Tuesday, May 8, 2018

The economics of free market supply and demand: As legalization of cannabis hits more states, the price for consumers is dropping significantly

One of the bigger ironies in the West today is how both educated economists, as well as the mainstream public, mistake capitalism for crony capitalism.  And where over the past four hundred years one has brought more people out of poverty than at any time in history while the other has done just the opposite by killing purchasing power and creating a wealth disparity that is completely unimaginable.


Yet when free market capitalism is allowed to flourish in a given sector or industry, the results are often a combination of growth for businesses, and lower prices for consumers.  And this dichotomy is apparently emerging in the relatively new industry of cannabis as prices are falling drastically due to the increased supply coming out of more and more states legalizing the formerly illegal substance.

The national average price for a pound of cannabis was about $1,789 in 2016, but had fallen by 13 percent to $1,562 by the end of 2017, according to the Cannabis Benchmarks U.S. Spot Index, which tracks marijuana prices. 
Recent numbers suggest the average price is still falling. No one knows when the prices will bottom out. 
In Oregon, the wholesale price of weed fell by as much as 40 percent since October, 2017, in part because of a bumper crop harvested last fall ("Too Much Weed", WW, April 18, 2018). 
The price has tumbled much lower here than the national average: Oregon's wholesale sun-grown weed fell from $1,500 a pound last summer to as low as $700 by mid-October. 
Other states' legal marijuana markets have been similarly suffering from a downturn in prices. Some attribute the falling prices to an unpredictable market, oversaturation and even corporate consolidation in the industry. – Willamette Week
The cannabis industry is a very good microcosm for what happens when a given market is allowed to flourish under the 'invisible hand' of lightly regulated supply and demand principles.  And in opposition to this phenomenon with cannabis is the health care industry, where extremely onerous regulation has made this one of the few markets where prices increase even though technological advancements should have resulted in prices going lower, not higher.

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