How Cannabis Bureaucracy Destroys Wealth – Cannabis | weed | marijuana
This is how the cannabis bureaucracy destroys wealth.
Last week, the Canadian government released a review of the cost-effectiveness of Health Canada’s issuance of cannabis licenses.
Of course, a “license” from a government agency means you’re asking permission for a freedom you already have. If you have to ask permission to produce from people who don’t produce anything, your society is completely backward.
Case in point: You might think that bringing in $160 million in inspection fees, import/export fees, and other regulatory cash proceeds would turn a profit.
No, Health Canada spent $430 million managing license applications. Imagine a private accreditation agency reports a loss of $270 million and settles the difference with a tax rescue.
This is how the cannabis bureaucracy destroys wealth.
How cannabis bureaucracy destroys wealth
According to the review, Health Canada expects to recover 100% of its regulatory costs. “Based on estimates of market size and number of licensed producers at the time,” they write, believing the hype LPs fostered.
Of course, for those paying attention, there was an oversupply of offers. The numbers LPs threw around in 2018 were extravagant and not based in any way on fundamentals. We reported about it. It wasn’t a secret.
As Ringo Starr said, “Everything the government touches becomes crap.” And it wouldn’t be real bureaucratic bullshit if you didn’t rub salt in the wounds.
Not only has Health Canada failed to recover the costs of its regulatory program, but this regulatory program is stifling the legal cannabis industry.
From compliance fees to arbitrary banana republic-style decisions, the cannabis bureaucracy is destroying wealth and spiraling out of control.
And they know it. As part of the review, Health Canada sent out questionnaires to license holders. The answer?
Due to economies of scale, fees, excise taxes and other compliance costs have a greater impact on micro-producers.
from the review,
Despite the relatively lower fees, a higher proportion of micro license holders (37.5%) compared to standard license holders (20.5%) reported that fees accounted for over 10% of operational costs.
Compared to standard-licensed vendors, micro-enterprises spend over 10 percent of their costs on security requirements. And this despite the fact that the requirements are lower than those of the larger providers.
Mics also pay more for the recordings (nearly 30%) than standard LPs (13.5%).
But remember to put salt in the wounds.
The government’s monopoly cannabis agencies favor low-cost cannabis products. You want to buy flowers cheaply in bulk. It’s not ideal for crafting shops that specialize in premium goods.
This is how the cannabis bureaucracy destroys wealth.
How cannabis bureaucracy destroys wealth
This is how the cannabis bureaucracy destroys wealth.
There is a $1,781 fee for security screening. They charge $658 for import/export permits.
Health Canada charges standard cultivation and processing licenses 2.3 percent of their sales for an annual regulatory fee or $23,000 (whichever is greater).
For micro-cultivation, processing, and nursery license holders, the rate is 1 percent of cannabis sales up to $1 million. (And then 2.3 percent over $1 million).
Excise taxes are outside the scope of Health Canada’s regulatory program. Although they don’t help. All those fees and bureaucracy can’t even cover their operational costs.
A company operates on the sidelines. You can’t afford that kind of petty tyranny.
Small businesses need to carefully estimate the marginal revenue they generate. You need to weigh the cost of regulation against the additional revenue from expanding operations.
The more a company produces, the smaller the additional benefit. Regulatory costs add another layer of costs that cannot be justified by declining returns. As a result, small, marginalized businesses are unable to expand.
Something is wrong when you have to ask permission to produce from people who don’t produce anything.
The inferiority of state accreditation agencies
In summary, the cannabis bureaucracy is destroying wealth. You do this by:
Obligation: Government regulators use coercive measures to enforce compliance. That’s morally repugnant.
One size fits all: Government regulations are simple tools in a complex, capital-intensive economy. Ultimately, they stifle innovation and adaptability.
Bureaucratic Inefficiency: Given the hype surrounding LPs, Health Canada believed the Canadian cannabis market would be huge. It wasn’t. It was a bubble they based their calculations on.
Political Influence and Capture: Political pressure and lobbying affect regulators. This leads to regulations that benefit certain interest groups rather than the consumer.
Lack of Accountability: Government agencies lack the same level of accountability as private entities. There is no such thing as rational economic calculation and there are no consequences for being catastrophically wrong.
In contrast, a system of private accreditation works better. Imagine buying cannabis with the following:
- a seal of a reputable company
- a seal of a less reputable company
- a seal of a company with a bad reputation
- No seal and therefore no guarantee that the producer has not sprayed their product with pesticides.
Compare this to the one-size-fits-all approach and you can see the cannabis bureaucracy destroying wealth.
The superiority of private accreditation agencies
Private accreditation agencies are voluntary. Each determines the value of accreditation by market demand. A highly competitive market means that multiple agencies can exist, catering to different needs and keeping each other in check by competing directly for clients.
Private companies adapt and produce technological advances. They respond better to new developments and are not burdened by bureaucratic inertia.
Private agencies can focus on specific industries, allowing them to tailor accreditation criteria to help inform and protect consumers. Consumers can choose which agency standards they value and trust.
In the private sector there is higher cost efficiency. No private accreditation agency would survive a year’s loss for long. Private companies are also decentralized, giving stakeholders more control over regulatory standards and reducing political lobbying and undue influence.
Overall, however, the main advantage of private accreditation is that it is a contract-based system. Courts could resolve disputes (about food, for example) if the terms of the agreement are clear.
In other words, there is more freedom and efficiency when we don’t base our relationships between producers and regulators on metaphysical theories about the “social contract” that no one has ever seen or signed.
win markets
Health Canada’s cost effectiveness is abysmal. Nobody is surprised. Any bureaucracy, cannabis or not, destroys wealth. It is in the nature of the institution.
On the other hand, markets create wealth. Markets are also self-regulating because markets are basically just people like you and me trading goods and services with each other.
Only control freaks try to control and limit peaceful acts between consenting adults.
Post a comment: