Marijuana Legalization May Have Caught a Lucky Break Thanks to a Serious Crisis


The news: The drought in California, attributed to global warming, has created a water shortage that is driving up the price of agricultural products including avocados, lettuce, almonds ... and marijuana. 

But this price increase could actually be a huge win for legal marijuana, which is reportedly state's most valuable cash crop. Support for legalization is at an all-time high, and California will likely vote to tax and regulate marijuana by 2016. If the drought continues to keep the cost of marijuana high, and the statewide demand (currently in excess of $2 billion) continues to increase, higher retail prices would mean a massive influx of tax revenue for California, which is the largest marijuana producing state in the country. It's a potential economic boon that should catch any politician's eye.

The drought's silver lining: California is seeing significant losses in agricultural yield, income and employment. But taxing and regulating a new, untapped cash crop in legal marijuana could be their saving grace. The state has the country's longest-running medical marijuana program, but has voted down recreational legalization in the past.

However, knowing the state will likely legalize retail marijuana and assuming the drought continues to jack up weed prices, the initial consumer rush will yield unprecedented tax revenue. 

While it might be a bummer for weed enthusiasts who will end up paying these higher prices at the store, they should recognize that this could be great for pot in the long run. The higher the tax revenues from marijuana, the more likely states will legalize it to get in on the profit.

Image Credit: MMJ Business Daily

A possible downside: Of course, as the price of legal weed climbs, so will the competition from the black market. Additionally, weed grown outside of California will become increasingly attractive and likely less expensive. 

Some of Canada's weed, for example, is currently about 22% cheaper than California's, and that gap is widening due to the California drought. On top of that, because it would be trafficked and sold illegally and tax-free, the prices would be even lower. 

"Consumers dictate the prices, and they'll try to find the cheapest medicine out there," Chip Perry, manager of Medical Cannabis Consultants and Evaluations in Eureka, told the Times-Standard. Currently, Washington state is dealing with a similar threat of competition from the black market. With high-priced legal weed competing with much lower-priced illegal weed, consumers are likely to go for lowest priced source.

While the unfortunate and catastrophic drought has been terrible for California, it could end up providing a major benefit to the legal marijuana industry. Of course, challenges from the black market aren't a new concern (and have been carefully considered by Colorado and Washington already), but as prices rise even higher, illegal marijuana becomes increasingly attractive for consumers. And just like that, the Great Weed Experiment becomes even more complicated.