Who's Afraid of Cheap, Legal Weed?

Aside from the usual suspects (Big Alcohol, Big Pharma, and of course the illegal drug cartels), who stand to lose the most from cannabis legalization and/or falling cannabis prices, as well as those who simply oppose cannabis in general, there have also been some legitimate public health researchers such as Mark Kleiman who also seem to fear it--specifically the "cheap" part, not the "legal" part.  The fear here is that, while legalization per se may be a non-problem, a large price drop may lead to a significant increase in heavy cannabis use and related problems, at least in theory. But we don't really see much reason to worry.  

Of course, prior to Colorado and Washington's cannabis legalization, there had been a widespread belief that before-tax prices would plummet by at least half, and perhaps even 80% or more, upon legalization or very shortly after.  And yet, that did not happen--yet.  If anything, prices went up at first due to higher demand in the short term, and with or without taxes the prices three years later still have not dropped nearly as much as predicted compared with the status quo ante, at least not at the retail level.

And while the price elasticity of demand for cannabis remains controversial to this day, it is generally thought to be relatively inelastic overall, though estimates vary dramatically.   Note that all estimates were calculated during the time of prohibition and do not always adjust for potency.  There may very well be a relatively "elastic zone" above a certain price point, such as the average price during the 1980s and early 1990s when usage rates dropped, but any further decreases from current levels are squarely in the "inelastic zone".  In fact, even before legalization, the typical cost per buzz-hour was already cheaper than beer.

Still, the long-term trend in cannabis prices does seem to be downward, both in legalization states and nationwide.  And contrary to what the fearmongers like to claim, that is not necessarily a bad thing, given how cannabis is overall safer than alcohol, and generally tends to substitute for it.  Many studies strongly suggest that when one advances, the other retreats, albeit with some nuance.  Cannabis may even take a major bite out our nation's deadly and devastating opioid epidemic as well, according to some studies.  Thus, cheaper weed, especially if it is legal, may very well be a net public health and safety benefit on balance.   And there is also no hard evidence that teen cannabis use has increased as a result of legalization--on the contrary, the latest NSDUH data find that cannabis use among 12-17 year olds nationally has dropped to a 22-year low, even as it has risen significantly among both 18-25 year olds and those 26 and over since 2008.

As for heavy use, the definition of that term varies, but for argument's sake let's use Mark Kleiman's "daily or near-daily" (DND) use definition of 20+ times per month.  He notes how the rate of past-month use among adults is roughly the same as it was in the early 1990s, but within that group the proportion of DND users has apparently increased fourfold by 2014.  And yes, heavy users would be the most sensitive to price as a rule, since they spend a more significant chunk of their incomes on weed than non-heavy users.   But this increase occured almost entirely during prohibition, and now it seems like the market for heavy use is quite saturated even with legalization and falling prices.  So heavy use is unlikely to increase much more (if at all) going forward, regardless of price or legal status.

So how far will the price ultimately fall?  Well, consider this.  Take a look at the price by weight of various products in your local grocery store.  For example, think "parsley, sage, rosemary, and thyme" (like the song), and of course oregano and tea bags--all of which are typically just a few dollars per ounce (which works out to mere pennies per gram), compared to cannabis at $100/oz. for low-grade and $300+/oz. for high-grade (i.e. $1600-5000/lb.) despite it being roughly as easy to grow as basil.  That's a roughly 100-fold difference!  The notable exception to this rule is saffron, which is about $1000-5000/lb. but that is because it is made from just the pistils of the crocus flower and thus requires a LOT of flowers, and a little bit goes a very long way.  But for cannabis, once the industry becomes fully developed, the current artificial scarcity caused by tight regulation and licensing will dissipate, and the inevitable (albeit delayed) drop in price will happen, sooner or later.   Exactly how much is anyone's guess, and depends on supply and demand as well as taxation, but down it will go, most likely by a lot.  Perhaps even so low that a "dime bag" would literally cost a dime (before taxes), though demand would most likely buoy the price at least somewhat higher than that.  

Thus, an 80-90% price crash at some point in the not-too-distant future is really not too farfetched.  If that happens, then the average potency would also likely drop from its currently high levels.  What would be the point of using energy-intensive indoor growing methods to force the THC percentage levels well into the double-digits and even into the twenties, when decent bud can be produced much more cheaply and efficently via outdoor growing or in literal greenhouses?  After all, the whole point of high-potency weed is more "bang for the buck", as well as making it easier to conceal.  At the same time, bunk weed would be, well, weeded out.  And specialty products such as edibles and vape products will likely increase in production, as the cost of producing them will go down due to cheaper crude cannabis prices.

And for those who are concerned about a hypothetical Big Tobacco-style supervillain cannabis industry somehow endangering public health?   Well, if the price really does plummet as much as researchers predict, it would really take the profit out of it at the same time, so this hypothetical "Big Pot" would not get very far.   Thus, Twenty-One Debunked believes "don't fear the reefer", no matter how cheap and readily avaliable it may eventually become.

Would a Price Floor Be a Good Idea Here?

Recently, UK Prime Minister David Cameron has begun to support the idea of setting a minimum price per unit of alcohol, which currently does not exist in Britain.  The rationale is that it would cut down on excessive drinking and related problems.  Clearly, Britain’s binge-drinking culture (affecting all ages, not just youth) is nothing short of outrageous, even by American standards, though it has improved somewhat in the past decade.   The alcohol taxes in the UK have actually risen faster than inflation in recent years, but supermarkets continue to get around that by selling cheap alcohol at a loss (aka "loss leading") to attract more customers, in a race to the bottom that the overtaxed and declining pubs can never possibly win.  So a price floor seems like a great idea, at least in the UK.

Would that also be a good idea on this side of the pond as well?  Certainly the proposed price floor of 0.40-0.50 pounds per British unit of alcohol (which would be $1.12-$1.42 per American standard drink) would be a bit steep, at least for off-premise alcohol.  A case of 24 beers would be at least $27, similar to the price in Ontario, Canada, and about double the current price for the cheapest beer in much of the USA.  Not only would that idea be unlikely to fly in this country, it may not even be necessary to make set the floor that high to reap significant public health benefits.  Alcohol prices are currently significantly lower in the USA than in the UK (mostly due to our very low alcohol taxes), and the cost of living is lower in the USA as well.  American teenagers and young adults are also significantly poorer than their British counterparts, at least those in the bottom 90%. 

Twenty-One Debunked currently supports (and has always supported) raising and equalizing the alcohol taxes to $21 per proof-gallon for all alcoholic beverages, the same level as the distilled spirits tax was in 1991 adjusted for inflation.  That would push up the price of beer by about $1.20 per six-pack and $4.80 per case, wine by $1.00 per 750-mL bottle, and liquor by $1.00 per 750-mL bottle.  Microbrewers would be exempt from any such tax hike, since their products are already pretty expensive and as small businesses they would be the least able to absorb a tax hike.   A price floor would probably be a good complement to such a policy, and $1.00 (at most) per standard drink would make sense for non-bulk alcohol.  For bulk alcohol (more than an 18-pack of beer or more than 1 gallon of wine or more than 750 mL of spirits), a floor of $0.50-$0.75 would be better, especially since we support keeping the purchase age at 20 or 21 for bulk alcohol while lowering it to 18 otherwise.  This combination of policies is really not all that different in principle from the main idea discussed in Kenkel (1993), yet far more practical and equitable overall.  And bars and restaurants would likely benefit, since pre-gaming with cheap off-premise booze would be reduced.