The Familiar Economics of Legal Weed

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The Familiar Economics of Legal Weed

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By Samantha Solomon, Editor-in-Chief, Commodities

Ganja is going mainstream.

These days, soccer moms and punk rockers alike are visiting weed distilleries to buy a little green for recreational use.

As more and more states legalize and decriminalize marijuana, the drug is increasingly being treated like a commodity.

You see, legalization leads to greater supply and distribution, which in turn leads to lower prices.

Now, there isn’t a weed exchange (yet), but Price of Weed, a global index for marijuana sales, serves as a repository for tracking the price of both legal and illegal marijuana sales across the country.

Buyers can anonymously submit the price, amount, and location of a weed sale. The website’s users can then check the index to find out how much they can expect to pay for weed on, say, their spring break in California, so they’ll know if they’re getting overcharged.

The data also allows you to track trends in marijuana pricing.

Using data from Price of Weed, The Washington Post recently reported that the average price of an ounce of marijuana in the United States is $286.35. And eighth would be about $36.

The Post also used that data to create a map showing how expensive weed is across the country compared to the average national price.

Following the Green

Since this data collection is voluntary and marijuana is still illegal in most states, it’s hard to get a clear picture of why prices are where they are.

Still, it seems that a high supply – such as you would have in states where growing or buying the drug is legal – leads to lower prices.

Weed is cheapest in Oregon, Washington, and Colorado, which have legalized the recreational use of the drug, and California, which legalized medical marijuana in 1996.

Prices are also low in areas that are known for marijuana production, such as the “Emerald Triangle” – Humboldt, Mendocino, and Trinity counties in California – and in Kentucky and Tennessee.

The Post also reported that in 2011 the Price of Weed’s data showed that the national average of an ounce was about $314. The price may have started dropping due to Colorado and Washington legalizing recreational use in 2012.

A Hazy Future

RAND Drug Policy Research Center Co-Director Beau Kilmer told VICE News that the price of marijuana is mostly compensating everyone along the supply chain for the risk of arrest.

“With legalization, those risks are eliminated. Legalizing marijuana and allowing it to be industrially farmed like any other agricultural commodity will cause the production and distribution costs to eventually plummet,” said Kilmer.

But Harvard economist Jeffrey Miron contradicted this opinion in his essay published on CNN.com. Miron thinks prices would go down even further if the federal government legalizes weed, but they won’t drop too much more because the number of marijuana users won’t increase all that much.

Instead, Miron says nationwide legalization would make the weed market more complex, with a variety of expensive, high-end, and super-cheap weed products.

It’s strange and interesting to imagine what the future holds for the marijuana market. Futures contracts? Price hikes due to bad weather? Supply shortages from transportation strikes?

Perhaps even a trader from the marijuana desk writing for Wall Street Daily.

Good investing,

Samantha Solomon

The post The Familiar Economics of Legal Weed appeared first on Wall Street Daily.
By Samantha Solomon