Marijuananomics in California

NPR had a story about the rising average cost of growing marijuana in Humboldt County, Calif., a center of the industry. Costs are rising for two reasons: 1) Much pot-growing has shifted indoors to 24-hour-a-day growing periods, necessitating the use of lots of electricity; and 2) Electricity prices, and the price of the diesel fuel required to run generators in outdoor growing areas, have increased. The supply curve of pot will be shifting leftward. Price will rise in the short run.

The interesting question is what will happen if California passes the Legalize Marijuana initiative in November. If that happens, the demand curve will shift out, tending to raise price still further. But people will be allowed to grow small amounts on their own, and that should keep prices down somewhat; and, if localities allow (taxable) distribution by growers, this could increase supply tremendously. It’s not clear what will happen.


Ray

I don't have a dog in this fight, but exactly how can California legalize pot when federal law criminalizes it in the first place?

JoelP

If growing and storing (with professional refrigeration?) marijuana is legalized, will there still be much reason to grow marijuana indoors?

J.V. GONZALEZ

I am from So. Cali and i see it as a good thing mostly from a crime point of veiw and as long as it is regulated by the state just like alcohol is in other states i think we will be alright.

Doug

I'm not entirely sure it's a slam-dunk that demand will increase if marijuana is legalized. Was drinking significantly curtailed during the Prohibition Era? Did demand for booze rise when it was ended? I honestly don't know, I'm actually asking, but I suspect demand didn't change in a major way. The people who wanted to drink continued to do so, just as they had been, it simply became legal to do so.

Everyone I know who wants to smoke pot already does so, it's just a little more difficult and maybe expensive to get it now. I suspect those people may smoke a LITTLE more when it becomes legal and is easier to get hold of, but I'm not going to because it's not anything I'm interested in doing. If I wanted to do it now, I would. I'm quite sure I wouldn't have any problem getting weed if I wanted it.

Dave

Prices will drop if it's legalized, because the price is artificially inflated due to it's illegality currently.

Morrow

If the grow operations are using diesel-powered electric lights, doesn't that suddenly increase the climate carbon cost of growing marijuana?

Jeffrey Knapp

The "cost of growing marijuana" articles by NPR and Mr. Hamermesh don't measure economic damage to houses and neighborhood values from indoor marijuana growing operations---see last several year's issues of Arcata, CA Arcata Eye newspaper, documenting damage to dozens of Arcata houses from non-permitted/ dangerous tearing out of walls and floors, water damage, mold/mildew damage, unpermited/ dangerous home-brew electrical systems, fire damage from unpermited electrical systems, unattended garbage/trash indoors and out, damage from poor maintenance of paint/ roofing/ rainwater and groundwater controls, and the consequent drop in property value of the damaged and nearby houses. Cash-based grow houses or "dispensaries" also attract robberies of pot and cash. And Arcata has many more undiscovered indoor grows with these impacts--just walk around and sniff. High rents offered by growers take scarce rental housing off the market needed by college students and families who can't compete with growers. Legalization only at state level leaves growers still at federal risk and still enjoying underfunded building code enforcement, not paying federal and state income taxes, and their "medical marijuana" not subject to meaningful pharmaceutical purity regulations---so why would indoor growers stop doing what works fine, even if there's state legalization? And if health care and financial reform got gutted by Congress, how would meaningful federal marijuana decriminalization ever get passed? Let's have Mr. Dubner and Mr. Levitt visit Arcata and several dozen other California cities, to research their new book about unintended marijuana economic consequences called "Marijuanaconomics," the book that accounts for ALL the economic impacts of marijuana,, and describes the combined state and federal regulatory changes needed to motivate changes in behavior that, in turn, reduce the negative impacts?

JJ

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Drill-Baby-Drill Drill Team

Bought your house at the market peak and now underwater? Have an adjustable rate mortgage that keeps snowballing? Used a home equity loan to balloon and your consolidate your payment only to squander it on ATV's? Lost your job, spend your days horizontal on the couch, surfing the net and watching tv?

After the Real Estate Bubble, Mortgage Bubble, Consumer Debt Bubble, and Recession, now welcome the NEW BUBBLE that will CURE EVERYTHING:

Turn your home into a MARIJUANA Grow House. 24 hour high intensity lighting for constant growing, climate and humidity control better than the Louvre, temperature and flow controlled aquaponic circulation, volcanic aerated pumice marble matrix with laser drilled holes, organic high potency bat guano fertilizers from the South Pacific, and magical F1 Hybrid seeds from the highlands of Sumatra.

The reward: $5,000 yield per plant.

Save your home. Buy your whole neighborhood because you want the elbow room. New fashion outfits with matching Land Rover SUVs.

And you help your fellow man: save the Baby Boom Generation from Arthritis or at least Migraine headaches. Hey it also prevents Glaucoma if you just smoke just one 18 inch joint a day. Prevent weight loss in cancer patients with the Miracle of the Munchies. And how many depressed Teenagers are there? It even cures Alcoholism!

This is not an addiction but a natural lifestyle--really a sustainable future next to growing your own vegetables and biking to work.

What is the implication of legalizing a formerly illegal product? If California passes the Marijuana legalization what is the effect on the market of this NOW very LUCRATIVE product?

THere is an illegal Premium of MJ. Growers, transporters and sellers risk FELONY CONVICTION and PRISON TIME. THerefore they get an added premium for their risks. That is why drug lords use Planes, Helicopters, Submarines, Jet Backpacks, Parachutes and extensive tunnels to transport what is really a cheap herb.

This premium is variously estimated from 100x to 1000x the natural cost of the product. So the REAL price of the MJ is really the cost of production of growing a garden plant, let's say a TOMATO plant. So the $5,000 price in absence of the illegal Premium is really only $5.00 per plant or at most $50.00.

If it were legal, where is the natural sites of production? Answer: Like any COMMODITY, it will grow in commercial agricultural fields in Third World countries, most conveniently MEXICO. Cheap labor, free sunshine, known soil fertility, familiarity in plant pathologies and unregulated use of Herbicides and Pesticides.

It will be as simple and as cheap as growing a Tomato. Yes most are grown in California and the cheapest come from Mexico. Some people grow in their own backyards what they feel are the Tastiest Heirlooms. But the price of 5-10x more than the commercial grade and the inconvenience of backyard gardening will drive people to cheaper global NAFTA products. And thus this warm weather plant will migrate south and so will the market. You will see Mexican plantations the size of an average Iowa Corn Farm, 2000 acres.

You don't have to be Nostrodamus to see another Bubble coming. At least the Methamphetamine Epidemic occurred during Boom Times. High profits lead to sharp Bubbles. Better stick to growing Zuchini, Peppers and Tomatoes. Hasta La Vista MJ Bubble. Perhaps we will be too 'stoned' to care.

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Michael

Seems to me that WHEN marijuana becomes legal the big guys like Phillip Morris will take over. Ya know, right now you can grow your own tobacco and distill your own spirits, but you can't sell them. The same with pot, if you want to go through all the hassle of growing it, paying the electric bills and watching over it like a mama hen, you ought to be able to smoke it. It ain't never killed anyone, the people who want to smoike it are smoking it already. The ones what ain't smoking it are the law abiding citizens who are not going to run out, get stoned and kill families.
The very same arguments about alcohol were brought up at the end of Prohibition. People, including dim witted politicians, were screazming that EVERYONE was gonna go out and get drunk. Didn't happen then, won't happen now.
President Roosevelt kept a bottle of liquor in his desk in the oval office. The obamanation smoked pot and snored lines. I see no difference.

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David Baggins

Federal criminalization of alcohal required a constitutional amendment. That is why states are able to make there own policy, the federal drug war was always constitutionally suspect.

Keith

I'm somewhat amazed that pot is still illegal when it seemed 40 years ago to be on the way to legalization (when I was but a child). I have smoked it a couple of times, many long years ago, and though I know people who smoke it I have no idea where to get it myself if I wanted to. If it becomes legal at last? Yeah, I will likely indulge on occasion, just like once in a while I'll have a drink.

Alexandre

lol @Gonzales "...i think we will be alright".

agree with Dave. In my opinion, it is paradoxical to expect higher prices when restrictions are loosened. I'd say both demand and supply should expand horizontally if measured at some given fixed price, since once it's legal there'll be much less to fear both for producers and consumers.

But I suspect that supply should dislocate a lot more since a huge cost component would disappear -- the risk costs related to running unlawful activities. on the other side, those who like marijuana might not care that much if it's legal or not, they would consume comparable quantities in both situations (with and w/o restrictions)

Alexandre

and the obvious conclusion from my last post is:

when supply increases more than demand, imagine horizontal dislocations of both curves, but think S changes more than D in percentage terms, and elasticities are not very inelastic -- to claim that, one should state this herb is not very addictive -- than you should expect prices to go down.

Travis L

@Doug see http://www.economics.harvard.edu/faculty/miron/files/drunk_revised_for_el.pdf for one study on alcohol use during prohibition. They used # of arrests as a proxy and found a 10-20% drop, which you may or may not call significant. Check out the wikipedia article on prohibition -- it has some good external resources that will show that use did drop (but not by like 90%) during the era.

It's a very difficult thing to measure, for the same reasons that we can't really measure marijuana use today.

David L

Ray--Obama has said that federal law enforcement will not bother people who are following state law, even if they're violating federal law.

assumo

Growing Marijuana is practically free on the small scale, depending on where you do it. How can anyone forget that Cannabis is a weed? Outdoors in the right climate, it shouldn't cost more than growing blackberries. Indoors, you can grow in potting soil under incandescent lights. Individuals, however, aren't usually willing to accept the risk without the promise of significant financial gain, so growing for personal use is fairly rare. If it were legal, a huge impediment would be removed, and the cost would drop to that of taking care of a house plant, for those who wish to grow their own. For everyone else, the price would go down commensurately.

gadumma

I live in Humboldt County. The grow scene is a disaster. Growers have little social consciousness. Power consumption is out of control. Diesel spills and overpumping are severely impacting rivers and fisheries. The growers pay no taxes. Rents are outrageous; grower renters ruin the houses with illegal electrical alterations. We are infested with marijuana tourists who panhandle for money and dope, camping in the community forest. The worst part is home invasion robberies from out of towners coming to rip off grows.
The only solution is to legalize, tax and regulate. This will no doubt cause grows to move to the central valley. Fine. Be gone.

mj Budd

Mr Knapp, your comment and reasoning is based on the false logic of how it works today. Yes, those situations have happened, but that is because of its illegality, not because it was the best way to grow pot. It can hardly be equated with any certainty to what a post-legalization grow operation might be. No legal grower would have to resort to hiding an operation in suburbia behind the facade of a regular house. So, of course, the resultant effects of that sort of plant and burn operation, if you will, will not happen if it is legalized.

Let those who smoke/use it, grow it, and you will not see that sort of abuse.

Andre D

I have some pretty entrenched opinions regarding the legalisation of cannabis, primarily that it should be legal and available to adults as a safer alternative to alcohol.

JJ makes some good points, and I'll have to look for Marijuanacomics, but I can only agree that there will be some uncomfortable transitional effects if cannabis is made legal before a regulatory infrastructure is established. But it will create a demand for a safe, quality product from reputable producers - like modern distillers enjoy now. People won't have to fear the law so will have more choice...namely not to buy from a bootlegger. Once cannabis is a legal product regulated by the state [like alcohol] it can impose much stiffer penalties as an extension of tax [excise?] law.

Alcohol is deadly stuff. There is absolutely no doubt that it can kill you right away by overdose, or slowly with chronic use. It's social costs are incredible, yet it's the only legally sanctioned recreational drug available.

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Ian Kemmish

Here in the UK, drug growers usually hack their electricity meters so that their energy bill is zero. On the other hand, indoor cultivation is extremely easy to spot from a police helicopter equipped with a thermal camera - even accidentally. While a move to indoor cultivation might still cause the price to rise, might it not be more due to a supply bottleneck than to the cost of electricity?