The pot market

Larry Ribstein —  27 June 2010

The NYT discusses the market developing in the wake of the federal government’s decision in January to leave pot regulation to state law. Colorado’s working on regulations that other states may use as a model. Boulder now has more marijuana dispensaries than liquor stores and Starbucks combined.

Hey, whatever happened to all that stuff about the horrors of pot-smoking? Reefer Madness! Once we thought pot-smoking led inevitably to heroin addiction. Now it could be worse – cigarette smoking!

For one thing, the demographic changed. The same people who elected Obama are a bit less concerned about pot than their parents (well, maybe than their grandparents).

For another, money talks. The NYT says the market is now $25 billion a year. Imagine what a legal market would be worth, and the tax revenues for financially strapped state and local governments. Says the NYT:

“A spokesman for the National Organization for the Reform of Marijuana Laws says hedge fund investors and an assortment of financial service firms are starting to call around to sniff out opportunities. We’re past the days when people call here to ask if marijuana will give men breasts,” says Allen St. Pierre, the executive director of NORML. “Now, the calls are from angel investors, or REITs — people who are looking for ways to invest or offer their services.”

The developing market seems to be a cross between pharmacies and head/coffee shops. The NYT wonders “when was the last time your pharmacy had a milkshake night? Selling ‘dosage controlled’ scoops of chocolate peanut butter ice cream?” Although captains of the present industry may include the befuddled vendors of what used to be called nickel bags, the industry is evolving. The emerging medical prescription model (which the article notes is similar to what happened with liquor during Prohibition) means the new customer is a 20 something who claims a neck injury. The Colorado merchants vie for these customers’ “caregiver rights” by bribing them with deals.

The users get access to their medicine through medical exams. Enter the doctors. The NYT discusses one of them:

In one year alone, working just three days a week at Relaxed Clarity, he’s seen 7,000 patients, each paying an average of $150 for a visit. He takes out a calculator and does some quick arithmetic. That’s more than $1 million, grossed in 12 months. “There’s no waiting for an insurance company to pay you a fraction of what you billed,” Dr. Boland says. “It’s just boom, you know, cash on the spot. So you can make a significant amount of money doing this.” * * * Dr. Boland hopes to take his medical marijuana business national, opening Relaxed Clarity offices in other states.

Sounds like the Obama administration has created a great business model for the post-Obamacare medical profession. Don’t laugh. In Japan, after universal care came in, penile inserts got big.

Also maybe banks can make up some of the lost revenue from derivatives by selling pot, or at least pot futures.

Larry Ribstein

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Professor of Law, University of Illinois College of Law