Weedconomics

The intersection of theoretical economics and practical reality are often akin to the collisions between the Roadrunner and ACME products. Often these two forces align over time, but the blackboard simplicity of supply and demand curves rarely work out so cleanly in real life, particularly when there is transformational change.  In Colorado, the collision between theory and practice is seen with an economic shift in a product that is neither new, nor particularly complex, but suddenly legal. The product is marijuana.

Criminalized in 1917, sold under a medical license similar to a prescription starting in 2001, and now available to adults in select retail stores as of January 1, the economics of cannabis are evolving fast. Whatever ones moral belief on the subject, and despite the groans over the pot puns given the competing geographies in the upcoming Stupor Bowl, the economic collision of theory and practice in marijuana sales are fascinating.

Local DU law professor Sam Kamin and former Westword reporter Joel Warner are chronicling the transformation in a series of pieces for Slate magazine. Recently (and full disclosure: we’re quoted) they looked at the economics of three different channels in marijuana sales: retail, medical, and the unlicensed dealer. Partly due to basic economics, partly due to some odd regulatory barriers (like IRS rule 280E), each channel has different advantages and peculiarities.

Kamin and Warner note that it is entirely possible that expanding legal purchase to include retail might actually increase the number of medical marijuana patients who, for a physician’s consult and a one-time $15 card receive lower prices, higher volumes, and fewer taxes. And the economic impact on unlicensed sales might surprise you:

Nor will recreational marijuana be killing off Colorado’s other marijuana market—the black market—anytime soon. We spoke with “CT,” a Denver-based street dealer who’s been making a good living over the past five years servicing a client base of 30 to 40 people with a personal, illicit marijuana crop of 80 to 200 plants. One benefit he offers is a good price; unlike Brandon, CT does not have to pay licensing fees, taxes, or other regulatory expenses. […] But more important, he says, he offers quality, convenience, and a personal touch retail outlets can’t match. He makes house calls,…

Of course the “Picks and Shovels” theory in a gold rush says to avoid the product all together.  And so perhaps it is not surprising that the New York Times reviews a head shop for sale (and signals buy: “Especially given its size, the profitability of this store is impressive“), while Kamin and Warner add an essay on peripheral pot businesses.  This will unroll over time, so to paraphrase a former President, don’t hold your breath.