Chronicle Book Review: Can Legal Weed Win?

Submitted by Phillip Smith on (Issue #1189)
Politics & Advocacy

Can Legal Weed Win? The Blunt Realities of Cannabis Economicsby Robin Goldstein and Daniel Sumner (2022, University of California Press, 211 pp., $24.95 HB)

[image:1 align:left]California has the world's largest legal marijuana market -- and it's in trouble. The Prop 64 initiative that legalized weed in the Golden State in 2016 was written without serious input from people already in what was a thriving gray market and, along with a very high tax and regulatory burden and a local opt-out option, its structure wreaked havoc on players in the already-existing industry.

Now, seven years later, the gray market has largely gone away, but the black market still dominates, accounting for 60 to 70 percent of all marijuana sold in the state. Can California's legal marijuana industry survive, let alone thrive? And can the legal market ever drive out the black market?

Maybe not, the authors Can Legal Weed Win? argue in a brisk and cheeky tome that throws gallons of cold water on projections that legal marijuana is going to be a gold mine, either in California or nationally. Economists Robin Goldstein, director of the UC Davis Cannabis Economics Group and Daniel Sumner, a Distinguished Professor of Agricultural and Resource Economics apply the cold, hard principles of the dismal science to the effervescent economics of marijuana market prognostication, and the results are sobering indeed.

Using a multitude of data points from the Weedmaps dispensary and product tracker to great effect, the pair of pot economists are able to come up with figures on nationwide average retail prices ($40 an eighth ounce before taxes), the cheapest retail states (Washington, Oregon, Colorado) and a panoply of other fascinating figures. They also examine costs of doing business, such as complying with regulatory requirements and the cost of energy (especially relevant for indoor and greenhouse operations that account for the majority of legal weed).

It's bad news for the California legal marijuana industry, especially once federal legalization occurs and, presumably, a national marijuana market emerges. That is because California has high regulatory and energy costs, making it uncompetitive with lower-cost states, such as Oklahoma and, once legalization arrives in them, other Plains States.

Where there may be a place for California weed is in the high-end, location-driven market, where labels like Humboldt-grown or Sonoma sun-grown can provide the cachet to hold onto some premium market share. But if you're going to go boutique, you've got to have some mystique. Kern County Colas probably are not going to cut it.

Goldstein and Sumner also share some deflationary thoughts about the potential size of a legal national market -- especially the amount of dollars it can generate. In contrast to industry touts and giddy prognosticators who have projected that the current national legal market of about $20 billion a year will grow to $85 billion or even $130 billion by 2030, the pot economists look further out -- to 2050 -- and project that the dollar size of the market then will most likely be smaller than it is now.

That is because even though the size of the consumer market will dramatically increase, the price of weed will even more dramatically decrease. They attribute that prediction to four factors: the impact of national legalization, a legal national and even international weed trade, technical innovation, and the application of agribusiness techniques (scale, specialization, financing, and management improvements). Trade and efficiency are going to drive prices into the ground, maybe not as low as the $20 a pound producers can get for dried organic parsley or the $10 a pound that fancy tea fetches but much closer to $100 a pound than the much higher pound prices used to make those rosy projections.

As Goldstein and Sumner sum up: "Prices will fall. Be ready."

As for winning over the black market, that may be the only way to do it -- with prices so low there is not enough profit for black marketeers to compete. Because otherwise, if legal prices remain higher than black market prices (as they are now), most consumers are going to stick with that guy they've been getting weed from for years.

This is a fun book. It is irreverent and breezy but based on hard numbers and the laws of economics, and it is full of strategems to try to survive what is going to be a turbulent industry. If you are interested in how legal marijuana works, you want to read this book; if you are in the marijuana business or thinking about investing in it, you need to read this book.

Permission to Reprint: This content is licensed under a modified Creative Commons Attribution license. Content of a purely educational nature in Drug War Chronicle appear courtesy of DRCNet Foundation, unless otherwise noted.

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