Professor of Economics Argues Price of Pot Might Rise When Legalized

Yesterday the New York Times Blog, Freakonomics, featured a guest post by Daniel Hamermesh.  Hamermesh is a professor of Economics at the University of Texas.  He claims that “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. ”

What isn’t clear to me after reading this post is if he has the basic facts correct.  He states that after reading NPR’s story on Sunday “about the rising average cost of growing marijuana in Humboldt County, Calif., a center of the industry” he came to his conclusions.  However, the piece doesn’t talk about rising costs.  It talks about environmental damage.  The costs of growing pot may be rising but in the experience of every grower I have spoken to, prices are dropping to them.

Admittedly, the consumer is paying higher prices in some areas  (dispensaries in Colorado charge more than black market prices) but is this true across the board.  I’d like more information.

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21 comments

  • He’s probably unaware of on-the-ground realities here, but I think he’s likely correct because he’s probably talking about retail, not wholesale prices.

    Not surprising about CO, that’s happening here in California. In the absence of a legal market, the black market is lucrative. In the presence of a legal and taxed market, the black market becomes the source of cheaper goods, mostly to avoid the excise taxes.

    The legal markets want standards of purity and shelf appeal, which require more care in cultivation and processing, and those costs are passed on to consumers. Scruffier stuff is more likely to end up on the black market at a lower price.

    Legal pot other than home grown is going to be taxed, and that tax pushed onto the consumer.

    Dispensaries and whatever new legal outlets created will have overhead–salaries, insurance, rent, utilities, etc. Those costs will be passed onto the consumer.

    Retailers demand the lowest wholesale possible to make the best margin on retail. Consumer consciousness about how well workers are treated and non-polluting practices are things that must be branded–and practiced–to enable growers to make a good living. Think Fair Trade coffee, or organic food or cotton which commands a price premium in the market.

    • I’ve heard tales of pounds go for around $8000 retail in dispensaries which seems a fairly high markup if they aren’t haven’t to deal with black market dangers (confiscation, criminal element, dangerous working conditions.)

  • The good professor has obviously smoked too much of the product in question!

  • The good professor has obviously smoked too much of the product in question!

  • With only a partial idea of prices, based upon a skimpy article, I think the professor’s purposal on the price of a product that he knows little about is speculative…to say the least.

  • With only a partial idea of prices, based upon a skimpy article, I think the professor’s purposal on the price of a product that he knows little about is speculative…to say the least.

  • As the horizontal amplitude of the heightened consciousness experienced from the quality of marijuana’s instinctive impulse elevates exponentially there will be evidenced a major shift of the poles observed at both ends of the mundane cannabis spectrum introducing a retail platform to a wholesale experience of the product’s return’s influence upon the dynamic’s necessity for increasing subliminal persuasion through media imagery to conceal an astonishingly diminished increase in the reduction of the variation of the sales/growth ratio which of itself discloses a decline per unit that will appear increasingly more apparent as in time the new supply is repeatedly divided by the changing demand producing a quotient that alternates to fit the consumer’s shifting status concerning their relationship to legalities’ progressive expedience.

  • As the horizontal amplitude of the heightened consciousness experienced from the quality of marijuana’s instinctive impulse elevates exponentially there will be evidenced a major shift of the poles observed at both ends of the mundane cannabis spectrum introducing a retail platform to a wholesale experience of the product’s return’s influence upon the dynamic’s necessity for increasing subliminal persuasion through media imagery to conceal an astonishingly diminished increase in the reduction of the variation of the sales/growth ratio which of itself discloses a decline per unit that will appear increasingly more apparent as in time the new supply is repeatedly divided by the changing demand producing a quotient that alternates to fit the consumer’s shifting status concerning their relationship to legalities’ progressive expedience.

  • I can’t decide to revile him or praise him for his last sentence in the post “It’s not clear what will happen.” You got to snicker at how he manages to cover every eventuality but at the same time, ‘hell, who does know what will happen?’ I frequently feel like ending my posts on marijuana with a question—The factors are so many and so unknown.

    I

  • I can’t decide to revile him or praise him for his last sentence in the post “It’s not clear what will happen.” You got to snicker at how he manages to cover every eventuality but at the same time, ‘hell, who does know what will happen?’ I frequently feel like ending my posts on marijuana with a question—The factors are so many and so unknown.

    I

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