Cannabis oversupply and price collapse?

Here’s a story from the Denver Post about huge marijuana grow operations starting up in Pueblo County, Colorado.

Here’s another story, by Joel Warner in the High Country News, where I suggest that those huge operations will have a first mover advantage, but that advantage may not last.  (These operations are unlikely to have intellectual property protection to keep the kind of first mover advantage that leads to a Winner-Take-All scenario, like Facebook.)  And a market glut could bring prices crashing down in the long run.

Like some other pot-friendly communities, the county made marijuana businesses a “use by right” in industrial and business districts — meaning they weren’t subject to sometimes time-consuming and arduous special reviews or approvals by the local government.

But Pueblo County offered something beyond cheap real estate. Unlike Denver, it had an abundance of available agricultural land. So local officials made marijuana cultivation a use by right there, too — likely the first Colorado county to do so.

But here, from Joel Warner’s story, are a couple of dangers for the industry:

In February, a local couple filed a lawsuit in U.S. District Court, claiming that the pot grow next door devalued their property. It’s one of two lawsuits aimed at striking down Colorado’s system on the grounds that it conflicts with federal drug laws.

Even if the state laws stand, Pat Oglesby, a tax attorney who studies marijuana at the Center for New Revenue in North Carolina, isn’t sure how much Pueblo’s head start in the reefer race will ultimately pay off. A 2015 report he co-authored concluded that roughly 20,000 acres of pot would supply the entire U.S. market. “It sounds like they have a plan to really have a huge amount of supply while other jurisdictions aren’t licensing any growers, so you could see the county gaining a short-term advantage and having a huge market share,” says Oglesby. “Whether that is an advantage that can be kept over time, I don’t know.”

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Author: patoglesby

From 1982 to 1990, I worked in tax policy for Committees of the United States Congress. In recent years, I was Adjunct Lecturer at UNC-Chapel Hill's Business School and then Adjunct Professor at its Law School.

2 thoughts on “Cannabis oversupply and price collapse?”

  1. All these people in the industry think they are better than everyone else despite the fact that over 90% of them are guaranteed to be wrong. It should be easy enough for them to figure out. A simple IQ test should be enough to indicate their fitness in the market. Why should average IQ people get rich off anything let alone pot?

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