Marijuananomics 101 Or How Rising Canadian Dollar Hurts Sales 'BC Bud' In United States

Submitted by Dmitri Davydov on Sat, 2007-11-17 09:45.
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This is a kind of article that you'd never read in The Wall Street Journal. If you liked Freakonomics, you'll love this article:

For years, backpacks crammed with cash have slipped north into Canada, followed closely by hockey bags packed with premium marijuana skating south into Montana.

A favorable exchange rate (not long ago, one American dollar bought one and a half Canadian dollars) made the smuggling profitable, and thus popular.

But last month, for the first time in more than 30 years, the two currencies were at par, matched in value, and Sunday a Canadian dollar bought $1.06 U.S.

The financial tables have turned, and global economics have done what U.S. law enforcement could not: Capitalism has stopped the smugglers in their tracks.

Call it Marijuanomics 101.

America borrows itself deep into the hole, ratchets up its trade deficits, buries itself beneath subprime mortgage debt, devalues its dollar with interest-rate cuts, and the currency plunges.

Meanwhile, Canada’s economy booms on oil, foreign investors turn north for stability, and the “Loonie” — Canada’s dollar, named for the bird on the coin — hits a 50-year high.

Suddenly, it’s far more expensive to buy Canadian exports, legal or otherwise, and smuggling profits disappear.

“It’s very simple,” said Stephen Easton, professor of economics at Simon Fraser University in Vancouver, B.C. “Canadian marijuana production costs are met in Canadian dollars, and those are worth more now.”

Previously, he said, pot growers could produce a pound of potent “B.C. bud” for about $2,000 Canadian and, with the exchange rate, smugglers buying with U.S. currency could sell it for a hefty profit south of the border. In those days, an American dollar in Canada was like a 50 percent discount card, and there’s nothing like a wholesale discount to bolster retail profits.

Production costs remain in the range of $2,000 Canadian, Easton said. But with the currencies at par, the profit margin is completely gone, unless Montanans are willing to pay 50 percent more for the prime northern bud. A smuggler’s risks and transport costs are no longer offset by profit.

“The upshot is that the Canadian marijuana is now less competitive against marijuana grown elsewhere,” Easton said. “This is a cost-driven business. With exports no longer viable, the British Columbia marijuana industry has certainly taken a hit, so to speak.”

[Via - BadCyclopedia.Com]

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