Cannabis policy: Walmart phenomenon, Whole Foods debate

Jonathan Caulkins once described the debate over cannabis policy as “a Whole Foods discussion of a Walmart situation.” The graphic below illustrates his point: most of the days of use involve people with a high-school education (the purple band), high-school dropouts (the green band) or people under high-school graduation age (the red band); the people in the discussion mostly have college degrees (the orange band) if not more.

Keith Humpheys reflects on the implications of that situation.

Although education is not a perfect proxy for income, the fact that 85% of pot is consumed by people who didn’t graduate college makes clear that marijuana is mainly consumed by people in working-class and poor neighborhoods, not in the kinds of places that economists, attorneys, policy analysts, journalists, physicians and politicians tend to live. A major challenge therefore for the legitimacy of marijuana policy is to ensure that people outside the college educated bubble gain more voice in the ongoing political debate.

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Hilary Bricken on investing in cannabis

Hilary Bricken heads the cannabis law group at at Harris Moure, PLLC  and will lead the panel on “investing in cannabis” at the NYU Cannabis Science & Policy Summit two weeks from now. She has some good advice both for firms in the cannabis business seeking investors and for potential investors about the risks the firms need to disclose and the investors need to consider.

Since Hilary is a lawyer, her primary stress is on risks posed by the fact that the entire industry – even the part regulated by the states – is still completely illegal under federal law.  I’ve read some pretty scary prospectuses in my day (back before Harold Pollack warned me about investing in individual companies), but I’ve never seen anything quite as bracing as this:

The federal government may raid us, seize all of our equipment and inventory, and arrest all of our employees, officers, and investors, including you.

Since I’m not a lawyer, but merely a close substitute for an economist, I would put even more stress on a less spectacular but far more probable risk, which I might put in prospectus language about as follows:

Future prices in the state-legal cannabis markets, or under federal legalization should that take place, are unpredictable, but almost certain to be far lower than current prices in those markets or in the illicit market. Cannabis is naturally cheap to produce, and competitive pressures will relentlessly force market prices for cannabis as a commodity down toward the level of costs. There can be no assurance that the Company’s best efforts to secure durable market advantage through branding, product innovation protected by intellectual property rights, or regulatory favoritism will succeed; if they do not, your investment will almost certainly become worthless.

So while all of Hilary’s legal advice is solid, I’d add one more word of economic advice about investing in the emerging legal cannabis industry.