American economy and Drug Smuggling

The article calls it marijuana-nomics which is now the straw that broke the camel's back. Steven Levitt, you are to blame. The article is nonetheless interesting. As the American dollar's value relative to the Canadian dollar ("Loony" apparently they call it), it's no longer profitable to take Canadian grown marijuana and smuggle it over here. The costs of production are paid in Canadian dollars, and now the profitability of moving it across the border to sell at higher relative prices in America are apparently keeping the bud there, in Canada.

Suddenly, it’s far more expensive to buy Canadian exports, legal or otherwise, and smuggling profits disappear.

“It’s very simple,” said Stephen Easton, professor of economics at Simon Fraser University in Vancouver, B.C. “Canadian marijuana production costs are met in Canadian dollars, and those are worth more now.”

Previously, he said, pot growers could produce a pound of potent “B.C. bud” for about $2,000 Canadian and, with the exchange rate, smugglers buying with U.S. currency could sell it for a hefty profit south of the border. In those days, an American dollar in Canada was like a 50 percent discount card, and there’s nothing like a wholesale discount to bolster retail profits.

With more of the Canadian-grown marijuana remaining in Canada, economists are expecting a significant increase in the domestic supply of marijuana to British Columbia's market, driving down the price of marijuana, and therefore - depending on the price elasticity of demand for marijuana - increasing consumption.

Never thought about this before. I wonder if you could use this, though, to identify the price elasticity of marijuana, since presumably this is a purely exogenous shift in the supply curve, and not demand.