Supply chain implications of legalizing pot...

So California has a ballot initiative pending that will legalize marijuana.  The stated purpose of the initiative (apparently delivered with a straight face) is that legal weed could plug the state’s budget deficit.  That is, make the stuff legal and then tax it like crazy.  So that raises the question of what legal pot would sell for (how else can you estimate the tax revenue?). This is the topic of a recent NPR story (Will Legalizing Pot Solve Calif. Budget Woes?, Feb 12). Some estimate that the tax could be worth $1.4 billion but others think that might be on the, ahem, high side.

California already has some experience with semi-legal pot sold through medical marijuana dispensaries.  It turns out that they have some intriguing supply chain problems:

Now, in a normal economic market, when demand goes up, suppliers -in this case pot growers – would just grow more Purple Kush, and prices would come back down. But Johnson (General Manager, Grassroots) says the marijuana market is still quirky. Before running the marijuana club, he used to run a bar, which he says was completely different.

Mr. JOHNSON: When you, you know, make an order for your suppliers, for you booze, you know, its going to be delivered on time and you can get whatever Budweiser or Jameson that you need for that week. Whereas in this industry, youd never know when people are going to harvest, sometimes theyll just disappear. You dont know if they just gave up growing or they went on vacation.

Pot growers make for unreliable suppliers — who’d a guessed? The question is whether complete legalization would change that.

If marijuana were completely legal, big corporations might start growing pot super efficiently. And people think the price could come down by at least half. After all, pot is just a plant not that different from growing tomatoes. And price is important because the cheaper pot is, the more people will use it.

So is it reasonable to expect that corporations would step in and stabilize the supply chain?  I would argue that there is precedent for it.  Look at organic foods.  The organic food movement was originally about farming on, if you will, a human scale.  It was not originally congruent with producing enough, say, baby spinach to have boxes of it in every Costco.  Michael Pollan wrote about the rise of “Big Organic” in his book The Omnivore’s Dilemma. The rise of large scale organic farming shows that if you can prove that there is a large market for produce grown with certain methods, professionals will move in to squeeze every bit of efficiency possible under the relevant rules.  The next thing you know you have growers able to keep up Whole Foods, Costco etc on a national scale.

Of course, growing pot and growing spinach are not quite the same thing.  There is no organized segment of society that objects to growing spinach.  I suspect there would be if, say, Del Monte or Dole, moved into the weed business.  On the other hand, firms specializing in alcohol or tobacco know a thing or two about managing public calls to limit the sales of their products as well as how to grow things.  I think it quite plausible that legalization would take pot to a higher level of management.