DOLLAR'S DECLINE SENDS POT IMPORTS UP IN SMOKE

WHITEFISH - For years, backpacks crammed with cash have slipped north into
Canada, followed closely by hockey bags packed with premium marijuana
skating south into Montana.

A favorable exchange rate (not long ago, one American dollar bought one and
a half Canadian dollars) made the smuggling profitable, and thus popular.

But last month, for the first time in more than 30 years, the two
currencies were at par, matched in value, and today a Canadian dollar buys
$1.10 U.S.

The financial tables have turned, and global economics have done what U.S.
law enforcement could not: Capitalism has stopped the smugglers in their
tracks.

Call it Marijuanomics 101.

America borrows itself deep into the hole, ratchets up its trade deficits,
buries itself beneath subprime mortgage debt, devalues its dollar with
interest-rate cuts, and the currency plunges.

Meanwhile, Canada's economy booms on oil, foreign investors turn north for
stability, and the "Loonie" - Canada's dollar, named for the bird on the
coin - hits a 50-year high.

Profits disappearing

Suddenly, it's far more expensive to buy Canadian exports, legal or
otherwise, and smuggling profits disappear.

"It's very simple," said Stephen Easton, professor of economics at Simon
Fraser University in Vancouver, B.C. "Canadian marijuana production costs
are met in Canadian dollars, and those are worth more now."

Previously, he said, pot growers could produce a pound of potent "B.C. bud"
for about $2,000 Canadian and, with the exchange rate, smugglers buying
with U.S. currency could sell it for a hefty profit south of the border. In
those days, an American dollar in Canada was like a 50 percent discount
card, and there's nothing like a wholesale discount to bolster retail profits.

Production costs remain in the range of $2,000 Canadian, Easton said. But
with the currencies at par, the profit margin is completely gone, unless
Montanans are willing to pay 50 percent more for the prime northern bud. A
smuggler's risks and transport costs are no longer offset by profit.

"The upshot is that the Canadian marijuana is now less competitive against
marijuana grown elsewhere," Easton said. "This is a cost-driven business.
With exports no longer viable, the British Columbia marijuana industry has
certainly taken a hit, so to speak."

As has green-bud availability for Big Sky pot smokers. Although Canadian
pot only accounts for perhaps 3 percent of all marijuana in the American
market, it commands a strong presence in border states such as Montana.

Wide open border

"Sure, I've known people who have brought it down and made a pretty good
living," said Bradford Moore, who owns the Heads Up pipe shop north of
Kalispell. "I won't deny it. They'd go up there, buy it on the Canadian
dollar, bring it back and make a nice profit. Let's be honest - that
Canadian border is wide open."

As in: 5,500 miles of border land, much of it rugged and remote, and
perhaps 1,000 agents sharing patrol duties.

These days, though, hardly any Canadian-grown marijuana crosses the border,
because it just doesn't pay.

And Easton predicts things will get worse before they get better for those
on both sides of the illegal industry, because without exports, Canada's
pot crop will swamp the domestic market and prices there will plummet. (One
British Columbia grower predicts "a great glut of pot" due to the loss of
export markets.)

That's a very big deal for a province that, unofficially at least, counts
marijuana exports as a major economic contributor. Back in 2000, Easton and
his university colleagues published a study he says estimated the annual
market value of British Columbia's pot at around $5 billion, with perhaps
90 percent of the crop shipped south into the U.S.

"It's huge," he said. "It's a very large player, right up there with our
traditional industries."

Marijuana is illegal in Canada, but is widely tolerated and rarely
prosecuted with the vigor American law enforcement musters. From Quebec to
British Columbia, large operations and small have become known for
producing premium pot, carefully cloned for the best genetics and then
grown under powerful lights, fed carbon dioxide and watered with special
nutrient blends in hydroponic gardens.

"This is not our parents' Mexican barnyard weed," said Alan Middlemiss.
"This is pedigreed."

Middlemiss owns the Holy Smoke Culture Shop and Psyche-Deli in Nelson,
B.C., and he knows a bit about quality marijuana. The fact is, he said,
much has been made of the potent B.C. bud, "but it's a farce. It's no
better than any bud that's been cured and finished properly."

(Bud refers to the sticky flower bud on female marijuana plants, which
contains high amounts of delta-9 tetrahydrocannabinol, or THC, the
chemistry that makes stoners stoned.)

"Everybody grows it," he said. "But it's called 'B.C. bud,' so up here in
B.C., we get the baggage. We get the heat."

When DEA agents - Middlemiss calls them "ganja spies" - want to crack down
somewhere, they often choose British Columbia, even though similar plants
are grown throughout the United States.

The province's big-time growers, the ones with the big-time smuggling
operations, "have been killing it for the rest of us mom-and-pop growers,"
he said.

That the spotlight is glaring on Middlemiss' neighborhood was proved back
in 2000, when Time magazine announced the "world's best pot now comes from
Vancouver."

That these latest economic changes also have caught international attention
was proved last month, on Oct. 4, when the business-news portion of
National Public Radio's "Morning Edition" broke the story that Canadian pot
dealers were suffering from the loss of their export business.

"Our last word in business today is 'skunk bud,' " the reporter said in
introducing the piece.

Middlemiss, for one, is glad to see the Canadian export business dry up. He
hopes it will "take some of the greed out of the business," leaving smaller
growers to water and tend and smoke without the hassles.

Because although Canada has not proved strong on prosecutions in recent
years - Vancouver cafes offer smoking areas, and tourists can buy pot in
paraphernalia shops - busts do occur.

Middlemiss lives in Nelson, B.C., a town that enjoys top ranking for pot
tolerance at webehigh.com, a Web site billing itself as "a travelers' guide
for getting high." They say pot in Nelson is "virtually legal," and note
that "public smoking is more or less OK if you're not dumb about it."

And yet Middlemiss can tell you all about hassles with authorities, hassles
he blames on the myth of B.C. bud and the infamy of large exporters.

"We have a motto around here, and it's called Canadian pot for Canadian
lungs," Middlemiss said. "We don't need the DEA blowback. We've got DEA
helicopters over our gardens, and all this DEA money out of Washington
being spent up in Vancouver. It's nuts."

Also up in Vancouver is Marc Emery, the so-called "Prince of Pot," a
Canadian who for years made his living selling mail-order pot seeds. He's
also head of the political Marijuana Party, and runs Cannabis Culture
magazine. To Canadian officials, he's a businessman. To U.S. law
enforcement, he's a fugitive for selling seeds across the border.

Emery, unlike Easton and Middlemiss, believes Canada's booming oil fields
have pumped enough dollars into enough pockets that the domestic demand
can, for now, absorb the homegrown pot supply, thereby keeping prices high
despite the lost export market.

"We have a very strong economy here," Emery said. "It's just like a bull
running through a china shop - this economy is on the run."

But whether Canada has enough smokers to puff up this season's entire crop
- - it's harvest time in Nelson right now - all agree on one thing: Exports
have ceased, Montana is dry, and with California growers located so far
away, the stage is set for a homegrown bonanza under the Big Sky.

"At this point, you might as well grow it locally," said Moore, at
Kalispell's Heads Up. "It's not worth the risk to smuggle it down anymore,
so people will start their own operations. It's simple supply-and-demand
economics."

During the last economic recession, local busts of grow operations went way
up, he said, as people turned to pot to pay bills, meet mortgage payments
and feed the family.

"What's a better way of doing that than plugging in a light?" Moore said.

"Even in the good times," he said, "people around here can't afford to buy
a house. If the economy takes a dive, well, it's always easy to grow your own."

According to Middlemiss, there's a renaissance of sorts in new technology
for small, compact, low-profile homegrown operations.

Emery likewise looks for the signs of economic fallout not on Wall Street
but on Main Street, where the pot changes hands every day.

The signs, he said, are everywhere. Three years ago, at least one person
was caught smuggling marijuana south into the U.S. almost every day, he
said. Now, whole months go by without a substantial border bust.

But don't forget the struggling peso, which down on the U.S.-Mexico border
may soon be helping to fill the B.C. bud gap - albeit without the pedigree.

"They're all about quantity down there," Middlemiss said. "We're about the
quality."