-run store. That’s fine. But there’s little reason why those same Ontarians couldn’t find comfort in buying marijuana from a government-licensed store that is subject to regular inspections, or even an independent dispensary where the government acts as the sole supplier.

Indeed, quality control would still be there, but those systems would come with the added benefits of more locations, longer operating hours, small business opportunities for investors, pricing set by the market instead of government and — perhaps most importantly — it would mean one fewer from-scratch project for this government to totally screw up. 

This column is part of CBC’s Opinion section. For more information about this section, please read this editor’s blog and our FAQ.

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