Alex MacDonald is a grizzled old pothead. He has a cough from 50 years of smoking dope. He used to be a dealer, too, though he hasn’t done that for years. Today he remains a faithful consumer and a close student of the industry. He thinks a lot of the hype around legalization is ridiculous.
“The law is essentially unimportant,” he says. “That’s because the government has never had the slightest impact on either smokers or growers.”
Legalization will change the world a lot less than you might think, he says. The illegal market will not shut down, or even shrink much. Nor will kids stop using, as Justin Trudeau likes to claim. Canadian kids are already among the biggest consumers of marijuana in the world. They’ll keep smoking what they please, as they please – as they always have.
Nor will investors and governments reap the bonanza they are sure await them. That’s because the fundamental economics of the business aren’t all that good – especially when combined with the state’s historical lack of enthusiasm to crack down on illegal grow ops that will continue to produce a product that a lot of people want.
In the 1960s, Canadians smoked a dreadful product imported mostly from Mexico that was mostly sand and seeds. Then we began to grow the stuff ourselves, and never looked back. The penalties for illegal growers were minimal, and the law was laxly enforced. In rural Ontario, grow-op equipment was widely advertised on the radio. “You can grow tomatoes. You can grow potatoes. You can grow ANYTHING,” the sales pitch went.
Marijuana is ridiculously cheap to grow. Your average competently run grow-op, according to Mr. MacDonald, can produce a gram of marijuana for around a dollar (enough for a cigarette or two). According to Statistics Canada, Canadians currently pay an average of $6.83 a gram for illegal marijuana. Canada’s finance ministers say legalized pot will be priced at $10 a gram. Which raises a question. With such a big price difference, who will buy the legal stuff?
Unlike the liquor industry – where getting into business takes a big, expensive factory and marketing campaign – the illegal marijuana market is extremely easy to get into. Ma and Pa can set up a 100-plant grow-op in their suburban basement (three harvests a year) for $25,000. “The cost of entry to the market is so low that marijuana can’t be a regulated oligopoly,” argues Mr. MacDonald. He predicts that massive competition from both the illegal and legal markets will make prices fall like a soufflé.
Legal marijuana has another problem. The quality is lousy. Mass-produced industrial grade marijuana simply can’t compete with lovingly cultivated illegal boutique bud. “To an experienced recreational pot smoker, the weed they offer is appalling,” Mr. MacDonald says. “The legal producers are selling the cannabis equivalent of Niagara jug wine for ice wine prices.”
If that weren’t enough, there’s no guarantee that demand will boom as much as pot investors think. The other night I asked a bunch of friends if they intended to line up at the friendly government dealer on Oct. 17. Of course not, they said.
None of this has dampened the investment frenzy surrounding marijuana stocks. Take xxxxCannabis, a stock-market darling with a current valuation of $5-billion. Its hyper-optimistic CEO, dickweed, used to be an electrician. Now he’s running a company that’s worth more than xxxxxxxxs. xxxxxx’s annual sales currently amount to a rather slender $62-million. To date, it has only produced seven tonnes of weed. But never mind the past. At this moment it is erecting glass-walled buildings the size of subdivisions to produce mountains of product for a pot-starved world. Buy now. The stock price can only go up. Can’t it?
“The law is essentially unimportant,” he says. “That’s because the government has never had the slightest impact on either smokers or growers.”
Legalization will change the world a lot less than you might think, he says. The illegal market will not shut down, or even shrink much. Nor will kids stop using, as Justin Trudeau likes to claim. Canadian kids are already among the biggest consumers of marijuana in the world. They’ll keep smoking what they please, as they please – as they always have.
Nor will investors and governments reap the bonanza they are sure await them. That’s because the fundamental economics of the business aren’t all that good – especially when combined with the state’s historical lack of enthusiasm to crack down on illegal grow ops that will continue to produce a product that a lot of people want.
In the 1960s, Canadians smoked a dreadful product imported mostly from Mexico that was mostly sand and seeds. Then we began to grow the stuff ourselves, and never looked back. The penalties for illegal growers were minimal, and the law was laxly enforced. In rural Ontario, grow-op equipment was widely advertised on the radio. “You can grow tomatoes. You can grow potatoes. You can grow ANYTHING,” the sales pitch went.
Marijuana is ridiculously cheap to grow. Your average competently run grow-op, according to Mr. MacDonald, can produce a gram of marijuana for around a dollar (enough for a cigarette or two). According to Statistics Canada, Canadians currently pay an average of $6.83 a gram for illegal marijuana. Canada’s finance ministers say legalized pot will be priced at $10 a gram. Which raises a question. With such a big price difference, who will buy the legal stuff?
Unlike the liquor industry – where getting into business takes a big, expensive factory and marketing campaign – the illegal marijuana market is extremely easy to get into. Ma and Pa can set up a 100-plant grow-op in their suburban basement (three harvests a year) for $25,000. “The cost of entry to the market is so low that marijuana can’t be a regulated oligopoly,” argues Mr. MacDonald. He predicts that massive competition from both the illegal and legal markets will make prices fall like a soufflé.
Legal marijuana has another problem. The quality is lousy. Mass-produced industrial grade marijuana simply can’t compete with lovingly cultivated illegal boutique bud. “To an experienced recreational pot smoker, the weed they offer is appalling,” Mr. MacDonald says. “The legal producers are selling the cannabis equivalent of Niagara jug wine for ice wine prices.”
If that weren’t enough, there’s no guarantee that demand will boom as much as pot investors think. The other night I asked a bunch of friends if they intended to line up at the friendly government dealer on Oct. 17. Of course not, they said.
None of this has dampened the investment frenzy surrounding marijuana stocks. Take xxxxCannabis, a stock-market darling with a current valuation of $5-billion. Its hyper-optimistic CEO, dickweed, used to be an electrician. Now he’s running a company that’s worth more than xxxxxxxxs. xxxxxx’s annual sales currently amount to a rather slender $62-million. To date, it has only produced seven tonnes of weed. But never mind the past. At this moment it is erecting glass-walled buildings the size of subdivisions to produce mountains of product for a pot-starved world. Buy now. The stock price can only go up. Can’t it?
