Price Theory: Can Canada’s Cannabis Law Defeat the Law of Supply and Demand?

published on October 13, 2017 by Paul Roberts in Leafly

Last week, Canadian Prime Minister Justin Trudeau unveiled the government’s proposed tax rate consumers will pay when Canadian provinces start selling adult-use cannabis sale next July. On products retailing for ten dollars or less per gram, the feds will charge a flat dollar (80 cents US) per gram; for products priced at more than ten dollars a gram, the tax will be 10 percent.

As with much of Canada’s proposed-but-not-quite-final cannabis law, Trudeau’s proposed tax rate may yet be tweaked. But as it stands, the $1 rate implies an average retail price of around $10 a gram, according to analysts, which is roughly in line with what Canadians now pay for federally licensed medical cannabis, according to survey data from Calgary-based CannStandard.

Even more importantly, a $10-dollar price is in line with what government policy analysts hope is the public-health sweet spot: high enough to discourage underage use or adult abuse of cannabis, yet low enough to, as Trudeau himself put it, “remove the black market from accessing the billions of dollars of profits that they do every year off of this.” Trudeau has company. Just weeks before his announcement, officials in Ontario, considered to be the province furthest along in rolling out a retail system, indicated that they’re also targeting a $10/gram price point.