State Monopolies and The Investor

I’ve railed at various times about the creation of State Monopolies to distribute cannabis.

I’ve experience with them in my professional life – notably power, and interacting within the booze regime in Alberta, where I’d acquired an importation license to import tequila and craft beer from the states.

It seems right to put all of it in one place, and explain why these Zombies of the State are an anachronism in the 21st century: utterly vulgar for consumers, businesses, investors, and ultimately……the citizen.

When the pure, naked, and bottomless greed of governments across the country rolled cannabis into their purview, I wrote a couple of nastygrams to my elected representatives. And with predictability – I got nothing but condescending palp in response. Not once did they attempt to address my concerns.

We’ve got a real life examples of outcomes in the superior customer service yous gettins from Ontario Cannabis Storage.

Fed up? Want to take your business elsewhere?

You’re fucked. And they have the stones to be angry about the fact you’re angry. Don’t you know they’re doing their best? You ungrateful slob. Besides, they were lied to by the criminal elements.

Here’s my concerns about State Monopolies inserting themselves into peoples lives.

State Monopolies create economic distortions

Price Controls have been around for millennia. And they’ve been useless since the first Roman Emperor tried ‘em.

Centrally planned economies have been largely phased out of existence, as people will simply act in their own best interests. If they find a price too high, they seek alternatives. And having a nation state setting prices simply fucks up the economy (see Marxism & Maoism for how this sort of thing turns out).

The feds ‘discovered’ this distortion when ramping taxes on cigarettes, effectively setting a floor price for tobacco. At a certain level of taxation, people avoid the system entirely.

While tobacco companies complained about lax enforcement, it’s easy to pick on tobacco btw, their complaints were largely ignored. That they don’t have many allies anywhere didn’t help.

But it was found that the propagation of illegal smokes – smuggled in, avoiding excise taxes – went big when the price per package went above a certain level ($15). The federal government backed off and lowered taxes to try and capture the tax leakage they saw.

State Monopolies institutionalize inefficiency

People organize their affairs as they see fit. Some are willing to pay for a premium product. Some are fine with a no-name for less cost.

What governs the allocation of resources in the economy is efficiency. Production levels correspond to demand, and those companies that deliver a product within a price range sell stuff. Those who produce this given product – but for much higher cost than competitors – will not sell their goods.

In the case of State Monopolies: ‘it costs what it costs’. There is no mechanism to react to changes in the market, and adds a fixed component that lives independently of consumer choice, and it’s value within it.

Given that LP’s have been selling to consumers directly for years – tell me why physical handling is required – where an LP must ship from it’s loading dock to a State Warehouse – where it is unpacked – and shipped back to an LP’s store for resale. Think about that.

Manitoba isn’t building a warehouse. Why would they? All they need to do is track and measure their take. Anything beyond that is pure waste.

Harberger’s triangle describes this well with respect to taxes. But even with taxes aside, the cost of the monopoly itself is simply dead weight burden to society.

And price discrimination is emergent in jurisdictions – across the value chain. We see this in differentials between medical and recreational cannabis, as well as in wholesale and retail margins across the country.

Need something a little less esoteric? How about…….

State Monopolies mute the price signal

The price signal is the only thing we have to determine scarcity. Typically, more scarce = higher cost. Because that’s the signal to the individual about availability, producers to increase or decrease production, and for the whole lot of them to decide how to allocate capital.

You know…to actually make purchasing decisions with their own money.

Monopolies install cost that has zero value add.

The Reactive Nature of Regulation

Regulatory is reactive. Some undesirable activity is taking place. Regulators move to stop it.

Regulatory thought in the early ’90s was to establish some guard rails, and get out of the fucking way. A ‘light touch’ as it were.

Sadly this didn’t last long. Bureaucratic empires can’t get built with that kind of thinking, and as is extremely well known in politics: a politician without a budget is nothing.

But, but… say….the free market needs regulation molly. Really. The capitalists will pillage the village and make servants of us all in the absence of regulation.

Of course I agree.

The rule of law needs laws to be ruled by. And, there are some very bad actors out there in the world. Natch. Hence why there is prisons.

But the debacle of the global financial crisis in 2008 showed us the folly of the tautology that regulation keeps bad things in check.

You remember the crisis right? The one where banks were selling bags of dogshit to each other, adding more dogshit to the bag with every transaction?

There were 16 governmental agencies with some 30,000+ employees responsible for regulating the North American financial sector. And they were as culpable and as complicit as the people trading the bags of dogshit. If you disagree with that – at the very least – we can say there was regulatory failure, and policy failure.

And there is no cost to them for either. There’s now 47,000 of them.

This isn’t a an inverted paean about regulation. Only a statement that regulatory needs to be crisp, effective, and as efficient as possible.

State Monopolies obscure and distort markets – adding to regulatory burden to mitigate the distortions. Which complicates incremental regulations, leading to regulations metastasizing, and unbounded cost expansion.

The Experience in Power

Much of my view comes from watching the interplay of regulators with local monopolies and power providers.

They are all camps armed with lawyers, who conduct their wars in the battlefield of the courts. With costs ultimately landing on the ratepayer.

Inefficiency abounds. I could provide examples for days. But since rant will take days (kinda like this one), take my word for it.

Or google “electricity regulation and inefficiency” if you’ve got a decade or so.

Alrighty then molly. So you’re pissed off. Surely there’s a need for State Monopolies. You want to privatize the Air Force dickhead?

No, I don’t. And there is good reason for State Monopolies. And it’s easily defined. It’s also the sole reason for them to exist.

Provision of Public Goods

public good is something that makes sense to monopolize. Think of electricity transmission. If there were multiple suppliers each needing their own wires to your home, you’d never be able to see the sky but for wires in your back yard. The police, firefighters, land for public parks. You get the idea.

A natural monopoly occurs when there is benefit (or cost) to society – but the cost (or benefit) is attributable to no specific individual.

Try to put together an argument that cannabis is a public good. Or that State Monopolies are a good idea in any private sector product provision for that matter.

If you’ve lasted this long: Congratulations. And I hope you’re as pissed off as myself at the farce of State Monopolies muscling in on private business.

But TheCannalysts are a group that provides investor education and analysis and such on an industry. So….I’ve left the single best and most compelling reason why investors should loathe State Monopolies for last:

State Monopolies create winners, and losers

Nifty little craft outfit somewhere that you’ve heard about somewhere? Want to try a novel strain you’ve heard some trusted friends tell you about? Uh oh. Unless it’s listed by the State Monopoly in your province – not a chance bub.

Unless you have some smuggled (mailed or driven) by a person from another province of course – who also would be breaking the law by sending it to you. But only after purchasing it from their own State Monopoly.

Small business is at a natural disadvantage by not having the resources to negotiate with 13 State Monopolies – who have minimum supply requirements, different logistical demands, and probably different packaging standards emerge over time. LP’s need supply deals – rather than putting product into stores that deal with supply demand every single purchase.

For a store desiring to open for niche products or suppliers – they have to compete with other stores to buy product – rather than negotiate directly. the State Monopoly owns the listings, and owns the right to say who goes where.

BC is actually coming out on the shortest end of the stick here because they have a robust and varied market to begin with. And there is no way state monopolies will carry 30,000 SKUs (at least for a decade). Indeed, there is no reason for them to carry a single one.

They do not have to warehouse. They do not have to confiscate online sales. They do not have to block entrepreneurs and deny people with dreams of business ownership from being able to open a store.

It is a vulgar expression of the power of the State – and contrary to the very essence of freedom of choice, and freedom of actions around a legal product in a free society.

Tax something to reflect societal harm? Ok. Regulate for reasons of public safety? Fine. Put in controls to track supply chain and quality? Hip.

But tell me who an adult of legal age can purchase a legal product from, and which legal supplier I choose to give my money to?

Fuck off. And get the fuck out of my wallet while you’re at it.

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