California became the Eight State to legalize recreational marijuana. The other Seven States where recreational marijuana is legal are Oregon, Washington, Nevada, Maine, Alaska, Colorado, and Massachusetts. The legalization of marijuana in these states has been a huge success. Billions is revenue has been generated from recreational marijuana legalization. California was the first State to legalize medical marijuana in 1996 and last November voters chose to legitimatize recreational marijuana. The deadline for local counties to have all procedures set in place is January 1, 2018.
In Colorado and Washington, sales of recreational marijuana are around $1 Billion in each state. But California is set to be by far the largest, with researchers estimating that California will generate up to $5 Billion in revenue from marijuana sales. The latest date for vendors to be able to apply for licenses is January 2018. There is now a rush on in local counties to get the rules and regulations in place so that State and Federal requirements are complied with. Legalization will not immediately result in an elimination of the black market, and many sellers and distributors will remain in this area for a few years, possibly sending marijuana across State lines, an activity which runs contrary to Federal law.
The Decline of Crime
A number of Ford Fusion cars have recently been found to have millions of dollars stashed in the trunks. The cars were shipped by rail from Ford plants in Mexico, and this is the fourth time in 6 months that Ford has been linked to marijuana transportation. It has caused the company considerable PR issues and is very embarrassing that they cannot the issue figured out. However, it is indicative that illegal marijuana gangs are eager to get rid of their supply in the midst of ongoing legalization in the USA. The floodgates are opening and in the next 3 or 4 years hopefully, recreational marijuana will be legal in the majority of states, almost completely eliminating illegal marijuana activity.
Excess Marijuana in California
But there does remain a very real threat of having too much marijuana in California. This is unique to California where many knew in advance that it was going to be legalized and saw how profitable marijuana business was in other states. One reason for the excess supply is the rise in hydroponic growth, which is perhaps too much of a good thing. The bottom line is that cultivators are producing too much marijuana when the demand is not yet there. Studies conducted in Oregon State University found that following legalization of recreational marijuana there was no notable increase in marijuana consumption, except in teenagers who were already predisposed to binge drinking. There might not be the demand that growers are expecting. Some have estimated that California is growing more than 5 times the current consumption. Others have said the figure may be as high as 12.
Though the figures are not exact due to black market sales and lack of oversight, California currently consumes around 2 million tons of marijuana and is currently producing around 15 million tons. Much of the surplus is going to go across state lines to make a profit, and this will continue to be the case as long as the supply glut is this large. Hezekiah Allen, Executive Director of California Growers Association, stated that:
“We are producing too much [even legally licensed outlets] are going to have to scale back. We are on a painful downsizing curve…Our organization thinks it’s probably right around eight times as much”
State regulations are poised to ban imports on January 1, 2018. And if studies have shown that marijuana legalization does not significantly increase consumption, then growers are in for a surprise and will be left with quite a lot of cannabis on their hands. It is important to note that there will always be those who refuse to come into the regulatory market for a variety of reasons. One reason is that taxes will be avoided, which immediately results in a 20% profit or more. It also saves on costs and headaches on testing and cultivating marijuana standards in line with the many requirements that are sure to follow.
The glut is to be somewhat expected, and a similar trend can be seen in many industries, with possible parallels drawn to alternative currencies. There is a point where there is simply too much investment in the market and it becomes no more than a bubble. The marijuana industry is no exception to this phenomenon. Though sales will be huge, not all are going to become millionaires and the competition will be cut throat in the early years. Either way, come January the first growers are going got be left with a choice, to either comply with state regulations and keep lots of excess marijuana in the state or else ship the product across state lines with the risk that comes with violating federal law. Some with chose the former, others will choose the latter. Another thing that has to be factored in is the percentage of people who choose to grow their own weed, as 6 plants are allowed per household, quite a significant number. If many chose to do this, the numbers of sales for recreational marijuana may be reduced considerably.
Nevada does not have the same problem that California has. Within two weeks of recreational marijuana being fully legalized, Nevada ran out of marijuana for recreational use. One extreme is bad for customers, the other bad for suppliers and growers. And despite all the estimates many still believe that there will be a marijuana shortfall come January 1, and we will have a repeat of Nevada.
Excess Supply Fallout
What will the results be of excess marijuana in California? Well, for one thing, it will most likely result in very cheap prices as vendors try to get the products off of their hands. It may clean out the markets and separate the wheat from the chaff, as only the most efficient and best marijuana companies remain. Realistically, there is going to be too much marijuana and many growers who are new to the market are going to be decimated. Black market marijuana sellers will actually do well for a year or two, as they are used to the business and will probably sell their product across state borders to places where it is still illegal, and can make a profit in this manner.
Saying this, black market marijuana sales will be on the decline. Though some will never join the regulated industry, the amount of black market marijuana sales is going to be drastically reduced in California and in the States that follow in the footsteps of recreational marijuana legalization.