Canada's cannabis experiment

I was on field trip in Ontario last month with several MPs and charities to check out the legal cannabis market that has been in operation since October. The event was organised by the splendid drug reform group Volte Face and filmed by a BBC crew whose documentary went online yesterday.

It's well worth watching the documentary. Prior to the trip, the views of the three MPs differed. Norman Lab (Lib Dems) was firmly in favour of legalisation, David Lammy (Labour) was tempted but not convinced by arguments, and Jonathan Djanogly (Conservative) was open-minded but basically supportive of the status quo.

As the BBC reported on Monday, all three now believe that legalisation is inevitable, and Lammy is firmly in favour. Djanogly has written a thoughtful piece for Cap-X in which he weighs up both sides and discusses what is needed to make the best of legalisation.

For me, the surprise was how big the black market still is. At least two-thirds of recreational cannabis is purchased from illegal suppliers and that is unlikely to change until the government makes the legal product more attractive. The most important thing is to get legal prices down; they are currently 50 per cent higher than black market prices. It would also help if the government allowed shops to use some of the nudges of consumer capitalism. Getting rid of plain packaging would be a start...

I've written about the trip for the Spectator...

I had forgotten how much I disliked cannabis until I found myself under its influence, in the rain, trying and failing to find Toronto’s Union Train Station so I could get to the airport and go home. The plan had been to enhance my mood for a long journey, floating back to the UK in a higher state of consciousness. In practice, I just got confused, wet and was lucky to make my flight.

I had intended to purchase the kind of low-THC, high-CBD weed that disappeared from Britain’s black market when skunk took over in the 1990s. Put simply, THC is the psychoactive component that gets you high but is associated with psychosis, while CBD is the antipsychotic component that gave cannabis its natural balance before it was bred out of the plant by drug dealers. Alas, laziness prevailed and I settled for a ready-rolled joint which my vendor candidly admitted was made up of scrapings from whatever they’d been chopping up that day.

In truth, the spliff had been bought on the ‘when in Rome’ principle. Recreational cannabis has been legal in Canada since last October and I was on a fact-finding trip with a BBC film crew and a cross-party group of MPs, including Norman Lamb, David Lammy and Jonathan Djanogly. In a few months time, Illinois will become the eleventh US state to legalise recreational marijuana. With the dominos falling, it is only a matter of time before a European country, possibly Britain, follows suit. We were there to see how it works.

Do read it all.

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Laffer Curve spotted in Estonia and Latvia

Estonia came third in this year's Nanny State Index, rising up the table by twelve places. This was largely thanks to its huge alcohol tax rises in the last two years, but these were accompanied by unintended, but hardly unpredictable consequences, as I explained at the time...

Estonia’s taxes on beer, wine and spirits have been higher than the EU average for years and have risen sharply since the first Nanny State Index was published. Between 2016 and 2018, spirits duty rose by 30 per cent, wine duty rose by 50 per cent and beer duty doubled. This has led to a textbook illustration of the Laffer Curve as Estonians travel to neighbouring Latvia for their booze shopping and Finns – who have long made the trip to Estonia for theirs – go elsewhere. The government expected alcohol revenues to rise from €251 million in 2016 to €276 million in 2017. In fact, the tax rise caused revenues to fall to €229 million and had a devastating impact on small shops in poor regions close to Latvian border which relied on alcohol sales.

It has been a sobering experience for the Estonian government which has now dropped plans to introduce further tax hikes on alcohol in 2019 and 2020.

As it turns out, the government has gone further than merely dropping its planned rises. It has cut alcohol duty. By a lot.

As Estonia tries to recover its alcohol customers lost to neighbouring Latvia due to high excise duty, the parliament in Tallinn has passed a 25% cut in excise duty rate.

The cut came into effect on 1 July and led to more good news, this time in Latvia...

Following the slashing of excise duties by 25 percent on beers, ciders and strong alcohol which came into effect in Estonia at the beginning of the month, Latvia has responded with the 15 percent cut of its own, as previously promised and to come into effect on Aug. 1.

Arguments in favor of cutting Estonia's duties, which had seen successive waves of excise duty hikes, were mostly concerned with halting the cross-border alcohol trade which had seen Estonian, and even Finnish, customers heading to Latvian border towns such as Valka to stock up on drink, thus hemorrhaging Estonian tax receipts as well.

Latvian Prime Minister Krišjānis Kariņš (Unity) said on the eve of the Estonian law coming into effect that it was not how neighbors should behave towards one another, citing damage to its own alcohol retail sector.

Boo hoo.

The Latvian finance ministry projected the effect on state budget arising from the Estonian law to be €92 million, and recommended cutting excise tax on strong alcohol by at least 15 percent in order to offset said effects. The ministry said it expects the tax cut to reduce the negative fiscal impact to €32 million.

 The laws of economics win again.

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Economic illiteracy in 'public health'

Anna Gilmore can turn any academic discipline into junk, none more so than economics. As Carl Phillips remarked some years ago...

It is not entirely clear whether she is in the subset of liars who know they are disseminating disinformation or the subset who claim to be experts but simply have no idea what they are doing.  My assessment, based on her previous foray into economics (see my analysis of it) is that while she seems to be intentionally misleading about epidemiology, in economics she probably never read so much as a first-semester textbook before writing her unintentional comedy.

 She had another stab at the dismal science last week and generated a few headlines like this...

Tobacco companies raise prices more than required by tax changes, despite claims

Study undermines industry claims to be concerned that making cigarettes too expensive will push people towards illicit tobacco products

Why would anti-smoking campaigners be complaining about high cigarette prices? Because they think it shows something it doesn't.

For reasons that will soon become clear, Gilmore's latest study would never be published in an economics journal, but it was good enough for the comic Tobacco Control. You can read it here. The problem is evident from the first paragraph.

Higher retail prices, often created by tobacco taxes, are one of the most effective ways of reducing tobacco use and hence the associated harms to health. However, as part of their lobbying effort against tobacco tax increases, the tobacco industry claim [sic] the resulting higher prices will force smokers into buying illicit tobacco. The tobacco industry also claim [sic] they want to combat illicit and if the industry were truly concerned that high prices increased it, they would only increase retail prices in line with changes in taxation, particularly given their already high level of profitability.

Gilmore and her five chums then proceed to work out what proportion of tobacco price rises was due to tax hikes between 2010 and 2015 and what proportion was due to the tobacco industry raising prices. They don't even get this right. Instead, they attribute any retail price rise above and beyond the rate of tax to the tobacco industry, presumably because they don't realise that retail prices are generally set by retailers, not manufacturers.

Leaving that aside, they find that in nearly every case, the 'tobacco industry' raised prices above the rate of inflation, adding between 13p and 53p per pack every three years (while tax rises ranged from 43p to 93p - all figures in real terms).

They then triumphantly conclude:

...for all price segments (apart from the FM subvalue segment in 2013–2015 when this was seemingly being promoted by the industry) the tobacco industry was overshifting taxes, indicating that the industry was not concerned sufficiently about its alleged threat of illicit to avoid price increases. This implies that the industry does not believe their own argument that higher taxes/prices encourage illicit tobacco purchasing.

This is bollocks. It would only be true if the tobacco industry's sole aim was to minimise the size of the illicit trade. Even Gilmore et al. must realise that it isn't. The aim of any business is to maximise profit, and the tobacco industry is only interested in minimising the illicit trade insofar as it affects profits.

A very large proportion of illicit tobacco is produced by the tobacco industry abroad and imported by smugglers and booze cruisers, so it doesn't have much effect on industry profits overall.

A smaller proportion of illicit tobacco is produced by unlicensed manufacturers and criminal gangs. This does have an effect on industry sales, but that doesn't mean that it makes sense for the legal industry to minimise pricing to minimise this traffic.

If you sell 100 million units of something that has a profit margin of 50p per unit, you make more money than if you sell 120 million units with a profit margin of 30p per unit. You could always make more sales by slashing prices, but it doesn't necessarily make economic sense to do so.

As far as the government is concerned, however, revenue is lost regardless of the nature of the illicit trade. From the government's perspective, the optimal size of the illicit trade is zero, and that's why the industry makes this argument to government. It is a perfectly valid argument to make, and it is true that higher prices drive illicit activity, but that does not mean that it is in the industry's interest to minimise its profit margins.

This is really basic stuff. You'd think that at least one of the six authors would have spotted the fallacy.

You could turn their stupid argument on its head to make an equally stupid anti-anti-smoking argument:

Public health campaigners claim that higher retail prices, often created by tobacco taxes, are one of the most effective ways of reducing tobacco use. However, our study shows the industry deliberately increases cigarette prices and is therefore not concerned about consumers quitting or cutting down to avoid price increases. This implies that the industry knows that higher prices do not lead to lower consumption.

This would be mistaken and for exactly the same reason. It is the combination of margin and volume that counts, not one or the other.

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The idiocy of food reformulation

Apparently, it is asking too much of people on a diet to refrain from eating chocolate bars.

From the Telegraph...

Cadbury's has launched a diet Dairy Milk chocolate bar in the first recipe change since 1905, with lower sugar Jelly Babies and Oreos to follow.

A new version of the classic bar containing 30 per cent less sugar will go on sale on Wednesday as part of industry efforts to respond to the obesity crisis.

That's the obesity crisis. The thing that Public Health England is strong-arming the food industry into mass product reformulation to tackle.

The firm announced the new bar last year, the month after the Government unveiled the second phase of proposals to halve childhood obesity by 2030.

That's childhood obesity. I can't stress the word obesity enough.

But whilst the sugar content has dropped from 56g per 100g in the original bar to 39g per 100g in the new version, the calorie content remains similar between the two bars.

It's not really a 'diet' version, then is it? And it's not going to have any effect on obesity.

And if Cadbury's think they can appease the government by cutting 30 per cent of the sugar, they've obviously forgotten that they are also expected to cut 20 per cent of the calories in the next few years.

This is all so utterly pointless. We saw the same thing with Coco Pops last year when Kellogg's annoyed their customers by taking out 30 per cent of the sugar. This reduced the energy content of a bowl of Coco Pops by a whopping one calorie. (Because - whisper it - there are not actually that many calories in a gram of sugar.)

Even if you are mad enough to believe that the government should be taking arbitrary quantities of ingredients out of food to allow people to stuff their faces without getting fat, this is clearly not the way to do it.

This is what you get when bureaucrats take over, and stupid targets take precedence over common sense.

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Tobacco prohibition

Judge Magazine, 1920

It took Theresa May to resign as prime minister for us to discover what lies behind that inscrutable mask. For three years, political pundits wondered what she really believes in. In the dying days of her administration, we found out - and it is not pretty.

In recent weeks, Mrs May has put forward a string of policies designed to tie the hands of her successors and secure some sort of ‘legacy’. Some of them, such as the net zero carbon target and the creation of an ‘Office for Tackling Injustices’, are expensive gestures. Others, such as a tax on milkshakes and a ban on young people driving after dark, reveal two of Theresa May’s biggest flaws: casual authoritarianism and a penchant for simplistic solutions. It is a nasty combination.

According to the Financial Times, she wanted to announce new taxes on food as her last act as prime minister. It is hard to imagine a grubbier epitaph. If this is her domestic agenda, be thankful that Brexit consumed so much of her time in office.

May’s penchant for arbitrary targets and knee-jerk illiberalism emerged again today with a Green Paper which announced that the government is ‘setting an ambition to go “smoke-free” in England by 2030.’ This will come as a surprise to those who remember England going ‘smoke-free’ in July 2007 when smoking was banned in every building open to the public, but the meaning of ‘smoke-free’ has undergone a significant change. It now means no smoking, anywhere, ever. It means, in effect, prohibition.

How the ratchet has turned. Anti-smoking campaigners have used various arguments over the years, most of them spurious, but usually having the appearance of addressing a market failure in a way that is not wholly inconsistent with a liberal democracy. Advertising tricks people into smoking and so it must be banned, they said. Once advertising was banned, they portrayed tobacco counters and cigarette packs as a form of advertising and banned them too. Bar staff were being killed by secondhand smoke, they said, and so smoking in pubs must be banned. Anyone could see that their real aim was to make it harder for people to smoke, but at least they paid lip service to John Stuart Mill’s harm principle.

Children were often invoked. Colourful packaging lures children towards a life of addiction, they said. Taxes need to rise to keep cigarettes out of the hands of children. Smoking needed to be banned outdoors in case children started to see it as normal. Think of the children, think of the children won’t somebody think of the children?

Few of these arguments were ever sincerely deployed and they can be discarded entirely now that we are in the final phase. Today’s announcement is not about stopping children smoking. It is about stopping everybody smoking. You could be smoking a fag in the middle of a field on your own during a gale and it would still be intolerable to the Department of Health. Under the Conservatives, there will be no more smoking.

The government gives no economic or ethical justification for stamping out a risky but pleasurable activity enjoyed by 14 per cent of the population over the next ten and a half years. It doesn’t bother with the usual tepid assurances about consenting adults having the right to smoke. How could it? The government doesn’t think anybody should smoke, and in the dying hours of Theresa May’s premiership, it is jolly well going to say so.

The government is entitled to its view, even if it is patently not shared by those who like smoking. In a free society, disliking something is not sufficient reason for banning it. Contemporary Britain is not a free society.

How does the state intend to stop people smoking? The details are vague and Mrs May has handed the problem over to her successor ('Further proposals for moving towards a smoke-free 2030 will be set out at a later date’). There is talk of a levy on tobacco manufacturers, but this would amount to nothing more than another small hike in the price of cigarettes. Smokers have coped with many such tax rises in the past, not least by buying from abroad or on the black market. The impact on the smoking rate would be negligible, although it would help fill the coffers of the ‘public health’ groups that are lobbying for it.

More encouragingly, the government mentions e-cigarettes and heated tobacco products. If combustible cigarettes eventually disappear, it will be thanks to such devices. There is little doubt that vaping has done more to lower the smoking rate in recent years than heavy-handed regulation, but it has been the result of consumer preferences and market forces, not arbitrary targets from the state. Regulators have only hindered the vaping revolution.

The government intends to set ‘an ultimatum for industry to make smoked tobacco obsolete by 2030, with smokers quitting or moving to reduced risk products like e-cigarettes.’ I have no doubt that many smokers will make the transition to these products over the next decade, but the industry cannot force them. Personally, I prefer vaping to smoking and made the switch seven years ago, but I know many people who greatly prefer the traditional cigarette and have no intention of quitting. The government has an unrealistic view of market economics if it thinks that industry can dictate terms to consumers.

It is conceivable - indeed, likely - that the combustible cigarette will go the way of clay pipes and snuff sooner or later. Future historians will associate them with the 20th century, not the 21st. The smoking rate will probably be very much lower in 2030 than it is today, but it will not be zero and will almost certainly be well above zero. Any attempt to push prohibition on people who have not consented to it will end in failure - and if they consent to it there is no need for prohibition.

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'Public health' vs. individual liberty - the debate

Dolly Theis is doing a PhD in 'public health' which suggests that she might waste her life working in that racket. I try to talk her out of it in this podcast. Check it out.

The blurb...

John Stuart Mill articulated the Harm Principle in On Liberty, where he argued that "the only purpose for which power can be rightfully exercised over any member of a civilized community, against his will, is to prevent harm to others."

So would he have backed the nanny state? Eating sugary food, drinking alcohol and smoking cigarettes are legal activities. But politicians still use the law to discourage them. They raise their price, prohibit or limit their advertisement, restrict where they can be sold and consumed, and sometimes ban them outright.

So do these politicians thereby violate John Stuart Mill’s famous principle that people should be free to do whatever they like, provided they harm no one but themselves? Or is the nanny state simply protecting consumers from the harms and excesses of, well, excess. The IEA’s Head of Lifestyle Economics, Christopher Snowdon, and the Programme Director of Big Tent and PhD student studying evidence-based policy Dolly Theis debate the topic.

You can subscribe to this podcast on Apple Podcasts and find more films, blogs, podcasts and reports at iea.org.uk.

Listen now.

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The chickens come home to roost at AG Barr

Before the sugar tax was introduced, someone on Twitter bet me that AG Barr’s share price would be higher in April 2019 than it was in April 2018 (when the tax came into effect).

I didn’t bet against him, but he was right. Fair play. The makers of Irn Bru have done a good job of keeping up investors’ confidence by increasing dividends and putting out good news stories like this....

Irn-Bru maker AG Barr has reported a rise in sales and profits after shrugging off the new sugar tax, the March cold snap and CO2 shortage. 

The Cumbernauld-based firm reported a 4% rise in underlying pre-tax profits to £18.2m for the six months to 28 July after sales climbed 5.5% to £129.8m. 

Earlier this year, headlines such as ‘Low-sugar Irn-Bru still hits sweet spot’ may have led you to believe that delisting your best-selling brand and replacing it with a government-approved, artificially sweetened forgery was the route to success for a soft drinks manufacturer.

Alas, today the chickens came home to roost...

AG Barr's share price plummets after profit warning

Irn-Bru maker AG Barr's share price fell sharply on Tuesday after the company issued a profit warning.  

The Cumbernauld-based said it expected sales to drop by 10% and profits by up to 20% as they struggle against a strong year in 2018. It cited poor weather and "challenges" facing some of its brands, particularly its Rockstar energy and Rubicon juice drinks. 

The weather in Scotland is becoming an all-purpose excuse for the broken promises of the ‘public health’ lobby, isn’t it?

More realistically...

AG Barr's Rubicon division has faced challenges since the introduction of the sugar tax, with several drinks companies having to change their recipes to reduce sugar levels. 

Narrator: They didn’t have to reduce them.

This has led to a backlash among some customers, who have complained about the new tastes.

No kidding. It would take a heart of stone not to laugh.

Imagine sitting on a recipe that is proven to make you money and voluntarily refuse to sell it to people who have told you repeatedly that they don’t mind paying more for it.

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