Folks:
Can someone explain to me why marijuana, in states where it is legal, costs so much? If it is a weed, isn’t it cheap to grow? (Maybe it is labor-intensive? As Jack Handey liked to tell children “You will never know what it’s like to work on a farm until your hands are raw, just so people can have fresh marijuana.”) This Web site says that marijuana costs $100-200 per ounce in Colorado. Why isn’t it closer to the price of spinach? I don’t think the explanation can be taxes because the Tax Foundation says that Colorado marijuana taxes are a percentage of revenue.
Second question: Is it legal for Colorado employers to screen for marijuana use and reject job applicants on that basis? Aside from jobs where federal laws require rejecting marijuana users (see my 2011 posting on FAA drug testing), why does occasional (legal) weekend marijuana use preclude a person from getting a paycheck?
Update: On June 15, 2015 the Colorado state Supreme Court ruled that an employer could fire an employee for off-duty marijuana use (WSJ). So you can enjoy recreational marijuana… as long as you don’t also want to have a paycheck from a private employer:
Colorado’s constitutional amendment that legalized recreational marijuana expressly states that employers wouldn’t be restricted from having policies that ban pot use by workers.
Some 23 states and the District of Columbia have legalized medical marijuana. Colorado and Washington state also permit recreational pot use. Legal experts, however, say it has remained unclear how such laws affect employers and whether they can fire a worker who uses the drug while off the job.
Have you seen the fees that Massachusetts charges medical marijuana dispensaries? Over $30,000 to apply plus $50,000 per year to operate.
http://www.mass.gov/eohhs/docs/dph/quality/medical-marijuana/fee-structure.pdf
Why does wine cost so much more than grape juice?
It’s highly labor intensive and difficult to grow well: http://www.wsj.com/articles/SB10001424127887324345804578426963236807452
Its lack of federal approval also leads to difficulties, especially with banking. You also can’t import it across state lines, so no importing from areas where it’s cheap to grow.
I believe that the cost of growing is dependent on HOW it is grown. The money made in Northern California and Oregon is larger because I think they are often grown outdoors. In Colorado I believe it is often hydroponic and indoors, more like the way fancy lettuce is grown, not how your table top spinach is grown.
But if you are asking if the market is ripe for disruption and if you should more to Colorado to make seven figures: Yes.
Not sure about Colorado, but where I am you can’t sell weed like spinach, you have to distribute it through a relatively small number of regulated stores and you can only own small amounts.
I think it is more energy intensive than spinach. Many growers grow it indoors and supply very bright lights 18 – 24 hours per day, unlike spinach which grows in fields.
And it is subject to theft more than spinach is.
And I suppose QA on weed is more costly due to active curation of taste and psychoactive effects.
All that might add up to fixed costs (labor, building, lamps, security) and variable costs (electricity, QA, breeding) than spinach.
philg: do you think occasional weekend marijuana use should preclude someone from flying an airplane or helicopter?
It is not truly legal, as the feds can shut you down if you grow enough to affect interstate commerce. So the large efficient agri-business farms that grow spinach cannot touch it.
I know nothing about marihuana farming, but it cannot be much more difficult to grow than tobacco and tobacco leaves sell for about $2 a pound.
http://www.agmrc.org/commodities__products/specialty_crops/tobacco-profile/
Tacanti: I’m not an expert on marijuana, but currently the occasional weekend marijuana user would be able to fly an airplane or helicopter privately (since only pilots engaged in commercial operations are subject to drug testing). And of course the off-duty drinker can be an airline pilot (subject to random alcohol tests but the persistence of alcohol is low).
In a state where marijuana use was legal I don’t think that knowing that someone had used marijuana 10 times/year would tell you anything about whether or not that person was a good pilot.
(In flying jobs where drug testing is not required it is not typical for employers to ask about off-duty marijuana use. The assumption is that pilots show up fit to fly. If we believe in a reasonably efficient employment market then it is probably fair to say that occasional off-duty marijuana use does not affect safety significantly.)
“weekend marijuana user would be able to fly an airplane or helicopter privately (since only pilots engaged in commercial operations are subject to drug testing)”
Has the FAA stopped asking about drug use in the past 2 years on the Third Class medical exam?
Kourt: http://flighttraining.aopa.org/pdfs/FAA_Form_8500-8_Medical_App.pdf is the pre-online-system form. It asks about “substance dependence” or “use of illegal substance”. If you are in Colorado being a recreational stoner is not illegal anymore, is it? And if you smoke marijuana a few times per year you’re not “dependent,” are you?
“Was stoned” or “Was a weekend stoner” is not something that you see in NTSB reports, by the way.
It would be interesting to know the price before it was made illegal in 1937. There were patent medicines using it as a main ingredient, and there are people who collect the containers and advertising materials. It wouldn’t be hard to come up with a price per pound.
Another empirical datum would be price paid to Mexican farmers. IIRC there’s a huge markup after it’s run though the illegal distribution network.
There are descriptions of pot farms in Northern CA, and it sounds labor intensive. Tobacco was highly labor intensive in colonial VA, but perhaps not today. So tobacco may not be comparable.
The correct economic analysis would be based on the work of Mancur Olson. But I shouldn’t read it. I’m cynical enough already.
Roger: Good idea to look in Mexico! I very quickly found
http://www.huffingtonpost.com/2014/04/08/pot-legalization-opium-mexico_n_5112869.html
and it seems that roughly $25/kg is the current wholesale price. One kilogram is 35 ounces. So the cost of growing is roughly 71 cents/ounce.
It was actually a little harder to find the true wholesale price of spinach!
http://www.mofga.org/LinkClick.aspx?fileticket=OnGBn6nTVME%3D&tabid=260
says that for organic spinach grown in Maine, presumably at the upper end of the price scale, $6.50/lb. is a ballpark price. That’s 40 cents/ounce.
High-quality female plants are grown indoors to prevent contamination from male plants and the random pollen of lesser strains. The cost is proportional to the electricity used power lamps to grow the plants. Further, only the highly potent buds are harvested and they are a small portion of the overall plant.
Growing bud indoors seems to be mainly motivated by law evasion. In a legal environment, some people would pay up for it. But it sounds like a Budweiser v. Chateau Margaux type situation.
Here’s an application submitted by one dispensary to open in Massachusetts, including detailed financial projections:
http://www.mass.gov/eohhs/docs/dph/quality/medical-marijuana/applications/mass-medicum-corp-app.pdf
Given the premium prices one must pay for marijuana, I wonder why more people in Colorado don’t just grow it themselves? To produce the really high grade stuff requires considerable effort but if you are just looking for a mild buzz, it can’t be that much harder than growing tomatoes.
Philip: thanks for the link to the medical form; I hadn’t read it recently to interpret it like that.
But I’m not sure what you’re trying to say regarding NTSB reports: a search of “final’ and “fatal” reports for “marijuana” returns 171 hits (heh!):
http://www.asias.faa.gov/pls/apex/f?p=100:17:0::NO::AP_BRIEF_RPT_VAR:CEN14LA255
“The pilot’s wife stated that he was not taking any medications and that he was in good health but that he did use marijuana recreationally on the weekends only. The accident occurred on a Tuesday. Although postaccident toxicology tests detected a low level of marijuana in the pilot’s blood and lung, it is unlikely that it impaired his performance on the day of the accident.”
Kourt: I meant that I had never read an NTSB report that said “Was a weekend stoner and therefore crashed his Cessna.” The report that you cite, or the fact that 303 out of at least 76,678 NTSB reports (that’s how many you can download as a .txt file) contain “marijuana” as a substring doesn’t surprise me.
A better comparison than spinach or grape juice is wine. Why is quality wine so expensive to produce? The price is because it is very effort intensive to select the right strains, grow them under perfect conditions, pray that the weather/pests/myriad of other problems don’t arise, and then cure it correctly without any mold or other contaminants being present in the end product. Quality cannabis isn’t a consumer product it is a connoisseur product. If you look at the price of drug cartel ditch weed it is probably more comparible to spinach or cheap wine.
The fact that the cannabis market is still a grey market with prices artificially inflated due to the risk of federal interference is a huge reason. This is the cost of doing business.
Let’s not forget that because of the murky legality most cannabis must be grown indoors which further increases the cost by creating electricity bills for a crop that should be grown outdoors. It also is much less environmentally friendly because of this fact.
I am shocked to see such a poorly thought out argument posited by someone from Harvard.
In response to the second question, I cannot speak to Colorado law but I know in my state of California it is 100% legal to discriminate against cannabis patients in hiring and firing.
I am pretty sure I saw a documentary that in Colorado the laws about growing were extremely strict. It is all greenhouse that are 100% video monitored and fed live to law enforcement/regulatory. Workers only enter and exit after strip searches. Security seemed ridiculous. I remember I was left wondering if CDC level 4 labs are this crazy.
Phil, It’s almost like you haven’t heard of the law of “supply and demand”. The demand is exceptionally high. Here’s an article showing that _one_ shop in Seattle sold $700,000 in one month at the beginning of the year. That’s the demand. This article also says that production was slow to start but was ramping up fast so that even at the time this article was written the price of the cheapest pot had dropped from its initial $26/gram (!!!) to $10/gram (!!). The economics don’t seem to require any further explanation.
http://www.capitolhillseattle.com/2015/01/uncle-ikes-first-christmas-comes-up-big-but-2015-starts-with-washington-pot-supply-finally-exceeding-demand/
Speaking of economics, the pot retailers aren’t above rent seeking either. They constantly demanded the state put their competitors (“medical marijuana dispensaries”) out of business and that happened (law passed, hasn’t taken effect quite yet) and they spend quite a bit of effort bitching about taxes.
Cannabis, ethanol and nicotine have a laughably huge markup between cost of production and retail price. That leaves a big chunk of change for marketing and taxes in the legal case, or paying off the authorities and laundry fees to the bankers otherwise (ethanol under Prohibition, illicit drugs).
What we learn from the example of Prohibition is that illicit supplies are expensive, high concentration, low quality (rotgut, moonshine), and dangerous (Jamaica ginger). For smoked products (nicotine, cocaine), differences of taste make little difference in the price, which is based on quantity of active drug.
It’s um unproven that growing cannabis indoors leads to a “connoisseur” product. The only goal they’ve aimed for is quantity of THC/gram. Fine details of taste are irrelevant, so it’s not like grape wines. In the legal edible pot, the aim seems to be to drown out any natural flavor with chocolate and spice.
I hope our host will not be unduly scandalized at the suggestion that it’s a political decision, with someone’s profits in the background. All the high-minded policy stuff about teen use raises some interesting questions. Which the experts have had decades to answer. So it’s effectively noise.