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.


I respectfully disagree with your assertion that the supply curve will shift to the LEFT.

One of the most expensive portions of the cost of growing the stuff is the probability of getting caught.(getting caught with the stuff, getting caught using someone else's land, getting caught using illegal pestisides) Also, legalization will bring forth economies of scale.

Althoug, the most compelling argument why the supply curve will NOT shift to the left is REPLICATION. That is, current growers could simply stay put with their current operations. If moving indoors would increase their cost of production, they probably would not do so, unless the government would start cracking down on land rights issues and pestisides use issues(but what is the probability of that happening?)


Bob Constantine

It seems just a mite contradictory that in a country that calls itself "free", self ownership of our own bodies will land a person in jail.

The substance is irrelevant, if somebody else decides what a peacefu person can or cannot put into their OWN body, WE ARE NOT FREE.

If we are not free to own ourselves, logically we are enslaved.

The relative merits of a substance cannot negate that denying a person the right to own themselves is the real crime.


With prop 215 and sb 420 cannabis prices have dropped .

some stores in LA are still getting 50 for 1/8 8x 50 = 400 x 16 (lb) = 6400.00 per lb .

Most of the people who go to these stores are from towns where it has been banned.

So having restrictions in place raises the cost .and creates the black market

if these stores are selling at $50 /8 it allows the street dealer to beat the price and sell it for less.

In Ca prices have dropped so much. growers from up north cannot get 200/oz for the finest , where a few years ago it was 300 - 400/ oz no problem.

legalization = less risk = more production = less profit

so I see a lot of growers might not want it legal.

I vote yes in Nov.

Jesus E.

@johnny Also notice that every time the goverment increases its spending to enforce drugs producers, the probability of sucessful illegal transaction reduces (e.g. more police in the streets or better armed soldiers) therefore really big profits incentive to those lucky/skilled/armed enough gangs to compete for this risky prize (drug market) in which only a handful will reamin in business while others are wiped-out by gov forces o by its fellow competitor in the market.

So mexican goverment claims for better police forces or more militar spending in this so called "war" may not be really creating better security but more skilled & better prepared gangs (remember professional football and gangs comparision in Freakonomics?).


It is pleasant to read a blog where is no castigation of those who enjoy a little peaceful smoke in the evening. If you want to keep your job, you should keep it that way.

The tomato analogy works for me, make them illegal and I will still buy a few occasionally from some foodie. I would grow my own in a garden in my backyard, but I could lose my house if caught and they would just get stolen probably before they are even ripe. But if I did get fired from work under random testing for tomato based derivatives in my blood. Then, I would rent a house set up a grow-op up try to get my lost life back, and hit the road before the tomato Nazi's caught wind of my superior product. I would sun-dry them to save weight and increase flavor. In this country, entrepreneurs like me cannot be stopped. They should write an amendment to the Constitution, that defines Life, Liberty and the Pursuit of happiness more clearly. The ninth amendment to the Constitution should also be amended at the end to read, "this is not a joke". Anyway, those crazy Californians think they have state's rights and the (this) President agrees but I am not buying into it, I have been around the block a few times. If the corporations don't own the rights to it, then its not going to happen.



One word my boy...hemp$! Those makers of high priced luxury hemp products sold at high end dept stores currently import their hemp from overseas and pay $high import and entry fees to their customs brokers along with any duty fees levied. Hemp has the potential of becoming the next gold rush. Regardless boy do the research yourself I am sure thinking juices will begin to flow. 1 hemp tooth pick = $10.00


Selection is larger and fresher at the dispensaries. If legal in Nov. the prices wont go up that much and operations will be the same just no Dr. reccomendation required and tax will be added. About growing your own some people will but most would rather go to the corner store and purchasing instead of growing for 4 or 5 months.

Bobby G

If we predict that the supply curve expands outward as more optimal growing practices (not needing to worry about hiding) come into play, the question then is what happens to the demand curve.

I think there are probably some people whose demand is deflated due to the risk of legal punishment... that's pretty obvious. But what about the people who are already consuming the product illegally? Does their demand curve change? I almost think not really. If the demand of the market only changes for the people currently not consuming a product but not for the people already consuming a product, how does that affect a demand curve? Does it move it out as an aggregate? I suppose it does. Hm, I may need to sit down with a pad and paper and draw some S-D curves out tonight.

Cal from CA

Gadumma wants the pot tourists and growers to leave Humboldt for the Central Valley and is thus voting FOR the initiative. Why should Californians vote for a poorly written initiative which could turn the whole state into Humboldt? We don't need a bunch of pothead tourists and cartels moving into CA. I hope the adults in this state will wake up and realize that cities already have enough problems regulating dispensaries with our virtual legalization of "medical" marijuana and this will just cost more money and time to regulate, more litigation, and with a lower price, more availability to younger users.


Do we know the demand curve will shift to the right? Depending on how money that was previously spent on enforcement is spent, it may not shift at all, or may shift to the left. In Portugal, when drugs were decriminalized and money was diverted from enforcement to prevention (through health care and education), drug use--especially among youth--went down.


Well, when you have better herb, you smoke a LOT less.

The people have made their choice, they now just want to not be criminalized for it.

Bottom line, if you support prohibition, you support the narco gangs.


I think that the growing and selling of medicinal marijuana plants should be legalized throughout all of California. California has become the leading proponent in many new innovative concepts that has swept through the United States over the past years, such as the going green notion backed up by Swarchenegger during his term. This old and rational idea of the legalization of marijuana should definitely be next on that list.
One of the top reasons many people disapprove of this is because they are afraid that the marijuana might end up into the wrong hands. However, there are too many people who need this plant to just discount the idea completely. If we stiffen regulations and provide strong disincentives to doctors for medical malpractice and people who forge prescriptions, we can limit the amount of forgeries enough to make this idea worth the effort.


Doesnt California have a $19 Billion government deficit this year? How could any Californian not see the financial and moral intelligence in legalizing and taxing the hell out of this substance? Im confident that you could make Marihuana legal and raise taxes to exactly the same level as street level prices are now and people would pay them so long as you made the incentive of buying at a licensed store appropriate. Theres no reason Mexican Cartels and LA street gangs should control such a powerful vice when some old white guy in a corporate office can be held accountable for the way he distributes his product. Legalization is the only intelligent and responsible thing to do if you want to save California.


Ray, it will be legal at the state level and most likely remain illegal at the federal level. meaning that an individual who smokes pot can be arrested by federal authorities like the FBI, even though it is technically legal @the state level. Obama adm. recently stated that he would strictly enforce the law & prosecute any users :(


You cannot base your analysis on a typical supply/demand curve because, as it stands currently, marijuana growers and dealers are making enormous profits at all levels. Legalizing would increase the supply by removing the barriers to enter the market (the risk of incarceration, hard to obtain resources, etc.), and drive down profits, thus driving down the price.

Shaun Hood

Hey Nice Article! Thanks for the good information Keep up the good posting.