The Problem With Marijuana Markets

Recently looking at plunging marijuana prices, we just mentioned the absence of a national market. But there was much more we needed to add.

So let’s begin.

Statewide Marijuana Markets

We can start in Oklahoma. As one of the biggest sources of black market weed in the country, Oklahoma says its problems stem from the impact of “cheap land, affordable licenses, and light regulatory oversight.” As a result, cultivation grew far beyond the medical marijuana that people wanted to buy. It extended beyond what existing dispensaries could sell. The result?  According to one regulator, “That marijuana is gonna go somewhere and it’s going out of state.”

But, as we know, interstate marijuana movement is illegal..

Trying to rein in this “Wild West” weed scene, the state implemented a seed-to-market tracking system and limits on new medical-marijuana businesses. However, it is tough to constrain an industry where hidable cash is king because federally chartered banks avoid federally illegal marijuana businesses. Oklahoma worries what will happen if it broadens the medical market to recreational marijuana.

And now, further complicating the issues, the courts have said that states are violating the Constitution’s interstate commerce clause when they regulate safety and encourage diversity. They have also questioned a state’s right to declare residency requirements for pot business owners.

And finally, because marijuana is illegal nationally, banks minimally offer their services to the industry. On the retail side, we are looking at what has to be primarily a cash business. Meanwhile, the implications on the supply side range from a slew of frictions that relate to safe money transport, paying bills, submitting taxes, and money laundering. One solution is the SAFE (Secure and Fair Enforcement Act) Banking Act. Protecting financial institutions from prosecution for providing services to marijuana businesses, its bipartisan support has not been enough to get the act passed by the U.S. Congress.

Our Bottom Line: A National Market

When goods and people are freely exchanged within a vast expemnse rather than a limited territory, the advantages multiply. On the supply side, you get economies of scale and access to a larger labor force. Consumers meanwhile enjoy more variety and quantity. As Professor Timothy Taylor explains in his America and the New Global Economy Teaching Company course, you could enjoy the benefits of the four freedoms: 1) People, 2) Goods and services, 3) Labor, 4) Capital. I would like to add that you further benefit from a financial, information, and transportation infrastructure.

It is amazing that our founding fathers created our “common market” when they replaced the Articles of Confederation with the Constitution. The European process was accelerated with the Single Market Act in 1986.

And now, we need it for marijuana markerts.

My sources and more: For marijuana markets, the more you look, the more you find. Two especially good articles though were in Politico and WSJ. And, for banking, Politico also had the facts.