LEGALIZING POT

THE BILLION DOLLAR REPERCUSSIONS

On Tuesday, California will vote on Proposition 19, an initiative to
legalize, tax and regulate marijuana. If passed, it would allow
people 21 years old or older to possess, cultivate or transport
marijuana for personal recreational use.

Legalized marijuana in California would have a profound impact across
North America, with prices plummeting and jobs lost. In British
Columbia alone, experts say the move would wipe out about $2-billion
in exports and 20,000 jobs.

But will Proposition 19 pass? Early polling found significant support
for the initiative but, as election day draws nearer, the "no" side
has been gaining traction. A USC/Los Angeles Times poll in the third
week of October found 51 per cent of likely voters opposed to
legalization and 39 per cent in support of the measure. Others polls
have reported similar results.

If it does get support, get ready for massive changes in the drug industry.

Prices: A Real Downer

Some things, of course, remain uncertain if California does legalize
marijuana. Marijuana will remain illegal under federal U.S. law and
how the U.S. government will respond is unclear. There is also no
indication of how the drug will be taxed and by how much.

But one thing on which all the experts agree is that prices will
tumble. Right now, marijuana sells for about $300 to $450 per ounce
in California. In larger quantities, it can sell for $4,000 a pound
or more. Prices are set by demand, supply, the risk in providing an
illegal product and the drug's strength - the amount of intoxicating
THC (delta-9-tetrahydrocannabinol).

If the drug is legalized, risk will disappear, and both demand and
supply will almost certainly increase. Production costs could drop to
about one-tenth of current levels. Those working with marijuana would
no longer collect a risk premium. Growers could open larger
production facilities yielding economies of scale. The pre-tax retail
price could drop as low as $38 per ounce, about one-tenth its current price.

An America-Wide Buzz

Prices won't just tumble in California. With reduced production and
processing costs, California growers would be more competitive with
growers across the country. Marijuana produced legally would undercut
prices throughout most of the U.S. The price of San Francisco
marijuana after legalization could wholesale in Washington, D.C., at
$2,575 per pound, compared to the current wholesale price in the
Maryland/Virginia area of roughly $4,000 per pound.

Source: Altered State? Assessing How Marijuana Legalization in
California Could Influence Marijuana Consumption and Public Budgets
published by the RAND Corporation Drug Policy Research Center

Mexico Gets Taste of Competition

Mexican marijuana has carved out a niche in the drug trade as the
supplier of a cheaper, commercial grade product. Its price advantage
would disappear if California supports legalization. With reduced
costs of production, California-grown marijuana could be priced about
the same as the Mexican grass but would be considerably more potent -
about 3.6 times more.

Mexicans would be left with exports to other U.S. states that could
not obtain the California product. Mexico's drug-trafficking
organizations earn up to $2-billion annually from exporting marijuana
to the U.S., but could lose as much as $1.5-billion of that should
California legalize marijuana.

Sources: Reducing Drug Trafficking Revenues and Violence in Mexico:
Would Legalizing Marijuana in California Help? RAND Corporation
International Programs and Drug Policy Research Center

In B.C, an Industry Will Go Up in Smoke

The marijuana trade is one of the largest - if not the largest -
industry in B.C., generating around $4-billion in revenue annually
for at least the past seven years. Domestically, marijuana sells for
about $2,000 a pound.

About 70 per cent of marijuana produced - about $3-billion worth - is
exported to the U.S. The price of B.C. Bud increases as the distance
from B.C. grows - it sells for $2,500 a pound just south of the
Canada-U.S. border but can go for as much as $5,000 a pound in San
Diego. And at least half of the exports to the U.S. go to California,
sales that would be lost if legalization occurs there.

Closing one grow-op with 700 plants would eliminate an operation with
annual revenue of about $344,000 and jobs for electricians,
gardeners, those who tend and harvest the crops, security people and
brokers who arrange the sale of the product. The province has around
60,000 marijuana growing operations varying in size, from a few dozen
plants to several hundred. Legalization in California could take away
work for 20,000 people in B.C. The impact on organized crime - which
distributes and sells the drug - would be significant.

Source: Criminologist Darryl Plecas, of the University of the Fraser
Valley in Abbotsford, B.C. and Mayor Brian Taylor of Grand Forks,
B.C., the first leader of the B.C. Marijuana Party