The Future of Pot According to Economists
In a recent Time article, the publication sat down with a few economists to talk about the future of cannabis from an economy perspective. While I won’t rehash all of the information they spoke about, I will be focusing on some of the points that they mentioned.
Based on all of the information we will gather; we’ll make our own predictions on the future of weed and how the market will likely evolve over the coming years.
As usual, I’ll be quoting directly from “THIS ARTICLE” and will be using italics to communicate this fact. If you’d like to read the whole original article, just click the hyperlink.
The two people being interviewed by Time are Daniel Summers and Robin Goldstein.
Daniel Sumner—who is also a former assistant secretary of economics at the U.S. Department of Agriculture—and Robin Goldstein, who is also the author of a controversial bestselling guide to wine, The Wine Trials. – TIME
As we continue on with this article, I’ll post first the response from one of the economists and then my input on it as a consumer with over 20 years of experience.
How is business now that almost half of Americans can smoke weed legally?
Daniel Sumner: It’s been tough. There’s still a whole lot of illegal weed out there available to that same group of consumers, and most of them choose the illegal product because it’s half the price. Also, they have been consuming the product for the last 20 to 40 years; they’ve been dealing with this guy who knows a guy and they’re reasonably happy with the product.
I support this conclusion wholeheartedly. Most people who have been smoking weed pre-legalization have cheaper hookups from quality sources. Couple this with the fact that “legal weed” is often more expensive – it’s easier to simply continue to buy your own from your own sources, or to even start growing your own weed. The market will always buy from where they receive the “most value” for the “least of their money”.
Why does Legal Cannabis Cost More?
Sumner: To get a license to start with in most states you hire a consultant to help you through the regulation maze. And then you wait. In Vermont [which legalized recreational cannabis in 2018], for example, you’ve hired your consultants, you’ve gotten your venue for your retail store, you’ve purchased a greenhouse or rented one as your cannabis growing facility, and you’re still waiting. It’s been four years. Nobody has got an adult-use weed license in Vermont.
Over regulation has always been a problem. The fact of the matter is that when people try to tie in Social Justice issues, or try to “limit licensing”, they create regulatory problems – that require regulatory staff, which require new training – which takes time. On top of all of this, these new people need to get paid, and of course the buck is passed onto the consumer in the form of taxes…making getting into weed not only complicated, but expensive as well!
Robin Goldstein: In many states, the agencies are understaffed and the process is very lengthy, time-consuming and difficult for people to get through. So it can take years and years and in the meantime, they have investors, they’re burning cash and a lot of people have lost their money just by waiting.
Goldstein’s got a point here. When you make it hard for people to get into business, you make them burn money…when investors see that their money is just being burned away while getting nothing in return, they typically cut their losses. Unless you make it easier for business people to get their hands on cannabis licenses and for regulations to be only “slightly more robust” than that of the illegal market – you’re going to have people still purchasing from the illegal market due to accessibility and high cost in the legal market.
What about customers who wanted to try weed, but didn’t because it was illegal? Is there an influx from this group?
Goldstein: Yes, but it’s a small percentage. In many of these states that have legalized, the penalties weren’t that harsh already for the buyer. People who wanted to try it could try it. Evidence from around the world, from places like the Netherlands that have had forms of legalization well before the U.S., suggests that you don’t see a big increase in the total amount of weed smoking just because you legalize it.
More importantly, “criminality” was a poor deterrent. If criminalizing drugs were effective, we would have seen the end of drug use in 1971, however – if you look at the statistics you can note that not only did criminalizing drugs not stop use – drug use actually increased. Not only increased, it ballooned!
Therefore, it’s not about criminality. People were willing to risk their freedom to experiment, especially if they were relatively sure they were not going to get “busted by the cops”. The fact of the matter is, there aren’t enough police to police individual behavior such as drug use. Therefore, the bare minimum of consumers who used “criminality as an excuse” for not consuming cannabis – would hardly make a dent when compared to the whole market.
So what’s happened to the medical marijuana industry as a result of legalization?
Goldstein: In some states there was legal medical weed for many years and it was more or less unregulated. And now with all these new rules, some of those people are breaking the laws. We don’t think it was the intention of the voters generally to make more weed criminals. [In states where weed is legalized] there’s not really that much reason for people to continue getting their medical recommendations. Once anyone can just walk into a dispensary and buy it, then what’s the reason to pay a doctor to get this recommendation? There have been some states where the medical system has survived, including Colorado, and Massachusetts, because they’ve got much bigger tax exemptions for the medical patients.
The thing about medical marijuana is that it now needs to enter into its second stage of evolution. The first iteration of medical cannabis looks eerily similar to the first iteration of recreational cannabis. This is because the dawn of medical cannabis was birthed through the effort of consumers. They created home remedies, cooked up RSO, made their own extracts.
The Medical Marijuana Industry lacked dosage, consistency in product, quality controls, etc. They weren’t able to isolate certain terpenes and cannabinoids, and they were limited in their delivery mechanisms.
The Medical Marijuana industry as we know it today will eventually morph into something more “biopharmaceutical”. In other words, you won’t be eating your brownies when you take chemo, but would probably have some sort of inhaler or pill you consume. Epidermal patches, capsules, syrups, etc – this is the future of medical cannabis.
More importantly, it’s going to make its exodus from “plants” to “conditions”. In other words, you’ll take a specific combination of cannabinoids to treat specific conditions. Perhaps higher doses in CBD than THC for some conditions, and reversed for others. Eventually for medical cannabis, the doctor will prescribe a specific cannabis medication for the patient to use where dose and quality is unwavering.
They are already utilizing bacterial cannabinoid factories to streamline CBD production and other minor cannabinoids.
Is there not a weed billionaire somewhere?
Sumner: Probably not, but there certainly are weed millionaires. The people that are trying to build it as an ongoing profit-making business—the honest ones—say we’ve got years to go here. Is one of them going to become Amazon? Probably not, but is one of them generating a regular few hundred million dollars a year from a dozen stores scattered around? Probably, yes.
Here, I think we will see a weed billionaire – just not in the current iteration of the marketplace. It is possible that at some point in the future we’ll see a “Starbucks” of weed appear, and perhaps those people who own the cannabis franchise would become billionaires.
But cannabis billionaires will mostly come from mass product appeal. Whoever solves the Cannabis-Infused Drinking riddle, and can create a consistent effect by drinking a can of their “soft drinks” – they might very well become billionaires.
Especially as the global market comes online. As with most other industries, the billionaires will come from their branding. They will come from products with mass appeal. Think Coca Cola, Kit Kat, etc…but for weed products.
What industry is weed most like? Alcohol?
Sumner: There are parallels but there are really big differences as well, partly because weed has been illegal longer than it was legal, and alcohol was legal almost forever and then became illegal for a little while. There are other big differences: you can put a million dollars worth of weed in your station wagon and still have room for the kids. Moving illegal weed around is so easy compared to manufacturing and moving illegal alcohol.
Yes, cannabis is truly in its own category, however I do disagree with the “cannabis was illegal longer than it was legal”. This is a misconception. Cannabis has been legal for a lot longer than it has been illegal – all of history. It wasn’t until 1937 that it first became “illegal” to grow without having a tax stamp.
Yet I also understand the point that there are more illegal growers as a result of the 70 year proh9ibition of cannabis. The fact that it’s still not legal everywhere creates black market incentives. And it’s far simpler to grow weed than it is to make alcohol.
Are you proposing less regulation? There are a lot of people who would argue for more regulation around something that alters brain function.
Sumner: We understand that. But you can [have so many rules that you] make sure that you have this very heavily regulated pure product that no one buys, and all those people buy the illegal product. We’ll let all these kids go out and buy illegal weed and let that industry prosper. For example there’s a rule that says in California, you can’t buy it after 10 p.m., which is when lots of people are just starting to party. Why would you close the legal store at 10 o’clock?
Goldstein: The point certainly isn’t that it should be unregulated completely; no product is unregulated. The point is it’s a cost benefit analysis, every additional rule you put on, you have to ask how much is this going to take away from the legal market and shift to the illegal market, where you don’t have any safety standards at all. Every rule you pass, you need to think about that balancing test.
The fact of the matter is that we do need less regulation to make the legal cannabis market competitive with the illegal marketplace. Kids currently can buy weed without any regulation from the black market. If you legalize (all drugs), provide simple rules and regulations in relation to
Who can buy it
Where to buy it
As long as you keep prices relatively low compared to street prices – people will opt in for legal over illegal. The question is, what is the percentage markup you can get before a consumer moves to the illegal market.
As a consumer, I’d be willing to pay up to 10%-15% more for legal weed, but the moment you’re hitting 20%+, and with the hyperinflation going on today…I’m either growing or buying from the streets.
At the end of the day, the only way forward is legalization. Over regulation is the new prohibition and we must do everything in our power to keep greedy politicians at bay. If you want to get weed out of the hands of kids, you need to make an actual competitive market place for legal weed to beat out their illegal competitors.
As long as the government continues to legalize cannabis state by state and don’t take a national approach – there will be incentives for black market players to make cash. And this should extend to all drugs.
If you’re a legal adult who owns their own body – you should be able to snort, shoot up or smoke whatever you want…this is what it means to be free. This is what it will take for the cannabis market and other drug markets to become legal, regulated, and to reduce most risks associated with drug use.
The other methods have failed consistently for eight decades.