“I understand there’s a guy inside me who wants to lay in bed, smoke weed all day, and watch cartoons and old movies. My whole life is a series of stratagems to avoid, and outwit that guy”

- Celebrity Chef Anthony Bourdain

(who, sadly, recently passed)

 

At dinner with another couple recently, we had an animated conversation about the pending legalization of marijuana in Canada, which as I write is but a couple weeks away. I reminisced about my recent trip to Seattle, and my observations on what I thought legalized pot would do to Canadian society.

 

Like the piece I wrote on what minimum wage increases would mean, I looked back at what happened in the USA when states drastically increased their minimum wages, so…  

 

So I began thinking once again, there is no need to “recreate the wheel”, why not look at Colorado, which like the state of Washington, legalized pot in 2012, and are about five years into it. Not a long litmus test, but a decent amount of time to get an idea of what may be coming to Canada.

 

In 2012 the states of Colorado and Washington became the first in the US to legalize cannabis for recreational use. Like here, the critics feared it would attract criminal elements, that it would lead to increases in impaired driving incidents, and youths being exposed to the drug could lead as a “gateway” to stronger drugs. Advocates hoped it would lead to an economic boom, and less criminalization for cannabis users, lightening the load on the legal system.

 

Governments? They just saw a windfall in the revenues they could add to their partisans spending initiatives.

 

Now that is has been five years, a number of studies, surveys and statistics have been published that provide a view into the range of effects since pot was legalized in those states.

 

As I observed in Seattle, visitors to Colorado remark about a new “agricultural” smell, the wafting odor of pot as they drive near warehouse grow operations along Denver freeways. Residential neighbourhoods throughout Colorado Springs reek of marijuana, as producers fill rental homes with plants. Not to mention the odor of pot on the streets in general.

 

Five years of retail pot sales in Colorado also coincided with five years of a homelessness growth rate that ranks among the highest rates in the USA. Directors of homeless shelters explain that homeless substance abusers migrate there for easy access to pot (source: Colorado Springs Gazette – Nov. 14^th, 2017).

 

Five years of commercial pot have also resulted in five years of more marijuana in schools that teachers and administrators ever feared. Drug violations among students were up 45% as were school suspensions. In fact, the National Survey on Drug Use and Health found Colorado ranked first time in the country for marijuana use among teens, scoring well above the national average.

 

The Marijuana Accountability Coalition was founded by Justin Lake Riley, who is recently quoted as saying:

 

“It’s one thing to decriminalize marijuana, it’s an extremely different thing to legalize an industry that has commercialized a drug that is devastating our kids and devastating whole communities. Coloradan’s need to know that Colorado is suffering from massive normalization and commercialization of this drug which has resulted in Colorado being the number one state for youth drug use in the country. Kids are being expelled at higher rates, and more road deaths tied to pot have resulted since legalization.”

 

 

 

What about the concerns the critics had before legalization?

 

1. Criminal Elements

Overall mixed results. A report published in 2016 found that cannabis related crime had increased in Washington State, much of it due to unlicensed distribution and possession of illegal cannabis, violent crimes were down 10% and the murder rate dropped 13%. Colorado also saw a small dip in overall violent crimes. Perhaps more “mellow”, unmotivated criminals?

 

2. Impaired Driving

Unequivocally, confirmed.

 

An article in the Denver Post (8.25.17) showed that since 2013(the first year after legalization), the number of accidents had risen in each and every year, and fatalities had doubled, making Colorado roads the most dangerous in the nation.

 

A significant increase in the potential level of pot were found in drivers who died in crashes, nearly a dozen in 2016 had 5x the legal amount allowed by law, and one had levels 22x the legal limit.

 

Fatal crashes increased 40% from 2013 to 2017 (627 to 880), 20% of fatal crashes involved marijuana, a 145% increase while alcohol related fatal crashes were up “only” 17% (still not acceptable!).

 

A correlation showing a disproportionate increase in traffic related insurance claims in states where cannabis has been legalized was also found, so logically would we expect our insurance rates to skyrocket?

 

 

3. Youth Exposure

Marijuana use rose among youth in a poll conducted by the Department of Health among students in grades six, eight, ten and twelve. From what I witnessed on the streets in Seattle, I would guess pot is a gateway drug for many. This chart on heroin deaths seems to support my observations, even though overall opioid deaths dropped slightly there since 2015:

 

 

 

Now how about the other side:

 

1. Big Business

The legal pot market did lead to an economic boom in Colorado (and Washington) as tremendous growth occurred in the cannabis business ecosystem in the years since legalization.

 

Outside of the financial gains by the private sector, excise taxes and licensing fees for governments have exploded. In 2014, Colorado received $76 million in revenues. $35 million of which was redirected to the state’s education system. In 2015, revenues were over $135 million, and higher in 2016. In Washington State, the numbers went from $83 million to $185 million in 2016, to over $230 million in 2017.

 

 

2. An End to Criminalization

Advocates thought small drug offences would stop, and amnesty offered to those already incarcerated.

 

A noteworthy study from Stanford University (Open Policing Project) reported that based on data from over 130 Million roadside traffic stops throughout the USA, the rates of traffic stops leading to drug searches dropped dramatically in both Colorado and Washington following legalization. Notable was the stop-and-search rate decrease of 34% between 2011 and 2015 for black drivers, and 25% for Hispanic drivers.

 

However, for the thousands of cannabis users already with criminal records, or still serving prison sentences for cannabis offences committed prior to legalization, those have not been rescinded just to note.

Unintended Consequences?

 

We’ve seen it time and time again, when governments pass laws and don’t think it through. No doubt we will have things come along no one thought of or foresaw. Like for example workplace safety. There have been seventeen (17) explosions at THC extraction labs in Washington since 2014. Or will the legalization of pot in Canada make US border guards more “enthusiastic” than usual and make border crossings longer?

 

The saddest commentary may be that because of the dismal state of the rest of Canada’s economy, cannabis may become our country's fastest growing industry! Heck, at one point Canopy Growth (ticker ‘WEED’), founded in just 2014, had a larger market capitalization (almost $20 Billion) then Harley Davidson ($7 Billion and founded 115 years ago), Foot Locker ($6 Billion, founded 1974), Xerox (1906), Whirlpool (1911), and Bombardier (1942), Canadian Tire (1922), Westons (1882), and telecom giant Telus (1990)!

 

No, I don’t think it makes sense either, and although pot will be a viable, legal business in Canada, the current valuations for pot stocks are in the stratosphere and I think it will end very badly for most of them.

 

So, Canada along with the forward thinking nations of Georgia, South Africa and Uruguay, will be the only nations on Earth where recreational cannabis will be legal.

 

We will soon be surrounded by many dopamine loaded, relaxed (and perhaps increasingly paranoid) individuals who are perpetually late and have trouble concentrating and who are forgetful. However, it should be good business for Frito-Lay though (owned by Pepsi).

 

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Stay tuned,

Vito Finucci, B.COMM, CIM, FCSI

Vice President and Director, Portfolio Manager

 

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