U.S. DOLLAR DETERRING CANADIAN MARIJUANA SMUGGLERS

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.

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.

"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."