Government wants to reduce cannabis market through legalisation, not grow it

Bonnie Flaws

Cannabis cafes on every corner. Marijuana franchises springing up in the malls. Dealers turning over a new leaf and making a legal mint.

If you're expecting to see any of these things at some point in future in New Zealand, you may be out of luck.

A referendum will be held next year on the legalisation of cannabis. 

But experts say that's unlikely to mean a boom in the business of recreational weed.

The draft law would restrict sale of the drug to licensed premises. There is no detail yet on exactly what those premises might look like.

But Institute of Economic Research's principle economist Peter Wilson said the Government's policy was to reduce cannabis use and any future market was likely to be small and highly controlled.

The parallel market in medicinal cannabis, on the other hand, was likely to see continued growth.

"They're very clear in the Cabinet paper that they don't actually want a large commercial market to develop. They're worried the commercial operators would have an incentive to increase demand and grow the [recreational] industry."

The big question was how licences would be issued and to whom, Wilson said.

"Because harm reduction is still the aim, it's hard to see. It might end up being clubs of small users. 

I suspect it will start off very modest and I think the Government will want to keep it that way."

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Draft legislation on cannabis legalisation states that sales would be limited to license holders.

Wilson said that while the Government wanted to remove gains in the black market, it probably wouldn't want the price to come down.

"That's interesting because part of the price you pay on the black market is a premium because it's illegal, which is going to be removed by legalising it. This means that any tax is going to have to be set high enough to make sure the price doesn't drop too much," he said.

It would also limit the amount of taxes raised, because if set too high, it could drive consumers back to the informal market.

"The challenge they face is not to drive it underground."

From research in 2017, Wilson estimated that if cannabis were subject to an excise of 25 per cent, with 15 per cent GST on top, the Government could raise $150m.

Drug reform spokeswoman for the Greens, Chloe Swarbrick, said that it was important that the legislation did not kick the black market out of town only to replace it with "big marijuana".

Swarbrick supported a "very protective, localised market".

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Paul Manning says the national market in total cannabis sales could be worth $1 billion, after legalisation.

The Cabinet paper did not indicate how many licenses would be issued, but suggested keeping production roughly at the same level as it is now and declining over time. 

"That could manifest through a licensed trust model," Swarbrick said.

But if licences were limited to a small number it would probably necessitate putting the price of cannabis up, Wilson said.

According to research done by Wilson in 2016 about 11 per cent of New Zealanders aged 15 and over used cannabis at least once a year. Around 4 per cent reported using it weekly, and 42 per cent of the population said they had used it at some time in their life. It wasn't prevalent enough to be lucrative, he said.

"This is not going to be a big economic boon to New Zealand." 

But the chief executive of medicinal cannabis company Helius, Paul Manning, was not so sure that a recreational market could be written off.

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A referendum will be held next year on the legalisation of cannabis.

Research his firm had commissioned estimated a national market worth $1 billion in total sales could develop. Medical cannabis represented $300 million of that, leaving a recreational market that could be worth $700m.

Helius has also commissioned two surveys in the last six months to determine people's voting decisions come referendum time. 

The survey found that 52 per cent of adults would vote to legalise personal use, and 37 per cent would vote against, while 11 per cent were on the fence.

An earlier survey from October asking the same question showed 60 per cent would vote to legalise personal use, with 24 per cent against and 16 per cent on the fence.

Manning said the results showed the effect of scaremongering from conservative groups on the issue.

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Jim Polston, chief science officer at Helius Therapeutics, says New Zealand could leverage its strong science base in developing cannabis products.

"A majority of Kiwis continue to support legalising the personal use of cannabis. There may be been a lot of political noise in recent days, but that statistical fact hasn't changed in six months," he said.

New Zealand had an opportunity to leverage its strong science base and the relatively cheap cost of running medical trials to its advantage, he said, developing the country as a centre of excellence in the field.

"You guys have a really strong agricultural science base in this country, and this could really be a hub for a lot of innovation and start ups in this biotechnology area," Jim Polston, Helius chief science officer said.

"There are lots of countries moving forward with cannabidiol and THC-based products and my feeling is that three to five years from now, a lot of the opportunity will be lost if a system is set up that is too cumbersome."

The referendum also created an opportunity in the wellness space for non-prescription health supplements and functional food and beverages containing CBD and cosmetics, Polston said.

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Green MP Chloe Swarbrick says it is important not to let 'big marijuana' take over the market.

"With adult use in the recreational sphere it would open up the market to some more product that may not be encompassed in the medicinal bill … wellness products that would really benefit the young consumer."

Organic drinks company Karma Cola chief executive Chris Morris said his organisation would be interested in developing products using the non-psychoactive CBD in the future. 

"We're very keen to support small organic [cannabis] growers, and that's where we see New Zealand should be specialising, in that higher-quality organic product. And we're happy to pay a higher price for a fair and transparent supply chain."