UNIVERSITY OF KWAZULU-NATAL An Economic Evaluation of Alternate Cannabis Policy Options - Towards a Cost-Benefit Analysis By Tachin Ramnath 209525163 A dissertation submitted in partial fulfilment of the requirements for the degree Master of Commerce in Economics School of Accounting, Economics and Finance College of Law and Management Studies Supervisor: Ms Jessica Schroenn Goebel 2015 DECLARATION I …Tachin Ramnath… declare that (i) The research reported in this dissertation/thesis, except where otherwise indicated, is my original research. (ii) This dissertation/thesis has not been submitted for any degree or examination at any other university. (iii) This dissertation/thesis does not contain other person’s data, pictures, graphs or other information, unless specifically acknowledged as being sourced from other persons. (iv) This dissertation/thesis does not contain other person’s writing, unless specifically acknowledged as being sourced from other researchers. Where other written sources have been quoted, then: a) their words have been re-written but the general information attributed to them has been referenced: b) where their exact words have been used, their writing has been placed inside quotation marks, and referenced. (v) This dissertation/thesis does not contain text, graphics or tables copied and pasted from the Internet, unless specifically acknowledged, and the source being detailed in the dissertation/thesis and in the References sections. Signature: Date: 11/12/15 i ACKNOWLEDGEMENTS I would like to thank God for seeing me through this dissertation. None of this would have been possible without the help and guidance of my supervisor Jessica. I will forever be grateful to you. I would also like to thank Candice for her constant support and motivation, my greatest thanks goes to you Candice. I am grateful to my parents, Jay and Usha, for being patient with me and for their endless motivation and support. My sisters Levisha and Verona also played a huge role in the process of this dissertation and I am truly appreciative for you in my life. ii ABSTRACT This thesis takes the form of a policy debate regarding alternate cannabis policy options. It will adopt the cost-benefit analysis theory and framework to inform this debate. It is said that cannabis had been used for multiple purposes (spiritual, medicinal and recreational) since early mankind. The first international drug control treaty came into effect in 1912 which aimed to control substances such as opium and coca only. However, with support from the US and Italy in particular, it was argued that cannabis be recognised as a dangerous and dependence-producing drug and was therefore contested that cannabis be added to this Drug Convention. Only in 1961, with the revision of the International Drug Convention, was cannabis confirmed to have aspects that posed risks of abuse and dependence and was therefore added to the treaty. It was also in this year that South Africa became a signatory to this multilateral agreement. The international consensus however, has changed considerably over the past few years, with examples of legalisation illustrated by countries such as Uruguay, and ironically, the US (Colorado and Washington). The efforts of the United Nations aiming to reduce, and ultimately eliminate cannabis abuse paradoxically coincide with the increasingly popularity and widespread use. It is estimated that approximately 4% of the world’s population has used or consumed cannabis, with the US and UK recording the highest increases over the past few decades. Further in SA, cannabis is considered to be the most abused illicit substance and it is estimated that approximately 6.3% of the population consume it. Currently there is a vigorous international debate around the legalization of cannabis, which is based on the fact that control efforts have largely failed. In addition, evidence suggests that restrictive drug control policies have had a very limited impact on the overall level of usage. Therefore, this thesis aims to identify and analyse the different policy options available regarding cannabis and to identify and highlight a wide range of costs and benefits associated with two policy options, that is, an illegal model versus a regulated-legalised model, in the hope of informing this debate. iii TABLE OF CONTENTS Declaration ............................................................................................................................. i Acknowledgments .................................................................................................................. ii Abstract ................................................................................................................................ iii Table of Contents ................................................................................................................. iv List of Tables and Figures ................................................................................................... vii List of Acronyms ................................................................................................................. viii CHAPTER ONE: INTRODUCTION 1.1 Background ................................................................................................................. 1 1.2 Cannabis Policy as an Economic Problem ................................................................... 2 1.3 Aims and Objectives ................................................................................................... 4 1.4 Structure of the Dissertation ....................................................................................... 5 1.5 What is Cannabis? ...................................................................................................... 5 1.6 History and Origin of Cannabis ................................................................................... 6 1.7 The Rationale for Use ................................................................................................. 9 1.7.1 Recreational ..................................................................................................... 9 1.7.2 Medical ............................................................................................................. 9 1.7.3 Industrial ......................................................................................................... 11 1.7.4 Cultural ........................................................................................................... 13 1.8 Summary ................................................................................................................... 13 CHAPTER TWO: POLICY OPTIONS 2.1 Introduction ................................................................................................................ 14 2.2 An Overview of Various International Policy Options ................................................. 14 2.2.1 Terminology of Different Approaches .......................................................... 15 2.2.1.1 Strictly Prohibited, Total Prohibition, Criminalised ......................... 15 2.2.1.2 Decriminalised, Depenalisation and de facto Regulation .............. 18 2.2.1.3 Regulated Legalisation ................................................................. 21 iv 2.3 Putting the Changes in Laws into Context .................................................................. 24 2.3.1 Guiding Principles of Good Regulation? ...................................................... 24 2.3.2 Coasean Application ................................................................................... 25 2.3.3 The Effects of Changes in Policy – Evidence in Washington and Colorado . 26 2.4 Selection and Motivation of Alternatives to be evaluated ........................................... 29 2.5 Summary ................................................................................................................... 29 CHAPTER THREE: COST BENEFIT ANALYSIS THEORY AND APPLICATION 3.1 Introduction ................................................................................................................ 30 3.2 What is CBA? ............................................................................................................ 30 3.3. The History of CBA ................................................................................................... 31 3.4 The Theoretical Foundations of CBA ......................................................................... 32 3.5 Conceptual Foundations of CBA ................................................................................ 33 3.5.1 Pareto Optimality......................................................................................... 34 3.6 The Primary Goal of CBA .......................................................................................... 36 3.6.1 The Decision Rule of a CBA ........................................................................ 36 3.7 The General Steps and Procedures in a CBA ............................................................ 37 3.8 Rational for using CBA .............................................................................................. 45 3.8.1 Alternatives to CBA Evaluation.................................................................... 47 3.9 Summary ................................................................................................................... 49 CHAPTER FOUR: THE COSTS OF A PROHIBITION POLICY OPTION 4.1 Introduction ...............................................................................................................