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Market Structure for Recreational Cannabis

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Market Structure for Recreational Cannabis BERL REPORTS MINISTRY OF JUSTICE DISCLAIMER JUSTICE 1. This report was prepared by Business and Economic Research Limited (BERL), under commission from the Ministry of OFJustice. 2. The views, opinions, recommendations, and advice expressed in this report belong solely to the authors of the report. The views do not necessarily reflect the views of the Ministry of Justice or the New Zealand Government. 3. The report was one of a number of inputsMINISTRY considered by the Ministry in the development of the draft Cannabis Legalisation and Control Bill. The overarching objective of the regulatory framework, which is set out in theTHE draft Cannabis Legalisation and Control Bill, is to reduce the harms associated with cannabis use experienced byBY individuals, families, whānau, and communities in New Zealand. In developing the model, harm reduction was preferred over other considerations, including economic ones. 4. The report is not part of the Ministry of Justice’s public information campaign for the referendums. RELEASED PROACTIVELY Lot JUSTICE OF MINISTRY THE BY RELEASED Market structure for recreational cannabis Poutū-te-rangi 2020 berl.co.nz PROACTIVELY JUSTICE OF MINISTRY THE BY Authors: Hillmarè Schulze,RELEASED Sam Green, and Hugh Dixon All work is done, and services rendered at the request of, and for the purposes of the client only. Neither BERL nor any of its employees accepts any responsibility on any grounds whatsoever, including negligence, to any other person. While every effort is made by BERL to ensure that the information, opinions and forecasts provided to the client are accurate and reliable, BERL shall not be liable for any adverse consequences of the client’s decisions made in reliance of any report provided by BERL, nor shall BERL be held to have given or implied any warranty as to whether any report provided by BERL will assist in the performance of the client’s functions. ©BERL Reference No: #6009 Poutū-te-rangi 2020 PROACTIVELY Market structure for recreational cannabis Poutū-te-rangi 2020 Contents 1 Introduction ..................................................................................................................................... 1 BERL process .......................................................................................................................................JUSTICE 1 Regulatory objectives ........................................................................................................................ 2 Key regulatory settings .....................................................................................................................OF 2 2 Proposed market allocation approach for licenced recreational cannabis ..................... 4 Market summary ................................................................................................................................ 5 New Zealand approaches to market allocation .......................................................................... 5 3 Production quota allocation model ........................................................................................... 7 How the proposed quota allocation would work ........................................................................7 Financial auction allocation ............................................................................................................ 8 Quota tradability and reallocation ................................................................................................. 9 Relationship to licences ................................................................MINISTRY................................ ................... 9 Managing the market not included in the quota system ........................................................ 10 Proposed quota limit ....................................................................................................................... 10 Market allocation in other legal markets .................................................................................... 13 Alternative models ................................................................THE ........................................................... 14 4 Proposed cultivation model ....................................................................................................... 15 Recommended model – quantity controlledBY ............................................................................. 15 Quota system and licencing ........................................................................................................... 15 Expected shape of market ............................................................................................................. 15 Supply chain integration ................................................................................................................. 16 Alternative models ........................................................................................................................... 17 Cultivating recreational cannabis in other legal markets........................................................ 17 5 Proposed processing supply chain model ............................................................................. 19 Recommended model – unrestricted .......................................................................................... 19 Expected shape of market ............................................................................................................. 19 Processing model in other legal markets ................................................................................... 20 AdvantagesRELEASED of proposed recommended model ......................................................................... 21 6 Proposed retailing model .......................................................................................................... 23 Recommended model – unrestricted ......................................................................................... 23 Expected retail locations ............................................................................................................... 23 Retail models in other legal markets .......................................................................................... 26 Advantages of proposed recommended model ........................................................................ 27 Disadvantages of proposed recommended model .................................................................. 28 7 Proposed licencing model for New Zealand ......................................................................... 29 Contents iii PROACTIVELY Market structure for recreational cannabis Poutū-te-rangi 2020 Central regulator allocating licences .......................................................................................... 29 Application for a cannabis licence ............................................................................................... 29 Single modular licence ................................................................................................................... 30 Licence modules ..............................................................................................................................JUSTICE 30 Proposed licence renewal scheme ............................................................................................... 31 8 Proposed taxes, levies, and duties .........................................................................................OF 32 Licencing fee ..................................................................................................................................... 32 Harm reduction and social equity levy ....................................................................................... 32 Excise duty ........................................................................................................................................ 33 Goods and Service Tax (GST) ........................................................................................................ 34 Cost, profit, levies, duties, and tax allocation for the supply chain .................................... 34 9 Bibliography .................................................................................................................................. 35 Appendix A Methodology – market estimate........................................................................... 36 Baseline estimates ................................................................................................MINISTRY................................ ...... 36 Post legalisation scenario modelling ....................................................................................................... 38 Changes in indicators ................................................................................................................................. 39 Appendix B Processing model alternative modelsTHE ................................ ................................. 40 Appendix C Retail model alternative models ........................................................................... 42 Appendix D Social equity ................................BY................................ .............................................. 43 Appendix E International taxes licences and levies ............................................................... 45 Licencing fees ..............................................................................................................................................
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