High Income

For most of modern history, cannabis has primarily been produced in lower income countries for consumption in Europe and North America. Its provenance has shaped the way we speak about it: ‘kush’ stems from the Hindu Kush mountain range in South Asia, ‘reefer’ may refer to the Rif mountains in Morocco, while strains like ‘Malawi gold’ and ‘Panama red’ directly advertise their origins. In recent years, the wave of cannabis legalization has raised hopes of redressing this imbalance. Following higher income countries like the US, Canada and Germany, traditional production countries such as Malawi, Mexico, Colombia and Morocco have begun to update their cannabis laws: aiming to give legal producers a fair cut for their crops, so that profits no longer flow to organised crime via illegal exports and sales. However, it seems increasingly likely that as the cannabis market legalizes and formalizes, it will reproduce many of the same symptoms as its forerunner, with traditional producers again finding profits located elsewhere – this time primarily with formal firms in high income countries. Understanding these problems means interrogating the reciprocal process by which policy makes markets and markets make policy.

While legalization has taken different shapes across higher income countries, it has typically had a common feature: it has not created structures for the import of recreational cannabis. In itself this is unsurprising: the protocols for such a paradigm shift are non-existent, and policymakers want to be seen as moving cautiously and ensuring a maximum of quality control. Yet the absence of such structures has amounted to an infant-industry protection or import-substitution policy for new domestic producers, whose international competition is still limited to the illegal market. As a result, domestic production in richer countries has increased rapidly. The market has been flooded with new entrants who have established monopolies at home while investing in production capacity abroad. At first sight they seem to be a diverse bunch, ranging from tobacco companies to celebrities. But they share the ability to set up highly capitalized businesses and navigate a deeply unstable legal environment.  

Diverse models of legalization are simultaneously emerging in many low- and middle-income countries. Some, like Mexico, remain sceptical of larger commercial actors and focus on small-scale production for personal consumption. Others are gravitating towards a framework that favours highly capitalized investors, akin to that of North America. In Lesotho, cannabis farming licenses cost more than a quarter million dollars and have only been granted to five producers so far. Yet for most small producing countries, the legalization of domestic recreational consumption has either lagged or been explicitly precluded, while markets for medicinal use have not reached the scale of those in the US, Canada or Germany. Consequently, conditions for producers in lower income countries remain unfavourable. Given the set-up of their domestic market, the main pathways to growth bring them into direct competition with producers in more affluent states.

These are not the only factors that increasingly make large capital reserves a requirement for cannabis production. For decades, new strains developed predominantly in consumer countries like the US or Canada have entered traditional producer countries. They bring some immediate benefits for farmers, promising higher yields and higher THC contents, both of which are increasingly necessary to compete on the market. But they also commonly require significantly more resources – water in particular – which presents a challenge for small-scale traditional producers in comparatively dry areas, such as the Rif mountains. This threatens to generate another iniquitous dynamic – already seen in various agro-processing industries like cocoa and coffee – in which poorer countries do not benefit from the profits of expanding legal cannabis markets yet bear the brunt of their environmental impact.

Of course, the recreational cannabis trade is still in its infancy. It is unclear how many countries will legalize its use in the coming years, what kind of cannabis products will be offered to consumers, and how the illegal market will function alongside the legal one. But beneath this flux, structures of accumulation and advantage are crystallizing. They suggest that, by the time formal international trade structures are fully developed, most of the profits from growing cannabis will be concentrated in countries which were previously peripheral to production and central to consumption. Within just a few years, cannabis will likely follow the same trajectory of many agricultural products associated with low- and middle-income countries, whereby surplus is hoarded in processing, financing, and retail centres far away from where they are grown. It may also replicate the current distribution of profit in illegal value chains, where most of the retail price for cannabis bought on the street in high-income countries goes to smuggling and distribution networks rather than producers.

Of the ten largest cannabis companies in North America, four have already made inroads into South America. Among them is Canopy Growth, a major Canada-based firm, which has also established subsidiaries in Australia, Europe and Africa. While such investment is generally welcomed by the governments of low-income countries, concerned with promoting new industries and increasing tax revenue, its impact – including on the public finances – will be determined by how it is regulated. And so far, there are no guarantees that it will be positive, especially given the lobbying efforts of these emerging corporations. (Here the tobacco industry offers an instructive parallel.)

This scenario of increasing inequality is not inevitable. Legalization models that facilitate smaller-scale production, from the non-profit markets established in Malta to the reparations for historically oppressed farmers in Mexico, offer an alternative approach. Cannabis taxation in traditional producer countries could likewise become a valuable policy tool. But it is vital to note that if cannabis policymaking continues to develop in an ad hoc and spontaneous manner, it will not yield a great developmental dividend. Indeed, it may simply reproduce the unevenness of illegal markets under lawful management.

Read on: Harriet Friedmann, ‘Farming Futures’, NLR 138.