New Zealand’s cannabis market may shrink after legalization

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Several months ago the Kiwi Parliament passed a law legalizing medical
cannabis, and now they are debating what should be done in regards to recreational cannabis.

The green wave has been growing over the pass few years, and now it has reached some of the most distant places in the world.

New Zealand has had a law that classified cannabis as an illegal drug since 1927, way back when it was known as Indian hemp.

The law was known as the Dangerous Drugs Act, and by passing this law the New Zealand parliament scheduled, among other substances, cannabis, resin collected from it, and all extracts and tinctures made from it.

Cannabis use later got further regulated by the Misuse of Drugs Act in 1975. According to this law, simple possession would not land you in jail, in most cases, while cultivation and sales of cannabis were punishable with several years of prison time.

As the New Zealand government passed the Misuse of Drugs Amendment in 2018, the use of medical cannabis became much more common in the nation.

But, the amendment didn’t bring any changes as to the allowed amount of cannabis for recreational use. Simple possession of marijuana (under 28 g) still bears a sentence of three months in jail or a $500 fine, although the courts rarely push for prison sentence.

Products made from CBD became legal for medical use, and industry experts started speculating that the government may decriminalize the plant.

Government announces referendum

The Sixth Labour Government of New Zealand announced a nationwide, binding referendum on December 18th, 2018. The vote for legalizing cannabis is to happen in 2020.

If we were to judge the recent trends, chances of the New Zealand cannabis referendum passing and legalizing cannabis are very high.

According to a survey conducted by the Horizon Research company, 52% of Kiwis support legalization, while another 11% have no opinion regarding legalizing cannabis.

And even though the final draft of the law hasn’t even been released yet, there are several things we already know with fair certainty:

  • Possession will be allowed for those older than 20
  • Advertising cannabis products will be banned
  • There will be limits on home growing
  • Smoking will be allowed only in private areas and licensed premises

However, according to an interview first published by Stuff, the goal of the New Zealand government is to shrink the size of the cannabis market by legalizing it, and not the other way around.

In the article, Peter Wilson of the Institute of Economic Research says that “the Government’s policy was to reduce cannabis use and any future market was likely to be small and highly controlled”.

He also explained how the price for cannabis is high due to the fact that it’s illegal, so dealers sell it at a premium to its real cost.

So, according to the basic rules of economy, once it is legal the price should go down. By having cheaper cannabis than the black market, the government should push out illegal dealers.

Setting low taxes on cannabis and its products would seem like the next logical step. However, according to Peter Wilson, this isn’t something that the government wants.

He pointed out that if the government applied an excise of 25%, with 15% GST on top, the Government could raise $150 million.

That would probably set the price of legal cannabis close to the price of black market cannabis, somewhat similar to the situation in Canada now.

Setting a price that is similar to the black market price doesn’t mean that the black market prices will stay the same. As we’ve seen, the prices of black market cannabis in Canada and several states around the US have been plummeting since the legalization.

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