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Legal marijuana industry can flourish if ...

Published:Thursday | October 30, 2014 | 12:00 AM
Dr André Haughton

"THE ROAD to legalising marijuana in Colorado wasn't easy, but it was worth it," said Wanda James of Cannabis Global Initiative. It won't be easy here in Jamaica, but it will be worth it.

The Department of Economics, Mona School of Business and Management and the Faculty of Law at the University of the West Indies, Mona, collaborated to host a forum to discuss the legal, economic and business implications of legalising marijuana in Jamaica dubbed 'Guilty Drugs/Innocent Plant'. The forum was a success.

What are the economic implications?

We examine marijuana production from the angle of comparative advantage. We believe marijuana can replace the usual uncompetitive farming crops, including sugar cane and bananas, which have contributed to slow growth in gross domestic product (GDP), low export to import ratio and a consistently high debt to GDP ratio. With this in mind, we explore to verify the production cost, wholesale price, distribution cost and retail sale price in Jamaica compared to North America and the rest of the world.

What is the difference in cost of production?

Research by High Alert Capital Partners (HAPC) indicates that it cost on average US$177 (J$20,000) to produce a pound of marijuana in a regular greenhouse operation in the US. Our research shows that cost in Jamaica varies depending on where the marijuana is produced and the grade of the production. We have identified three different production processes, with associated cost of J$800, J$1,500 and J$3,400 per pound wholesale price, which is significantly lower than the cost in the US. Upon adding taxes and distribution cost, the HAPC estimates that the wholesale price of a pound of marijuana in the USA is US$254, compared to our three-farming process where the wholesale price, if the Government adds similar taxes, would be US$27, US$36 and US$89 respectively, way below the average price in the US. What about retail sale?

The HAPC estimates show that the retail price for a pound of marijuana in America is US$954 per pound after adding sales tax of 18 per cent and a retailer markup of 175 per cent. Our research here in Jamaica shows that retail price per pound for the three different types of marijuana produced is US$71, US$114 and US$214. This works out to roughly US$4.50, US$7 and US$13 per ounce here in Jamaica, way cheaper than the US$60 per ounce in the US. We also compared our prices per gram to global street prices estimated by the HAPC. Per gram cost in Australia is the highest at more than US$18, per gram cost in Europe and North America is the same at US$10, US$9.25 in Asia, US$1.59 in South America, US 52 cents in Africa and US 25 cents here in Jamaica. If the Government were to add 16.5 per cent GCT, the retail price in Jamaica would still be the cheapest in the world at US 29 cents.

What about the business model?

Fundamentally, all presenters agree that a legal marijuana industry can flourish in Jamaica if the business model and the legislative framework allow everyone to participate competitively. Small enterprises must be given the chance to produce and distribute similar to large enterprises and vice versa. Farming of the product will continue along the community level similar to what is happening now, the only difference is that technology will improve in the production processes if and when it is legalised such that production output increases. All the value chains will be explored and each individual/enterprise will have the opportunity to do something in the industry. The global marijuana market is so large that it can absorb all that we produce here in Jamaica and more.

What about the market?

Jamaica will close its borders; there will be no physical export of the produce. This strategy will boost tourism and contribute more to the local economy as the excess demand for the product from abroad will come here for consumption. Marijuana companies will raise funds on the stock market similar to that in the US. The Government must put laws in place to ensure that Jamaicans own 60 per cent of each business, and all venture capital coming into the country passes through the stock exchange such that the money remains in the country. Stocks purchased in marijuana firms will help to improve the profile of the Jamaican stock market, increasing our access to capital in the global marketplace. New automated technology used abroad will be adopted, helping the Government collect taxes easily and rid us of this high debt burden and finalise our foreign debt servicing in no time, thereby improving the 'irieness' of the country on a whole.

Dr André Haughton is a lecturer in the Department of Economics on the Mona campus of the University of the West Indies. Follow him on Twitter @DrAndreHaughton; or email