The New Zealand coalition government has announced it intends to conduct a national referendum on the personal use of cannabis at the next general election in 2020,¹ signalling the potential for a major change in policy direction with significant health implications. Proponents of cannabis law reform have articulated a range of reasons for the legalisation of cannabis, including the potential for new commercial opportunities, addressing disproportionate conviction rates for Māori, reducing drug enforcement costs, promoting regional economic development, capturing lost tax revenue, improving access to drug treatment and undermining criminal gangs.^2–5 It is important that the public health consequences of different reform options are also given a high priority in the ongoing debate.

Consequently, it was initially heartening to see the economic consultancy firm “Sense Partners” utilise an established Drug Harm Index methodology⁶ to evaluate the impact of several drug policy reform options, including a legal regulated commercial market for cannabis.⁷ The Sense report’s conclusion that the legalisation of cannabis in New Zealand will confer a net social benefit of $10–$53 million per year (without any additional health intervention)⁷ suggests such a reform is both desirable and risk free. While we are on record as being broadly supportive of cannabis law reform, including decriminalisation and sales by “not for profit” trusts with obligations to return earnings back to the community,^8–9 we believe the Sense evaluation does not provide an adequate picture of the potential risks of a commercial (albeit regulated) cannabis market.

It is important to raise these concerns at this time as in the run up to the national referendum, the public will be bombarded with estimates of a rather dubious nature from both sides of the debate, including from a burgeoning commercial cannabis industry seeking to maximise the profit potential of any future market.¹⁰ In this context, the media and public may come to rely on the Sense figures as an independent source based on economic analysis—as has already been seen.¹¹

We have three principal concerns about the Sense evaluation of a regulated commercial cannabis market: (1) the belief that the price of cannabis can be raised in a commercial cannabis market to restrain any increase in demand; (2) the assumption that a commercial cannabis market will not result in any increase in health and social harm; and (3) the projected level of social benefits from additional spending on drug education and prevention.

The first issue relates to how a commercial cannabis market will impact levels of cannabis use, and most importantly adolescent and high frequency use, as this type of use is most associated with harm.¹² The Sense report authors concede that the legalisation of cannabis “could” increase the demand for cannabis,⁷ but propose that a tax on cannabis sales can be utilised to raise the price of cannabis to restrain any increase in use: “The proposal is to set the levy on cannabis sales such that market prices increase modestly, to minimise any lift in [cannabis] demand (but ensure incentives are such that supply comes into the formal economy)”.⁷ The Sense authors conclude “based on tentative evidence and effective use of price signals, we assume as a base case that there will be no increase or decrease in harm from drug use as a result of legalisation”.⁷

Unfortunately, empirical experience to date shows that the legalisation of cannabis has resulted in substantial declines in the price of cannabis despite the imposition of significant excise taxes. For example, the price of legal cannabis in Washington State has fallen by 25% each year since the opening of legal retail outlets in 2014, despite the imposition of a 37% sales tax on cannabis products.¹³ Similarly, in Colorado, the average retail price of cannabis per gram has declined by 48% since the opening of legal retail outlets in 2014, again despite the levying of a combined 25% tax on cannabis products (ie, 15% excise and an additional 10% sales tax).¹⁴ Economic analysis suggests that (everything else remaining the same) legal production of cannabis will result in substantial declines in price over time as producers draw on cost savings from economies of scale and modern agricultural production practices.¹³ This suggests it will take a very high tax rate and/or minimum price on cannabis, and continual revision of these tax rates, to maintain the legal price of cannabis and counter the efficiency gains of legal cannabis production.

Our second concern is the Sense report authors’ assumption that a regulated commercial cannabis market will not result in any increase in cannabis-related harm. The Sense authors do acknowledge that any increase in cannabis use could result in significant additional health and social costs: “In the absence of harm reduction measures, a 10% increase in [cannabis] use represents nearly $100 million of additional personal and community harm according to the Drug Harm Index”.⁷ Yet, given their earlier assumption concerning the ability to constrain any increase in use following legalisation with a price rise via a tax, they include only a relatively small increase in health spending of $1–$10 million per year (ie, to cover brief health interventions by primary care nurses).⁷ The first part of the above quote (“In the absence of harm reduction measures…”) also appears to suggest they believe harm reduction programmes can be used to largely mitigate the harm from any increase in cannabis use.

There is currently only a small number of published studies on the impact of the legalisation of recreational cannabis use on levels of use and harm, reflecting the relatively recent establishment of legal regimes.^15–18 All of the studies to date have focused on the two US states that were the first to legalise cannabis and have established regulated commercial markets (ie, Colorado and Washington State). Cerda et al investigated the impact of cannabis legalisation on adolescent cannabis use and found mixed results (ie, increased use in Washington State and no change in Colorado), perhaps reflecting the more commercial medicinal cannabis market that existed in Colorado preceding legalisation of recreational use.¹⁵ More recent studies have also found no change in adolescent cannabis use in Colorado following legalisation.^16–17 Wang et al found significant increases in hospitalisations, emergency department visits and calls to the poison centre in relation to cannabis following the commercialisation of legal medicinal and then recreational cannabis use in Colorado.¹⁸

Legal medicinal cannabis regimes have operated in a number of US states for considerably longer than the legal recreational regimes, and consequently studies of the impact of these medicinal regimes provide some insight into the longer-term impact of greater legal availability as they introduce legal use and often retail sales, albeit within a medical framework. A number of studies have found no difference in rates of adolescent cannabis use in US states with medicinal cannabis regimes compared to those without medicinal regimes.¹⁹ However, studies of the impact of medicinal cannabis regimes on adult cannabis use in the US have found higher rates of use, daily or near daily use, and incidence of cannabis dependence in states with medicinal cannabis regimes.^19–22 These findings, along with the previously reported increases in hospitalisations, emergency department visits and poison service calls following legalisation, suggest that any balanced evaluation of the impact of a regulated commercial cannabis market should include the possibility of increasing adult cannabis use and related health costs.

Our third concern is the projected social benefits from increased spending on drug education and prevention under the cannabis legalisation option. According to the Sense evaluation, additional spending of $9 million per year on drug education and prevention will yield social benefits of $19–$64 million per year⁷ based on benefit-cost ratios “found in the literature”.⁷ These estimated social benefits actually lift the Sense evaluation of cannabis legalisation from a fiscal loss of (-) $9–$11 million per year to a net social benefit of (+) $10–$53 million per year.⁷ The Sense authors only cite one reference to support these projected social benefits—a discussion by a leading drug policy researcher on why research has had so little impact on drug policy (from 2001).²³ This article provides no findings concerning the benefit-cost ratios of drug education and prevention. It actually laments the “lack of good quality research and demonstration” of the effectiveness of drug prevention programmes, and is sceptical about the effectiveness of some widely used drug prevention programmes in the US at the time.²³ A more recent review of drug prevention programmes by leading drug policy scholars concludes: “Evidence-based school or family oriented prevention programmes are on average a relatively low cost activity that can yield modest, but potentially important benefits. This general conclusion concerning modest effects is qualified by the observation that some prevention programmes have no evidence of benefit, whereas others show evidence of some effectiveness, and that replication evidence for effective programmes is inconsistent”.²⁴

The Sense report highlights the projected $191–$249 million that could be collected in tax and licensing fees from legal cannabis sales,⁷ but this must be balanced against the additional health and social costs from increased cannabis use and dependency that the taxpayer, not the cannabis industry, will be required to pay for under a commercial market approach. Those who currently disproportionately bear the harm of alcohol and tobacco use are also likely to disproportionately bear the harm of commercially available cannabis, including Māori, high-risk youth, those suffering mental illness and lower socio-economic groups. It is important that as New Zealanders are asked to consider different cannabis law reform options, they are provided with rigorous and balanced evaluations of likely outcomes.

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The New Zealand coalition government has announced it intends to conduct a national referendum on the personal use of cannabis at the next general election in 2020,¹ signalling the potential for a major change in policy direction with significant health implications. Proponents of cannabis law reform have articulated a range of reasons for the legalisation of cannabis, including the potential for new commercial opportunities, addressing disproportionate conviction rates for Māori, reducing drug enforcement costs, promoting regional economic development, capturing lost tax revenue, improving access to drug treatment and undermining criminal gangs.^2–5 It is important that the public health consequences of different reform options are also given a high priority in the ongoing debate.

Consequently, it was initially heartening to see the economic consultancy firm “Sense Partners” utilise an established Drug Harm Index methodology⁶ to evaluate the impact of several drug policy reform options, including a legal regulated commercial market for cannabis.⁷ The Sense report’s conclusion that the legalisation of cannabis in New Zealand will confer a net social benefit of $10–$53 million per year (without any additional health intervention)⁷ suggests such a reform is both desirable and risk free. While we are on record as being broadly supportive of cannabis law reform, including decriminalisation and sales by “not for profit” trusts with obligations to return earnings back to the community,^8–9 we believe the Sense evaluation does not provide an adequate picture of the potential risks of a commercial (albeit regulated) cannabis market.

It is important to raise these concerns at this time as in the run up to the national referendum, the public will be bombarded with estimates of a rather dubious nature from both sides of the debate, including from a burgeoning commercial cannabis industry seeking to maximise the profit potential of any future market.¹⁰ In this context, the media and public may come to rely on the Sense figures as an independent source based on economic analysis—as has already been seen.¹¹

We have three principal concerns about the Sense evaluation of a regulated commercial cannabis market: (1) the belief that the price of cannabis can be raised in a commercial cannabis market to restrain any increase in demand; (2) the assumption that a commercial cannabis market will not result in any increase in health and social harm; and (3) the projected level of social benefits from additional spending on drug education and prevention.

The first issue relates to how a commercial cannabis market will impact levels of cannabis use, and most importantly adolescent and high frequency use, as this type of use is most associated with harm.¹² The Sense report authors concede that the legalisation of cannabis “could” increase the demand for cannabis,⁷ but propose that a tax on cannabis sales can be utilised to raise the price of cannabis to restrain any increase in use: “The proposal is to set the levy on cannabis sales such that market prices increase modestly, to minimise any lift in [cannabis] demand (but ensure incentives are such that supply comes into the formal economy)”.⁷ The Sense authors conclude “based on tentative evidence and effective use of price signals, we assume as a base case that there will be no increase or decrease in harm from drug use as a result of legalisation”.⁷

Unfortunately, empirical experience to date shows that the legalisation of cannabis has resulted in substantial declines in the price of cannabis despite the imposition of significant excise taxes. For example, the price of legal cannabis in Washington State has fallen by 25% each year since the opening of legal retail outlets in 2014, despite the imposition of a 37% sales tax on cannabis products.¹³ Similarly, in Colorado, the average retail price of cannabis per gram has declined by 48% since the opening of legal retail outlets in 2014, again despite the levying of a combined 25% tax on cannabis products (ie, 15% excise and an additional 10% sales tax).¹⁴ Economic analysis suggests that (everything else remaining the same) legal production of cannabis will result in substantial declines in price over time as producers draw on cost savings from economies of scale and modern agricultural production practices.¹³ This suggests it will take a very high tax rate and/or minimum price on cannabis, and continual revision of these tax rates, to maintain the legal price of cannabis and counter the efficiency gains of legal cannabis production.

Our second concern is the Sense report authors’ assumption that a regulated commercial cannabis market will not result in any increase in cannabis-related harm. The Sense authors do acknowledge that any increase in cannabis use could result in significant additional health and social costs: “In the absence of harm reduction measures, a 10% increase in [cannabis] use represents nearly $100 million of additional personal and community harm according to the Drug Harm Index”.⁷ Yet, given their earlier assumption concerning the ability to constrain any increase in use following legalisation with a price rise via a tax, they include only a relatively small increase in health spending of $1–$10 million per year (ie, to cover brief health interventions by primary care nurses).⁷ The first part of the above quote (“In the absence of harm reduction measures…”) also appears to suggest they believe harm reduction programmes can be used to largely mitigate the harm from any increase in cannabis use.

There is currently only a small number of published studies on the impact of the legalisation of recreational cannabis use on levels of use and harm, reflecting the relatively recent establishment of legal regimes.^15–18 All of the studies to date have focused on the two US states that were the first to legalise cannabis and have established regulated commercial markets (ie, Colorado and Washington State). Cerda et al investigated the impact of cannabis legalisation on adolescent cannabis use and found mixed results (ie, increased use in Washington State and no change in Colorado), perhaps reflecting the more commercial medicinal cannabis market that existed in Colorado preceding legalisation of recreational use.¹⁵ More recent studies have also found no change in adolescent cannabis use in Colorado following legalisation.^16–17 Wang et al found significant increases in hospitalisations, emergency department visits and calls to the poison centre in relation to cannabis following the commercialisation of legal medicinal and then recreational cannabis use in Colorado.¹⁸

Legal medicinal cannabis regimes have operated in a number of US states for considerably longer than the legal recreational regimes, and consequently studies of the impact of these medicinal regimes provide some insight into the longer-term impact of greater legal availability as they introduce legal use and often retail sales, albeit within a medical framework. A number of studies have found no difference in rates of adolescent cannabis use in US states with medicinal cannabis regimes compared to those without medicinal regimes.¹⁹ However, studies of the impact of medicinal cannabis regimes on adult cannabis use in the US have found higher rates of use, daily or near daily use, and incidence of cannabis dependence in states with medicinal cannabis regimes.^19–22 These findings, along with the previously reported increases in hospitalisations, emergency department visits and poison service calls following legalisation, suggest that any balanced evaluation of the impact of a regulated commercial cannabis market should include the possibility of increasing adult cannabis use and related health costs.

Our third concern is the projected social benefits from increased spending on drug education and prevention under the cannabis legalisation option. According to the Sense evaluation, additional spending of $9 million per year on drug education and prevention will yield social benefits of $19–$64 million per year⁷ based on benefit-cost ratios “found in the literature”.⁷ These estimated social benefits actually lift the Sense evaluation of cannabis legalisation from a fiscal loss of (-) $9–$11 million per year to a net social benefit of (+) $10–$53 million per year.⁷ The Sense authors only cite one reference to support these projected social benefits—a discussion by a leading drug policy researcher on why research has had so little impact on drug policy (from 2001).²³ This article provides no findings concerning the benefit-cost ratios of drug education and prevention. It actually laments the “lack of good quality research and demonstration” of the effectiveness of drug prevention programmes, and is sceptical about the effectiveness of some widely used drug prevention programmes in the US at the time.²³ A more recent review of drug prevention programmes by leading drug policy scholars concludes: “Evidence-based school or family oriented prevention programmes are on average a relatively low cost activity that can yield modest, but potentially important benefits. This general conclusion concerning modest effects is qualified by the observation that some prevention programmes have no evidence of benefit, whereas others show evidence of some effectiveness, and that replication evidence for effective programmes is inconsistent”.²⁴

The Sense report highlights the projected $191–$249 million that could be collected in tax and licensing fees from legal cannabis sales,⁷ but this must be balanced against the additional health and social costs from increased cannabis use and dependency that the taxpayer, not the cannabis industry, will be required to pay for under a commercial market approach. Those who currently disproportionately bear the harm of alcohol and tobacco use are also likely to disproportionately bear the harm of commercially available cannabis, including Māori, high-risk youth, those suffering mental illness and lower socio-economic groups. It is important that as New Zealanders are asked to consider different cannabis law reform options, they are provided with rigorous and balanced evaluations of likely outcomes.

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