Comments on economics, mystery fiction, drama, and art.

Sunday, February 15, 2015

Legalization and the market for marijuana

I don't want to make too much of this, but apparently the price of marijuana has plummeted in the state of Washington since (in a limited way) production and sale of pot was legalized--down from around $2,000 per pound, or $125 an ounce (wholesale) to around $800 per pound ($50 per ounce).  (Depending on a number of factors, one can apparently get between 30 and 100 cigarettes from an ounce of pot.)

Almost everyone expected,  both the demand and the supply of marijuana increased (i.e., both the demand curve for and the supply curve or marijuana shifted to the right) upon legalization.  For buyers, the risk-adjusted price of use fell, while for sellers, the risk-adjusted price rose.  So, in nominal terms, the price to buyers fell and the price to sellers rose.

What I'm not sure everyone expected is that the supply effect would be so much greater.  But even that was largely predictable.  Legalization occurred in a restricted geographical area.  To buy pot legally, you have to buy there--you, as a buyer, have to travel.  Technically, the only legal marihuana is supposed t be grown in Washington, but how do we enforce that?  It's fairly easy (and inexpensive) to transport pot from Oregon or California to Washington, and, in effect, to turn illegal pot into legal pot...with legal pot selling for a higher risk-adjusted price.

(For more, see this.)
For a long-run analysis of pot pricing, this.)


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