Why CO Pot Law Could Be a Black Market Boon
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Why CO Pot Law Could Be a Black Market Boon
Posted by CN Staff on November 19, 2012 at 05:05:06 PT
By Bill Saporito
Source: Time 
Colorado -- “What’s the price of an ounce of marijuana in Colorado these days,” I emailed a friend who I thought might know. The reply: for the top quality stuff, about as much as a share of Apple stock. Apple shares were going for $528 recently, which raises an interesting arbitrage possibility. What’s your guess about the price of Apple and pot a year from now, when Colorado’s legalization of personal pot possession establishes a legitimate commercial market for weed? My play would be to go long Apple and short hemp.
Colorado has made the possession of marijuana legal, but hasn’t figured out much else. Looking at it from a classical economics perspective, the legitimization of marijuana raises the issue of what happens to the demand, quality, supply, and price of a product that has now become legal after decades underground. Logic tells you that if the state legalizes what was once contraband, demand should increase. But with demand set to rise, where will the supply come from? If only Colorado-grown marijuana is legal, and the new statute limits residents to six plants for personal use, could there be a critical gap in the supply chain? “If it’s as popular as all the proponents suggest, we won’t have enough local growers to meet demand once it becomes legal,” says Mac Clouse, professor of finance at the University of Denver’s Daniels College of Business. Colorado’s law enforcers will have to make some choices: Do they try to interdict supplies from beyond Colorado even though Colorado’s citizens are essentially requesting it? Or does Colorado allow farmers to grow it in state—a cash crop if ever there was one. It would seem stupid for the state to sanction possession but not supply, since drug runners from northern California to Mexico will be lining up to supply the Colorado market. That’s one reason the price of marijuana is likely to go down. Another is that as new retail entrants fight for market share, they will do so using price as a tool – unless the state sets and fixes the price, or arbitrarily limits the number of distributors, just as it does with, say, liquor stores. But Colorado allows beer sales in lots of places, too. “Is it really like alcohol? In this state we have private liquor stores and beer in grocery stores,” says Clouse. “Does that mean you sell [marijuana] in grocery stores?” Hmm, the produce aisle? Next to the rosemary and basil? Again, if the number of authorized outlets isn’t sufficient for the market, the underground distribution network will expand to fill that demand. Another byproduct of the new law: Better quality. The anecdotal evidence since Colorado legalized medicinal marijuana a couple of years ago is that the quality of the product has improved. In an openly competitive market, entrepreneurs have invested in R&D to develop a whole variety of marijuana-based foods, beverages and supplements in addition to widening the selection of marijuana itself. But here’s another thing that’s happened: the quality of the illegal stuff has improved, too, which could indicate that contraband sellers have been feeling the pressure to improve. No more street skunk weed. Just as Colorado does with other vices, such as liquor and tobacco, the state aspires to generate tax revenue from pot sales. But if the cost burden on legit distributors gets too steep, Colorado will instead create an expanded class of bootleggers. For instance, medical marijuana sells at a premium to the street variety because people are willing to pay a premium to eliminate the risk of getting arrested. But after the law takes effect, if the premium between state-approved pot and street pot gets too steep, consumers will be more willing to go for the contraband goods, since perceived risks will be lower. By the same toke(n) it’s also possible that the retail market could segment: discount dealers on one end and truly high-end retailers on the other. Picture boutique pot shops in the posh resort town of Aspen, which the locals have already dubbed Aspendam after the free smoking Dutch city of Amsterdam. (Then again, some skiers and riders at mountain resorts will likely be surprised to discover that possession was ever illegal.) One big unresolved issue is that Colorado’s new law contradicts federal law, which will still classify marijuana as a controlled substance, illegal possession and distribution of said substance carrying jail terms. There are other, unintended benefits and consequences to consider. There doesn’t seem to be anything in the law that would prohibit pot dealers from advertising their wares like any other business. Or, say, sellers of certain snack foods making marijuana tie-ins. It could make for some lively websites and billboards. On a much larger scale, will legalization help Colorado’s tourism business by attracting tokers who might otherwise ski or hike or fish in Vermont or Utah. Resort towns in Utah have struggled for years to pry apart the state’s very tight liquor laws to allow tourists to imbibe without a veritable license. (No happy hours. No discounts. No fooling.) Although alcohol is available in Park City, Utah, for instance, no one has ever accused it of being a party town. Tourists in Colorado would be free to do bong hits in their slope side-condos—and they wouldn’t have to risk carrying pot across state borders. “It’s a convenience thing,” says Clouse. “It could make some pretty good business [at the resorts]: which does help the economy a little bit. Buying here instead of someplace else.” Feel free to insert your Rocky Mountain high joke here.Source: Time Magazine (US)Author: Bill SaporitoPublished: November 19, 2012Copyright: 2012 Time Inc.Contact: letters time.comWebsite: -- Cannabis Archives 
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Comment #1 posted by CropReport on November 19, 2012 at 07:12:19 PT
Spot Prices
$180 - $225 per ounce, top shelf. The guy who wrote this did no work to determine the price here in Colorado.
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