The “Free Market” In Medical Pot: An “Austrian” Perspective on Harper's Licensed Producers

Government is the antithesis of a free market. Governments, by definition, use coercion to extract funds; the market relies on voluntary exchange. So while the necessity of the Harper Government’s medical marijuana policy may be debated – and it certainly has been – it is not a free market nor does it bear any resemblance to one.

Under the old system (the MMAR), Health Canada would license patients or growers for patients to produce for a maximum of x grams per patient. The first medical marijuana laws were initiated in 2001 and by 2014 there were over 37,000 patients across Canada. This decentralized system, according to the Conservatives, was corrupt because surplus production would find its way into the black market. Many of these licensed growers, according to the RCMP, were fronts for illegal grow-ops. Homegrown operations posed insurance risks, such as fire and mold. In actuality, the medical marijuana industry is rapidly expanding. The Harper Government's actions look like a clear cash-grab to line the pockets of those in control.

Homegrown operations were expected to be phased out on April 1st 2014. In its place is the result of Conservative $1.3 billion “free market” program. It’s difficult to grasp why this was promoted as a free market since the new system is be blatantly crony-capitalist. The Conservative Government and Health Canada preside over the applications of new growers. These new government-licenses tend to award capital-intensive plants that mass produce the stuff. Rules and regulations drafted by legislatures and bureaucrats are to be enforced by the RCMP. After April 1st, home-growers were expected to destroy their medicine or face criminal charges. Health Canada threatened to reveal private information to the police if the patients did not comply.

The home-growers didn't lay down without a fight. Many, including Jason Wilcox (the founder of MMAR Coalition Against Repel) fought tooth and nail, hiring Constitutional Lawyer John Conroy to petition for change in the laws. At the very least, it was hoped the home-growers would be grandfathered in. A court-ruled injunction means medical marijuana patients and growers can still operate under the old MMAR laws. But MMPR still remains in place; the Conservative Government is appealing the courts decision. Thus, the battle over the collectivization of Canada's medical pot has reached another crucial stage. The injunction is good through September 30th.

At the point of a gun, thousands of marijuana farmers will be put out of business and only those well-funded and well-connected will be rewarded the exclusive contracts to produce marijuana. And to top it off, the Establishment has the audacity to call this a free market. The only ones who really benefit from the MMPR  are the government approved Licensed Producers who gain a sizable market share by having the coercive arm of the state destroy their competition. Many medical marijuana patients can’t afford the expected $5-10 a gram. The LPs claim the price will eventually decrease. This isn't necessarily true.

From an economic standpoint, if the MMPR wins and the government gets want it wants, the new marijuana cartel will have a monopoly price – evident because it is, contrary to what the mainstream media reported, not a free market. On the free market, every consumer demand curve is elastic, that is above the free market price. Otherwise firms would have incentive to raise prices and increase revenues. The grant of monopoly privilege renders the consumer demand curve less elastic for consumers that have been deprived of other products from other would-be competitors.

Elasticity of demand is an important economic concept which defines the change in the quantity demanded that result from a change in price of a good or service, such as medical marijuana. More specifically, elasticity equals the percentage change in the quantity demanded divided by the percentage change in price. It is ultimately based on individual’s subjective preferences, measuring the sensitivity of the buyers in the quantity they demand of a good to a given price change. An elastic response occurs when a percentage change in price results in a larger percentage of quantity demanded. For example, where the demand curve to the LPs may remain highly elastic (that is, more people demand medical marijuana due to price changes), the cartel will not reap a monopoly gain from the grant. Patients and competitors are still injured due to the prevention and regulation of their trade, but the LPs will not gain because their price and income are no higher than they were before. On the other hand, if the demand curve is inelastic (that is, a percentage change in price results in a smaller percentage change in quantity demanded), the LPs now have a monopoly price to maximize revenue. In a nut shell: production is restricted to command a higher price.

The restriction of production and the higher price for medical marijuana injures the patients. If the federal government gets its way, patients will not be able to purchase marijuana freely from those willing to sell. Any approach toward a free market equilibrium price and output benefits patients and producers. Anyway movement away from this free market price and output injures patients. The monopoly prices of the LPs will not result from a free market. They will lower output and raise prices beyond what would be established if they had to compete in a free market, that is, if the MMAR stays in place or marijuana becomes fully legal.

Profits in a free market are short-lived and eventually reduce to a uniform rate of return. All returns are eventually imputed to some factor. But what would be the factor in the case of the LPs? The factor is the right to enter the industry. In the free market, anyone can produce marijuana but under the MMPR only the government may grant this right of entry and sale. It is a result of these special privileges that the monopoly price and gain arises. Unlike free market profits, this gain does not disappear in time – it is permanent so long as the government allows it or the people put up with it.

The federal government is attempting to create monopolistic grants to supposedly protect the public and help patients. But what exactly will be the result? The LPs, as a government-enforced cartel, will bring in excessive profits each year. These profits will not diminish in time, as they claim or as would happen in a free market. Subjecting the LPs to competition from the current growers would force the government-protected entities to freer market conditions, putting them more in tune with patient’s demands.

Assuming that politicians, bureaucrats and crony-capitalists work for their own self interest – keeping medical marijuana revenue in the hands of government or the LPs is destructive to say the least. Anything less than a complete free market in marijuana will have unintended consequences. As much as the Harper Government may like to abolish medical marijuana, in this climate it cannot do so. So the idea is to just make criminals out of  patients and exalt mafia-entrepreneurs to millionaire status. The MMPR injures patients and promotes the criminal class of government bureaucrats and crony-capitalists to moral superiority. And all this just because growing at home “poses hazards such as mould and fire.” Even their rationale is half-baked.
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