Supply and Demand: the Marijuana Industy in Oregon

A recent article published by Williamette Week discuss the prevailing dynamics of the marijuana industry in Oregon (the original article can be accessed here). In 2014 the state government of Oregon legalized non-medical cultivation and use of marijuana–in other words, the government legalized recreational pot-growing and pot-smoking. The Oregon Liquor Control Commission (OLCC), which was already mandating alcohol distribution, is the governmental authority mandated to license growers, wholesalers, and dispensaries. Unlike in the alcohol industry, where the number of liquor stores are limited (thereby stabilizing prices), the OLCC does not limit the number of licenses it dispenses to potential newcomers in the market. What this has meant is that there are way more growers and distributors than smokers, so supply is far higher than demand.

 

“It was a hot new market,” Whitney says. “There weren’t a whole lot of barriers to entry. The OLCC basically issued a license to anyone who qualified.”

 

Since the number of licenses isn’t being limited, tonnes of people are trying their hand at the marijuana business. What this has meant is that Oregon is producing more pot then residents can consume. With supply being so high there’s been a negative push on the price of the product, which is great for consumers but disastrous for individuals and groups who’ve invested their money into creating their marijuana business. The article points out that last year one million pounds of marijuana were supplied to the market, demand (consumption) totaled about 300,000 pounds.

 

This is a case-in-point of the relationship between supply and demand, and how excessive supply can have negative repercussions by driving down prices to a point where profits can no longer be made. Although corporations and conglomerates can often survive through such times of low prices, low prices often mean that smaller business owners are making much less than anticipated and much less than they planned or accounted for. The guys working on ‘craft’ strains, like mircobreweries brewing craft beer, are being pushed out by larger groups of investors who have the funds to wade through this over-saturated period.

 

The interesting part is whether the government has a role to play in balancing out this industry, or whether the marijuana industry should just be given time and left alone in order for the market to sort itself out. The way I see it, although government intervention in the market can be extremely helpful in the short-run, in the long run markets do seem to sort themselves out according to supply and demand. Any new industry will need time to reach homeostasis, the sad part is that those being worst hit by the dramatic price-drop of pot are working class people who took a risk and put their funds on the line. The effects and potential policy recommendations are detailed in the article, which is both an informative and captivating read.

 

Original article link: http://www.wweek.com/news/2018/04/18/oregon-grew-more-cannabis-than-customers-can-smoke-now-shops-and-farmers-are-left-with-mountains-of-unwanted-bud/?src=longreads

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