Arbitrage and the gains from trade - cannabis edition
We know how to make the world that little bit richer. It’s only governments stopping this boost to global wealth happening. But then isn’t that so often the way with government decisions about and restrictions upon trade? That all they do is keep us poorer than we need be?
The background here is that Canada is just legalising the consumption of cannabis for pleasure reasons. That is, it has decided that adults may be adults once again without Nanny telling them they must, well, pretty much, eat their vegetables before they can have any ice cream. Canadians will be able to do what adults should be able to do, ingest that which pleases them.
There is a little wrinkle in this:
The latest data from StatsCan pegs the average combined cost of nonmedical and medical cannabis at 6.74 Canadian dollars ($5.19) per gram in the second quarter.
Canada’s supply of legal cannabis at current production levels is estimated to meet just 30 to 60 per cent of total demand, according to a report from think-tank C.D. Howe Institute released this week. The estimated demand across the country is roughly 610.6 tonnes but the forecasted available marijuana supply in the fourth quarter of this year is just 146.13 tonnes, the authors said.
As David Ricardo was known to have pointed out, Adam Smith too, trade is a pretty neat thing. And it’s the obvious solution to both any shortage of domestic production and what we might think of as the high price of it.
The UN telling us that cannabis in Malawi costs some $3 a kilo. Yes, that is $3 a kilo, as opposed to the Canadian price of $6-ish a gramme dependent upon which dollar you want to use.
Yes, we do know, really do know, that Malawi Gold is a perfectly respectable dope. Actually, considered one of the finer variants.
So, obviously, buy by the Great Lakes of Africa to sell around the Great Lakes of North America. With a 2,000 times price uplift there’s a margin in there. And in the absence of any laws stopping this it would obviously happen too. Actually, likely it has been happening even if in the small quantities the illegality would suggest.
Sadly, the new Canadian law - yes, we checked - only allows import for medical use, not recreational. Which is where the market is going to be, obviously enough.
So, in the absence of legal restrictions Canadian pot consumers would get likely better and certainly cheaper blunts. Some of the poorest people in the world, Malawian farmers, would see their incomes increase. Through that generally enriching form of trade, us all buying things made by poor people in poor countries. And it’s only government standing in our way.
How lucky we all are that government protects us from such mutual enrichment, eh?
Oh, and if you could tie crypto into this somehow you’d probably be able to float on a stock market by Monday morning.