Ontario makes a hash of marijuana retail distribution: Globe and Mail Op-Ed

Ontario has announced that it will restrict retail of recreational marijuana to LCBO-run stores. Only 40 of these locations will be in place by next July 1, the federal target date for decriminalization, with a total of 150 locations expected by 2020. While this plan gets some things right, it is a missed opportunity and nearly the most ineffective possible choice to accomplish the goals of minimizing the black market and protecting public health.

First, while 40 retail locations may sound sufficient, compare that with the at least 100 retail storefronts and delivery services for marijuana currently advertised in Toronto alone. Having few retail locations means that access to recreational marijuana will be inconvenient for a significant number of Ontarians. Recreational consumers are highly unlikely to switch their dollars to the regulated market if there isn't easy access. This will mean that there will be significant opportunity for the black market to continue operating in all the areas without enough legal stores to meet market demand or that are inconvenient to access. (By contrast, there are more than 650 liquor outlets in the province.)

The government has missed an opportunity to turn existing businesses into allies in the regulated market instead of competitors in the illicit market. These businesses, though operating illegally, could have been leveraged as a means of distribution through licences to bring them from the grey market into the legal one. Unfortunately, with this announcement, it appears that currently operating marijuana businesses will remain black market. The hundreds of businesses and the employees that staff them would face penalties if they continued to operate. Further, to levy penalties against these illicit businesses will require significant justice and police resources. And since there won't be enough regulated retail outlets to meet market demand, it is likely that at least some of these businesses will still find it profitable to operate.

The province missed the opportunity to have a competitive market for retail marijuana. Independent businesses have an incentive to locate where market demand isn't being met and competition between businesses constrains operating costs and keeps prices low. Lower prices in the legal market make it more likely to be competitive with the existing black market.

The province's decision to enter the market also implies considerable resources will be expended in the construction and maintenance of stores, higher salary expenditures and other overhead costs. These will be met at the expense of other sectors, which will receive lower government funding.

However, it is reassuring that the province has chosen to separate the retail of marijuana and alcohol to minimize the possibility of co-consumption. Further, setting the minimum age to purchase recreational marijuana at 19, instead of the previously contemplated minimum age of 25, is a good move. Since a large share of demand for recreational marijuana comes from people between 19 and 25, setting a higher minimum age would have meant that young people were more likely to be exposed to the illicit market and potentially contaminated product, as well as ensuring the continuation of illegal markets.

Over all, the province missed significant opportunities to minimize the black market and make sure that Ontarians have access to safe and regulated marijuana. The choice to have few retail outlets and no competition will not serve to minimize the black market. Instead, it will result in significant resources continuing to be spent on fighting a black market that has been left with ample room to operate.

Rosalie Wyonch is a policy analyst at the C.D. Howe Institute. Anindya Sen is the director of the Masters of Public Service program and a professor of economics at the University of Waterloo.

Published in the Globe and Mail.