Jack Pot: some Economic Considerations re legalization

[dr_mabeuse]

Saw this on AOL and thought it was just too funny not to share. Despite all my bitching and moaning, I do dearly love capitalism and the free market.

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Pot Economics: Who Stands to Profit if Marijuana Is Legalized?

See full article from DailyFinance: http://srph.it/d3SzR2


By BRUCE WATSON Posted 2:30 PM 04/20/10


In late March, California Secretary of State Deborah Bowen set off a flurry of flapping jaws among the punditocracy when she announced that a marijuana legalization measure would be on the state's November ballot. The ensuing discussion covered a range of topics from medicine to morality, consumption to consequences, but few pundits considered the economics of California's move.

There is a huge market for marijuana; while it's impossible to determine how many Americans smoke the demon weed, the National Organization for the Reform of Marijuana Laws reports that there were almost 850,000 marijuana arrests in 2008. While staggering, this number represents only a small fraction of America's marijuana consumers. With a potential market of millions, decriminalization of marijuana could open the door to a vast, largely-untapped market for smoking paraphernalia, accessories, and other lifestyle accoutrements.

The Pot Portfolio

If California's legalization initiative passes, the first beneficiary will likely be the mainstream tobacco companies that already have a foothold in the smoking market. Most of the companies supplying rolling papers are privately held; for example, the Republic Tobacco company owns both Top and Job rolling papers, while Zig Zags, a French brand, is sold through National Tobacco. In terms of publicly-held tobacco companies, the biggest winner would likely be Britain's Imperial Tobacco Company (IMT). It owns Phillies cigars, a brand that is popular among cannabis consumers, many of whom empty out the cheap cheroots and re-pack them with marijuana. While Imperial declined to comment on this story, it seems likely that legalization could be a major boon for them.

Legalization would also be a shot in the arm to dozens of privately-owned firms that manufacture pipes, bongs and other devices often used for marijuana consumption. Many of these companies are small and undercapitalized, with minimal market penetration. As Dan Steinberg, CEO of Vapor Genie, notes, "If marijuana is legalized, we see the potential for significant growth in the smoking products industry. It will create a new market for our products. And of course legalization will attract investment that will fund further advances in smoking technology."

Vapor Genie, which produces a portable pipe that heats tobacco without burning it, currently has eight employees and sells its product on the Internet and through a network of privately-owned stores. For Steinberg, marijuana legalization in California could translate into a massive boon: "We are trying to sell our products in any available markets; California legalization could greatly expand our options."

Investing in small paraphernalia companies may seem a bit shaky for many investors; luckily, the marijuana smoker lifestyle offers a broad expanse of opportunities for even the most conventional stockholder. Cable providers like Time Warner Cable (TWC), Cablevision (CVC), and Comcast (CMCSA) could reap the benefits of a populace that wants to spend hours giggling at the television. The same could be said of Netflix (NFLX), which is increasingly expanding its inventory of movies that can be streamed over the Web.

And what of consumer electronics? After all, shows like the Discovery Channel's Shark Week -- a perennial favorite among the pot-smoking set -- looks even better in high definition, and last-generation DVD players can't really capture the transcendent wonder of the experience. Sony (SNE) or Phillips Electronics (PHG) could all reap massive benefits from legalization, particularly if they can figure out a way to combine a Blu-Ray Player and a nacho warmer.

Making Money Off of the Munchies

Speaking of nachos, marijuana famously goes hand-in-hand with Coneheads-level consumption of fat and carbohydrates, putting the snack food industry in a great position to reap the benefits of California's legalization move. In fact, it seems likely that marijuana users were a key demographic consideration when many recent food innovations were designed. While Dominos' (DPZ) recipe change (and advertising push) is clearly aimed at a broad spectrum of consumers, their competitor Pizza Hut (YUM) seems to be deliberately courting marijuana consumers. Late last year, the pizza behemoth decided to reintroduce its stuffed crust pan pizza, a dish that seems like a culinary Shangri-La for desperately hungry stoners.

Dominos and Pizza Hut declined to comment on this piece.

And what about the grocery store? Kraft Foods (KFT) and Pepsico's (PEP) Frito Lay have both recently released product lines that are designed to attract desperately hungry carb fiends. Doritos, a Frito Lay product, is touting a new tagline, "Prepare to take snacking to a whole new level." While not necessarily a nod to the cannabis-consuming populace, it isn't hard to see how the slogan could be attractive for people in altered states. For that matter, many of the company's latest offerings -- including All Nighter Cheeseburger, Tacos at Midnight, or Zesty Pizza and Ranch flavored chips -- seem designed by either cannabis consumers or pregnant women.

Frito Lay/Pepsi also declined to comment on this story.

And what of Kraft? While munchie classics like Cheez Whiz and Chips Ahoy cookies have long since placed the company in the pantheon of cannabis cuisine, these offerings pale beside the pot smoker wonderland that is the classic Oreo cookie. While Kraft refused to discuss this market segment, its snack food innovations seem tailor-made for carb fiends. Chocolate-dipped Oreos, Oreo snack cakes, Oreo "Fudgees," mini Oreos, white fudge-covered Oreos, Oreo wafer sticks...the list of stoner-ready Oreo snacks seems infinite. And, just in time to capture the tiny segment of the Oreo craving populace that was missing from its market, the company recently released "Oreo Sticks." Basically straws constructed out of Oreo cookies, these morsels enable consumers to slurp chocolate milk through chocolate cookies. While these may not have been designed by marijuana-loving consumers, it isn't hard to see how that particular demographic would be key to their popularity.

Not surprisingly, Kraft declined to comment on this story.

Ultimately, the ripple effect of legalization in California is almost immeasurable, and could work its way across vast segments of the economy. It is easy to make jokes about boosts in blacklight purchases and a spike in sales of Pink Floyd's Dark Side of the Moon, but the truth of the matter is that hundreds of companies stand to make a profit if marijuana becomes legal in California. From fast food restaurants to agricultural suppliers, newspaper publishers to convenience stores, it isn't hard to imagine the economic benefits of this move. Then again, with the promise of rich tax revenues from the sale of cannabis, the biggest winner may well be the state government of California. They could definitely use every penny.

See full article from DailyFinance: http://srph.it/d3SzR2

 

[stephen55]

As a retired backwoods country doc, I've always held that the consumption of drugs (non-medicinal) is both detrimental to one's health and opens the door to smoking, which we all know leads to chewing gum. The next insult to humanity follows quickly...spitting on sidewalks. Surely you see the danger. Young people will be seen holding hands and...(shudder)...dancing!!!

All non-medicinal drugs including alcohol (The Demon Rum), tobacco (The Demon Weed) and marijuana (The Other Demon Weed) must be discouraged, users fined and imprisoned, burned at public squares, along with smut, comic books and anything written by Ayn Rand.

...fine print, caveat emptors, non adimpleti contractus and of course, probatio vincit praesumptionem...
i) alcohol shall not be taken to include single malt scotch, any beer containing more than 7% alcohol, any red wine from Bordeaux over 20 years old and, of course, Drambuie.
ii) marijuana shall be taken to mean any noxious weed commonly referred to as marihuana, but not BC Bud.
iii) tobacco shall be taken to mean the common garden variety sold in small white tubes or cheap cigars. A true cigar, like a fine Dominican Hoyo de Monterrey Excalibur No. 2, English Claro is a smoke and shall be allowed.
iv) consumption of all alcohol and decent cigars is permitted on fishing trips.

 

[JackLuis]

Legalization of Weed, will also open the field for the open growing of Hemp, the non-drug varieties, which will have impact on Paper and Pulp mills, Imagine, all over the South, the pulpwood forests converted the Hemp! No waiting 5-10 years for a crop, one season and it's done. Harvesting all that hemp will add jobs, for all the Billy Bobs and Scooters who can run a tractor but can't balance their checkbook.

And Hemp oil, converted to bio-diesel, used for food oils, soaps, or cosmetics, would offer a new industry for the farm states as initial processing could be done economically in small scale plants, further diversifying our renewable fuels.

Of course the use of hemp fiber in textiles will cause a panic in the polyester markets!

Harry Anslinger, eat your black heart out!

 

[AllardChardon]

This is all well and good, but legalizing marijuana has to pass and become a law first. I would have thought that this would be easy in California until I was rudely awakened by the vote of Californians to stop gay marriages. This will not be easy, either, IMO.

Lovely to see you again, Doc.

 

[Belegon]

I find it difficult to believe, if not all but inconceivable, that the tobacco companies have not considered these possibilities.

In other words, I believe the introduction of Marlboro Hemps would follow the passage of the legislation in very short order....

 

[Zeb_Carter]

So is Californian grown pot better than Kentucky grown pot?

 

[midwestyankee]

Doc, seems to me that the underlying assumption in that article is that legalization would expand the population of users by a large degree. My guess is that such would not happen and therefore most of the imagined economic impact would not be realized.

That said, that pot remains illegal has always struck me as a curious thing. It's either safer or no less safe than booze, seems to cause fewer collateral damage than booze, and appears to be a less deadly source of toxins and carcinogens than tobacco. The only explanation for it that makes any sense to me is that legalization is one of the last battles of the sixties and the suits won't give in to the hippies. It's Dick Cheney vs. Abby Hoffman, and Cheney got the power.

 

[stephen55]

I've always thought that tobacco is legal and marijuana isn't, is because Sir Walter brought back tobacco and not marijuana.

Had it been the other way around, perhaps we would be sneaking around to score some tobacco and getting marijuana from vending machines.

 

[AllardChardon]

I heard long ago that the big tobacco companies already had huge fields waiting for legalization. I never researched it because it was a 'no brainer' in my opinion.

The pot is as good as the strain and the cultivator combined.

Hemp production could literally save America's economy.

The Hippies, like me, may just live long enough to see it legalized, long after we thought it would be.

 

[voluptuary_manque]

My understanding, and it is based on hearsay only, is that the big tobacco companies have already copyrighted all the great old names like Maui Wowie, Panama Red, etc. Whether they actually have fields waiting is another question entirely. It probably wouldn't be a good investment given how incredibly potent the current 'medicinal' varieties that grow in greenhouses are. I'm not sure those plants can even survive outdoors.

 

[TE999]

My understanding, and it is based on hearsay only, is that the big tobacco companies have already copyrighted all the great old names like Maui Wowie, Panama Red, etc. Whether they actually have fields waiting is another question entirely. It probably wouldn't be a good investment given how incredibly potent the current 'medicinal' varieties that grow in greenhouses are. I'm not sure those plants can even survive outdoors.

If there's a buck to be made they'll figure it out pronto.

The ad's shood be a hoot. "Flick your Bic on a Thai stick." "Camel's: The Doobie of the Desert." "Virginia Slims': The Roach Women Aren't Scared Of."

 

[AllardChardon]

Well, the underground growers will give the big tobacco companies a run for their money.

Pot connoisseurs are worse than wine connoisseurs, don't you know? They can afford to be. There is a new flavor every week! LOL

 

[voluptuary_manque]

Well, the underground growers will give the big tobacco companies a run for their money.

Pot connoisseurs are worse than wine connoisseurs, don't you know? They can afford to be. There is a new flavor every week! LOL

Sure. Pot grows so fast and can be manipulated so easily that doesn't surprise me one bit. But will they grow organically?

 

[JackLuis]

Sure. Pot grows so fast and can be manipulated so easily that doesn't surprise me one bit. But will they grow organically?

I was researching and found a site that was all Pot all the time, over 20 languages and that lead me to other sites and it seems to me that there are ways to grow Weed any way you want.

"It's a Weed, Threat it harsh, and she'll rebel, but she wants to fruit, eight to fifteen weeks of full sun, or equivalent, and she will reach maturity.

We just kill most of the males."

Flowers of hemp can be organically grown.

 

[Boxlicker101]

The writer of the article failed to mention some of the other financial beneficiaries. MJ users will benefit because it will be cheaper. Growing and processing doesn't cost much and the only reason MJ is so expensive is that it's illegal. The state will benefit too, because of the sales taxes and whatever excise taxes are added. Other benefits will be less DUI and less booze inspired violence, because stoners tend to be pretty peaceable.

Those who will have to bite the bullet will be tavern owners, and others in the liquor industry, because people will go home and take a few hits on a joint instead of stopping for a highball or two on their way home.

I will definitely vote for legalization.

 

[Boxlicker101]

Well, the underground growers will give the big tobacco companies a run for their money.

Pot connoisseurs are worse than wine connoisseurs, don't you know? They can afford to be. There is a new flavor every week! LOL

I would expect the underground growers to start selling their crops to the tobacco companies. They already have the expertise and necessary equipment, and should have no problem going respectable.

 

[AllardChardon]

I grow organically outdoors, 8 to 10 varieties.

No matter how much I grow, I would never want to sell it to the tobacco companies. No need really with the clubs and the locals who don't want to grow it themselves. That may change in a legalized atmosphere, but an increase in smokers does seem more than likely if it passes.

 

[Belegon]

I think there will be an increase in smokers, but not to the levels the opponents of the measure will soon be screaming about... it is, after all, one of the most obvious ways to attack legalization. They will also try to take advantage of the link between controlled substances and crime, ignoring the fact that legalization will take much of the criminal motivation away.

The existing smokers are more than enough for legalization to be a major economic benefit. Part of that benefit will most certainly be tax revenue...

...however, there is even more money to be earned in savings. A penny saved is a penny earned as the cliche goes. There are major potential cost savings in enforcement alone.

That said, I wonder what kind of money we will see working to defeat this? In all honesty, I can think of some very rich and ruthless men south of the border with a major stake in seeing that weed remains illegal.

 

[Boxlicker101]

I think there will be an increase in smokers, but not to the levels the opponents of the measure will soon be screaming about... it is, after all, one of the most obvious ways to attack legalization. They will also try to take advantage of the link between controlled substances and crime, ignoring the fact that legalization will take much of the criminal motivation away.

The existing smokers are more than enough for legalization to be a major economic benefit. Part of that benefit will most certainly be tax revenue...

...however, there is even more money to be earned in savings. A penny saved is a penny earned as the cliche goes. There are major potential cost savings in enforcement alone.

That said, I wonder what kind of money we will see working to defeat this? In all honesty, I can think of some very rich and ruthless men south of the border with a major stake in seeing that weed remains illegal.

The drug lords will oppose it, because it will basically put them out of the MJ business if it becomes legal. Liquor distillers will oppose it because their profits will decline if people start using a different recrerational drug. Religious fanatics of various faiths will oppose it because it will bring pleasure to people, and they consider that to be a sin, and will ignore the fact MJ is in common use already. Since thousands of people will be released from prison, many of those dependent on the prison industry will oppose it.

Regular users of MJ will vote for the law for their personal benefit. People, such as myself, who know MJ is relatively harmless, and the laws against it do more harm than good will also favor legalization. The swing group will be those who have heard about "Reefer Madness" and either believe it or see it as a crock.

 

[AllardChardon]

Yes, this will be very interesting, watching how it goes, thumbs up or thumbs down.

 

[stephen55]

A modest proposal....

The war on drugs isn't going very well. It's costing a fortune and drug use isn't declining. Drug cartels and the big distributors (up here it's biker gangs) are making more money than ever and the crime due to drugs is getting unholy. Just think of all the drug related murders. Think of all the property crime due to druggies needing a few bucks for their habit. I'm not aware of any cigarette smoker kicking in a door to get the cash for a pack of Camels. Maybe it does happen but how often?

Governments are strapped for cash. Taxpayers are up in arms over proposed Government spending. So...

i) Declare victory and end the war on drugs
ii) decriminalize drugs
iii) allow retail sale of drugs
iv) tax it

Use of recreational drugs has consequences just as use of tobacco and alcohol has consequences. But because the later are legal, you don't see criminal cartels controlling their production and distribution, unless you consider the feds to be a criminal cartel.

Think of the money and resources tied up in this war on drugs. Put it to better use elsewhere.
Think of the reduction in crime that would follow.
No more criminal drug cartels, except for you know who.....

 

[amicus]

Perhaps the good Dr. Mabeuse has inadvertently stumbled upon the underlying cause of obesity in 30 percent of Americans?

(The Munchies?)

heh



ami

 

[TE999]

Perhaps the good Dr. Mabeuse has inadvertently stumbled upon the underlying cause of obesity in 30 percent of Americans?

(The Munchies?)

heh



ami

That would explain all the fat kids...that and Mickey D's.

 

[AllardChardon]

Now, let's NOT blame marijuana for America's obesity problems. Beer consumption would have to be included, if that were the case.

 

[TE999]

Now, let's NOT blame marijuana for America's obesity problems. Beer consumption would have to be included, if that were the case.

Beer? Case? Oh, I get it. Hehehe.