Pot can’t save the province. Saskatchewan’s best hope is to ‘break even’

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WATCH ABOVE: Cannabis is expected to be big business, but University of Regina associate professor of economics Jason Childs believes Saskatchewan can only hope to make $34 million in what he calls the best case scenario – Feb 13, 2018

At $1.2 million, enforcing legal pot is predicted to take over one per cent of the Regina Police Service’s (RPS) annual budget.

A staggering fee that has one city councilor scratching his head.

“Why is it costing more to police a legal substance than to police something that’s illegal currently?” asked a bewildered Andrew Stevens, Ward 3 councilor.

READ MORE: Regina police anticipate legal marijuana will cost at least $1.2M annually

According to Jason Childs, an associate professor of economics at the University of Regina, it could come down to the way cannabis laws are currently being enforced.

“If we were enforcing the current criminal code around cannabis with the same vigor that we were 20 years ago, I don’t think it would cost more” Childs argued.

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Childs believes the price the RPS estimates is reasonable. This is a cost council is preparing for, but Stevens says they should be doing more.

“I think that’s the problem with this report, it stops short,” Stevens said. “It really isn’t looking for a more ambitious approach to realizing the revenue we could be realizing if we had a sales tax or other forms of revenue.”

“We need to find new sources of revenue,” Stevens continued. “There’s no money to be made on licensing, it’s a break-even constraint. Property taxes? At best, I would estimate, between $50’000-$100’000 per year.”

Though Stevens is advocating for an aggressive approach to cannabis, Childs is more cautious. The economist doesn’t believe the industry will be as large as some are expecting.

“There is a belief among politicians, policy makers and others that this is going to be a golden goose. It’s not,” Childs remarked.

READ MORE: OneLeaf Cannabis Corp. plans multi-million dollar cannabis production facility just outside Regina

If the province gets 75 per cent of the one dollar tax per gram, and six per cent provincial sales tax, Childs estimates the province will only see about $34 million in revenue. He calls it the best case scenario.

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“If they capture the whole [market], 25 million tons of cannabis, then they make $34 million. So [that means] nobody buys from an illicit producer,”
Childs said.

Unfortunately for the province, that’s an unlikely scenario. In his research Childs says he’s discovered that many cannabis users have a strong brand loyalty, to their provider, and to the strains they use. On top of having to match illicit dealers for selection, the province will also have to compete when it comes to price.

“You have potential entrants sitting on the outside waiting to get in, and they can move very quickly,” Childs noted. “These people are incredibly entrepreneurial, and they are going to limit our ability to price this thing and to extract value the way we have with alcohol.”

Childs anticipates it will be so tough to match the current cannabis market that the province will be lucky to break even.

“Breaking even is the best hope for now. There will be no money to be made on this in the near future,” Childs continued. “With the six retailers that are going to be granted licenses in Regina, there is the potential to extract some value from them as a fixed cost. Not at a per-unit cost.”

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Childs believes that in 10-20 years there will be a potential to make money from legalization, but that it’s incumbent on eliminating the illicit market.

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