Could the Big Business of Marijuana Legalization Become Another Giant Bummer?

Could the Big Business of Marijuana Legalization Become Another Giant Bummer?

Exponential sales growth is projected for the legal marijuana industry -- but don't expect a consumer paradise.

Some investors seem intent on becoming latter-day P.T. Barnums.  Two months ago, a marijuana-focused technology and growing firm based in Arizona, American Green Inc., bought the ghost-town of Nipton, Calfornia, which covers 120 acres, for the price of $5 million. American Green plans to make Nipton the country’s “first energy-independent, cannabis-friendly hospitality destination,” according to the company’s publicity statement.

Nipton is small but strategically located:  A mere hour from Las Vegas and just three hours from LA.  The company plans to use the old silver mining outpost as a platform for bottling cannabis-flavored water but eventually hopes to turn the town into a pot theme park — with amusement rides, health spas, and marijuana edibles galore.  Some Native American tribes in South Dakota who’ve suffered losses on their gambling casinos have announced similar plans.

There’s a real danger in the current business drive to embrace marijuana, which some observers have likened to a “GreenRush.” It’s the simple law of “economies of scale.”  States that are licensing local firms to grow marijuana may be inadvertently creating monopolies or oligopolies and squeezing smaller competitors out.  That process is already underway in Colorado where the state government has held back on issuing new licenses, leaving the state’s industry in the hands of a half dozen large suppliers.

The threat of a similar process unfolding in Ohio led voters to reject a ballot measure last year that would have allowed businesses to jump into marijuana production.  Analysis of the measure revealed that the criteria for obtaining licenses would have narrowed the competition to large suppliers.   A proposed new ballot measure in Florida carries the same threat, leading some of the state’s major media organs to come out against it.

In the short term big business dominance of the market is likely to drive down marijuana prices — there is evidence of this happening already — which sounds like a plus for consumers.  But eventually these same production monopolies will be in a position to set their prices high, without competition, and their investors will stand to earn large profits when they do.

It could be that the process will also result in a flourishing of a cheaper black market alongside the legal market creating another arena for civil or criminal prosecution just as pot enters the business mainstream.

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