A Bumper Crop Of New Pot Laws

Like corn in Iowa or potatoes in Idaho, the price of certain key crops indicate the economic health of a region. For better or worse, the crop that fuels the financial engine of the Emerald Triangle is marijuana. Economists and bankers have estimated that Humboldt County alone produces from $400 million to over $2.5 billion worth of sticky green buds. This week, voters in two states, Washington and Colorado, approved two different models of legalization. What happens in those states could affect the price of cannabis in this area and the region’s financial future.

Dominic Corva, a political geographer from Sarah Lawrence College who is currently studying cannabis issues in Humboldt County but maintains a residence in Washington state, says legalization in these two states will have an “effect on the national conversation…just like we saw after California medical marijuana passed, we saw more states passing [equivalent laws].” Like with Prohibition, he says, states will pass legislation continuing to loosen cannabis laws on their own. The effect will “snowball.”

Most people agree that with easement of marijuana laws, wholesale prices will drop. For Humboldt and Mendocino counties which rely heavily on income from cannabis growers this could be disastrous.

Corva suggests that “increased production in Colorado and Washington may be problematic for California producers but probably not.” Nonetheless, “this could have the long term effect of expanded outdoor production — over-production. Outlook for wholesale cannabis prices is bad.” One of the reasons that marijuana prices here might drop, Corva says, is it is “Less risky to move marijuana from Boulder to NY than from Garberville out of California….This could drop prices.” However, he says, “There doesn’t seem much room for them to drop much more seriously.”

Emerald Growers Association Chairwoman, Kristin Nevedal, says that her group does not expect to see any negative fallout from the legalization success in those two states. “I don’t know if the black market is going to flood and drop prices,” she says though she doesn’t think it likely. But prices for medical marijuana, she believes, which are between $1400 and $2,500 for “depo” (marijuana brought to harvest early in the season by partially depriving it of sunlight) won’t be affected because Washington and Colorado can’t legally export their cannabis. Dispensaries in California can’t buy from growers in those two states and the marijuana produced there can not cross state lines legally.

Though, of course, the black market producers export cannabis across state lines already.

Nonetheless, Nevedal says that medical marijuana growers are “contract farmers” who won’t be affected in any case. “The price of production is what affects the price. The bottom can’t fall out because a farmer has to pay for production.” Besides, she says, much of California doesn’t have to worry about competition from Colorado or Washington because neither one of those two states has sungrown cannabis available in quantities. Sungrown cannabis is becoming more popular as consumers who buy organic, environmentally friendly foods look for similar qualities in the buds they purchase.

Corva offers a similar viewpoint. “The outdoor organic capital is still in your neck of the woods.”

In fact, according Nevedal, her group which represents the interests of medical marijuana growers in several Northern California counties hopes that the success in Washington and Colorado will help them with their goals in California. In the next couple of months, she believes, there will be “a little more political bravery” because of the changing laws in these two states.

Nevedal is “super optimistic at this point” about the future of medical cannabis in California. She says, “Close to 80% of the polled population supports medical marijuana. Close to 60% flat out want to legalize [marijuana without medical restrictions.]”

West Coast High Times Editor David Bienenstock says, “I think clearly that California led the way with medical marijuana.” And, he believes that “the citizens of California aren’t going to be satisfied until we make this very rational decision…. We will have two years to look at the progress of Washington and Colorado.” He even thinks that California might not wait two years. Bienenstock says, “California went heavily Democratic in this last election…” so the state may not have to wait for an election. Perhaps lawmakers, he says, will seize the opportunity to create legislation themselves.

Bienenstock hopes that “public officials in Humboldt County are preparing for a post legalization world.” This is both a “crisis and opportunity” for growers in the area. And he believes, “This is a change we have to make for so many reasons.”

Colorado and Washington weren’t the only states changing their marijuana laws. Massachusetts approved medical marijuana making it the 17th state to do so.

Not all cannabis laws were loosened though. Montana approved a law tightening restrictions on its medical law. Oregon’s proposal to legalize marijuana didn’t pass. And Arkansas’ medical marijuana proposal went down, too. And, of course, closer to home, Measure I in Arcata will impose a 45% tax on those with electricity bills higher than 600% of baseline usage. This could affect around 7% of homes in the city.

Nonetheless, state and city law changes only reflect a small amount of what is happening. There is still the federal government to contend with. Certainly this last year has seen a huge crackdown in California with the federal government shutting down over 600 dispensaries.

Nevedal though believes there will be no federal crackdown in those two states like there has been in California because the federal government “had every opportunity” to come out against the laws proposed and they didn’t. Nevedal speculates that the federal government has “heard the request” of the voters and will at least halt prosecution of medical marijuana. “We’ll see a freeze and review policy,” she believes, “especially towards medical policy.” This will, she believes, “support us getting a regulatory system in place [for medical marijuana.]”

Corva, however, says that among people he knows, “We expect a federal reaction that will prevent all or part of the law from going into effect…However, within Washington State it is hard to find juries willing to convict.”

It is true that in a sign that views at the top might be changing, US Attorney General Eric Holder who came out a month before California’s Prop. 19 promising to “vigorously enforce” marijuana laws, quietly ignored Colorado and Washington’s proposed laws before the election.

Nonetheless, immediately after this latest election, a spokesperson from the Department of Justice said, “The department’s enforcement of the Controlled Substances Act remains unchanged. In enacting the Controlled Substances Act, Congress determined that marijuana is a Schedule I controlled substance. We are reviewing the ballot initiatives and have no additional comment at this time.” California’s experience this last year under an onslaught of federal forces may indicate that the government is unwilling to ignore challenges to its drug policy.

Ironically, the federal government’s crackdown may well be the best price support Humboldt County has. In the face of increasing production here and a dropping of legal barriers in other states, prices should have been dropping precipitously. Nonetheless, prices have remained seasonally stable even very slightly increased from last year at this time. The crackdown surely is a factor in prices failing to fall.

Cartels Expected To Lose Billions 

Mexican marijuana will lose around 25% of its share in the black market place because of the loosening of laws in Washington and Colorado, claims a study from Mexico. According to a rough translation of the work released on October 31 by the Mexican Institute of Competitiveness (IMCO,) “Depending on the federal response to the statewide legalization, the producers of the states that eliminated legal penalties for marijuana could provide much of the [product] consumed in the United States.” In other words, states with legal marijuana could end up exporting quite a bit to other states. The research discussed by IMCO was an attempt to quantify the economic effect of legalization if it passed in Washington, Colorado and Oregon on Mexican cartels but it also offers a possible way to look at the economic effects on marijuana produced in California.

First, the study postulates a fairly standard belief that the price of marijuana is inflated because growing an illegal product is risky. The authors further assume that because growers can’t grow in large amounts (relative to other crops,) they can’t take advantage of the economies of scale — mass production being cheaper than small scale growing. However, the authors say that legalization on a state by state basis while marijuana is still illegal on a federal level won’t change the inflation model completely. They state, “Producers, distributors and marketers would continue to face risks of arrest and jail, even if their activity is fully legal in terms of the state standard.” Nonetheless, the authors argue there will be some changes in the price.

According to the study, “…the legalization in any of these states would open potentially a price gap with states that maintained the ban, creating an incentive to export. Export volume would depend on the price differential between legalized marijuana and illegal marijuana.”

The authors go on to propose a mathematical formula that basically bases the price of pot on the distance it is from the place it is produced. They say that, in most cases, pot from areas where marijuana has been legalized will be able to get to markets across the United States cheaper than Mexican pot. Consequently, Mexican cartels will lose a large portion of the market. Basically the IMHO claimed in the study published before the election, according to this article in the Washington Post, that the cartels will lose “$1.425 billion if the initiative passed in Colorado and $1.372 billion if Washington voted to legalize. The organization also predicted that drug trafficking revenues would fall 20 to 30%, and the Sinaloa cartel, which would be the most affected, would lose up to 50%.”

If this study is correct, it seems reasonable to speculate that prices in Washington and Colorado will drop below what prices in California currently are, forcing California, which exports a large amount of marijuana on the black market, to drop its prices.

However, according to this fact sheet by the Washington State Liquor Control Board which is in charge of implementing the new law, prices may not drop as low as some California growers fear. According to the sheet, the “estimated producer price is $3 per gram and estimated processor price is $6 per gram” with a final average of around $12 per gram to the consumer. Assuming the black market runner buys the pot from the Washington producer/grower at the price of $3 per gram that works out to about $1362 per pound. This is a price lower than most California growers average ($1400-$2200) but only about $40 less per pound than the low end. The effect will surely be to drag prices down in the long run but may not cause a precipitous slide that some fear. If the quality and especially the reputation of California’s cannabis is higher than that of Washington and Colorado, of course that will mitigate some of the price drop.

Courtesy, Lost Coast Outpost; lostcoastoutpost.com.

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