Could Legalization be the Answer South Africa is looking for?

There is as much information as there is misinformation out there regarding the implications of legalized marijuana. Broadly speaking, we can describe two major frameworks in which to try and sort truth from falsity; on the one hand, there are economic considerations, and on the other, social considerations.  This post will investigate the economic implications that the legalization of marijuana might have for the South African economy. Following in a long tradition since Karl Marx, it will be presupposed that our economic environment shapes the type of social values we prioritize (in Marxist terminology, how “base” influences “superstructure”). This opening post will thus focus on the economic implications, with the next post dealing with the social aspects such a policy might have. In order to do this we will firstly take a look at the impact that legalization has had in America, and, secondly, whether the policies used in the US are viable solutions for some of South Africa’s economic problems.

Colorado – A Case Study

An exemplary example of the positive benefits that legalization affords can be found by looking at the state of Colorado. In November 2012 the state passed Amendment 64, which basically stated that marijuana would be regulated in a way similar to alcohol. Prior to the Amendment, the unemployment rate in Colorado stood at 7.5% (0.2% below the national average of 7.7% in November 2012), and fluctuations up until this point were quite consistent with those taking place on a national level. The national average then went up to 7.9% in December, and peaked at a high of 8% in January of 2013. Colorado, however, deviated from this trend and unemployment actually went down to 7.4% in December, and decreased further to 7.3% in January of 2013. This trend has continued to the present day, with the unemployment rate in Colorado now sitting at an unprecedented 2.3% (according to preliminary projections based on data from May 2017), with the national average hovering at 4.3% (all figures sourced from the United States Department of Labour).
It must be mentioned that this in no way implies that legalization has been the only causative factor at work in this trend. Although the Cannabis industry in Colorado created 18 000 full time jobs in 2015, the state also has one of the lowest business income tax levels in the US (at just over 4.6%), which has encouraged innovative business solutions. This has subsequently manifested in over 60 000 jobs being created in the clean energy sector, as businesses are not constrained by traditional values. Both these trends; legalization and business friendly policies, have combined to create a holistic and environmentally sensitive counter culture in the state. This environmental sensitivity is in line with the fact that the fastest growing industries nationwide in the US are all healthcare related (Borchardt, 2017).

A Broader Perspective

Moving away from the state level to the national level, it is once again clear that legalization has provided a much needed boost to the US national economy. The legal cannabis industry already employs over 100 000 people, and by 2020 it is predicted that this figure will increase to almost 300 000, more than what is expected from manufacturing, utilities and even government. Furthermore, according to research from the ArcView group, the industry is expected to grow from over 7 billion dollars in 2016 to upwards of 20 billion by 2020 (Borchardt, 2017). This large growth is just what is needed at a time in which US GDP growth has stagnated.
More and more states are realising the economic benefits that legalization can provide, with Nevada being the most recent. The state legalized the recreational use of cannabis on the 1st of July this year, and recorded between 3-5 million dollars in sales during the first weekend alone, according to Nevada Dispensary Associate executive director, Riana Durrett, who furthermore predicted “30 million dollars in sales over the next six months” (Borchardt, 2017) Already sales in the state have exceeded all expectations, with a state of emergency regarding legalization regulations being declared on the 10th of July. Sales have sky-rocketed beyond what licensed dispensaries are able to keep up with. The purpose of the declaration is thus to enable better distribution networks to be set up, so that stores can replenish their depleted inventories (Fox News, 2017).
With it now empirically established that legalization offers economic stimulus, is it possible that the same positive outcomes may occur if South Africa adopts similar policies?

South Africa – Are We Ready?

In order to see what the effects of legalization might be in South Africa we will first have to take stock of the country’s current economic situation. South Africa is facing, and has been facing for many years, an unemployment crisis of immense proportions. The unemployment rate in the 1st quarter of 2017 (using the strict method[1]) is at a 13 year high of 27.7% (Stats SA). Using the broad method[2] creates an even bleaker picture, with the rate then going up to 36.4%, with academics suggesting that the broad definition offers a much better insight into the (dis)functioning of the economy. The first quarter of 2017 also signalled a reported decrease of 0.7% in GDP growth, following from a 0.3% contraction in the fourth quarter of 2016. The economy is now officially in a recession.[3] The burden of this contraction has been felt most heavily by the trade and manufacturing industries, with trade falling by 5.9% and manufacturing by 3.7% (Stats SA).
This state of affairs has produced a general sense of pessimism among the South African public, as government inefficiency, junk investment rating status, and poor growth forecasts have combined to create the perfect economic storm. Legalization may not be a universal acid for these problems, but it might be able to provide, at the very least, some economic relief.
As was outlined earlier, in the US, the cannabis industry is expected to surpass that of manufacturing. Combine this with the fact that South Africa is experiencing a downward trend in manufacturing jobs, and you have an opportunity for revenue generated from legalized sales to pick up this economic slack. Tax revenue can be used to encourage innovative business solutions, and will help South Africa keep track with global developments which are trending towards more renewable production activities.
From a political point of view, the legalization movement has the robust support of the Inkatha Freedom Party (IFP), whose late MP Mario Ambrosini was a public advocate of the medical usage of cannabis. The IFP continues this push, clearly displayed in a statement made by Narend Sigh, chief whip of the party, in relation to the legalization of medical marijuana: “We hope that through this the South African public will not be solely beholden to Western medicine and its associated astronomic costs, but have a viable alternative medicine that is just as, or more, efficacious than its Western treatment counterpart” (Steyn, 2016). The type of legislation pursued by the IFP is more concerned with the medical usage of the product as opposed to recreational usage.

Julian Stobbs, one half of the “Dagga Couple”, is at the forefront of advocating for the legalization of recreational use, echoing the themes addressed in this post when he claims that “The economic implications are absolutely astronomical if you look at what is going on in the rest of the world”( Steyn, 2016). Stobbs is also the director of social activism for a non-profit organisation known as Fields of Green for All.
Recreational legalization would lead to lower government expenditure on law enforcement and increased tax revenue from regulated sales. At a time of fiscal consolidation and investment uncertainty, this is just the stimulus the South African economy desperately needs.


-Fabio Tollon

 

[1] The narrow method refers to those who have “taken active steps to look for work or to start some form of self-employment in the four weeks prior to the interview”, sometimes referred to as the searching unemployed.
[2] The broad method includes those who want to work but are not actively searching for a job as they have lost hope of ever finding one.
[3] A recession is defined as two or more quarters of GDP contraction.

 

Sources Consulted

Borchardt, Debra, 2017, “Cannabis Industry Weekly Recap 7/7/2017”, [Online]. Available: https://www.forbes.com/sites/debraborchardt/2017/07/07/cannabis-industry-weekly-recap-772017/#1d8e04104730 [July, 2017].

Borchardt, Debra, 2017, “Marijuana Industry Projected To Create More Jobs Than Manufacturing By 2020”, [Online]. Available: https://www.forbes.com/sites/debraborchardt/2017/02/22/marijuana-industry-projected-to-create-more-jobs-than-manufacturing-by-2020/#1e1d1ba63fa9 [2017, July].

Durden, Tyler, 2017, “After Legalizing Weed, Unemployment In Colorado Has Collapsed To Record Lows”, [Online]. Available: http://www.zerohedge.com/news/2017-06-05/after-legalizing-weed-unemployment-colorado-has-collapsed-record-lows [2017, July].

Fox News, 2017, “Nevada marijuana supply running low, state of emergency declared, governor says”, [Online]. Available: http://www.foxnews.com/us/2017/07/11/nevada-marijuana-supply-running-low-state-emergency-declared-governor-says.html [2017, July].

Statistics South Africa (Stats SA), [Online]. Available: http://www.statssa.gov.za/ [2017, July].

Steyn, Lisa, 2016, “’Cannabusiness’ is worth billions”, [Online]. Available: https://mg.co.za/article/2016-12-15-00-cannabusiness-is-worth-billions [2017, July].

United States Department of Labour Statistics, [Online]. Available: https://www.bls.gov/ [2017, July].


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