Canada’s “Shortage” of Marijuana

I never imagined that Canadian finance ministers would one day worry about a shortage of marijuana. Welcome to 2017.

Bloomberg: The biggest challenge for Justin Trudeau’s forthcoming legal recreational marijuana market is a shortage of pot, the finance minister of Canada’s most-populous province says.

…Finance ministers were told demand is “quite high” for marijuana already in Canada, he said. “So we want to make certain that, when we do proceed, there is sufficient supply to accommodate the activity because what we’re trying to do is curb the illicit use and organized crime that now exists around it.”

The finance ministers’ worry, however, is misplaced. Canada’s system is not as open to entry as Colorado’s, so even with new licenses being approved rapidly, demand will increase faster than supply once legalization happens and prices will increase. That much is true. But much of the new demand will come from people who were deterred from buying illegally. As far as these buyers are concerned, the total price–including the price of possibly being caught–will have fallen, even as the money price rises. Many people who were buying illegally will also prefer to buy legally, even at the higher price. In other words, even if the price of legal pot is higher than the current illegal price, the demand for illegal pot will fall putting pressure on the criminal element.

As usual, the finance ministers forgot to think at the margin.

Hat tip: Daniel Lippman.