Pot Economics: $1,200 For An Ounce

pot prices from government data

hide captionYes the government collects data on the price of pot. Click to see more.

Office of National Drug Control Policy

After our "An Economist Gets Stoned" podcast the other week, I've been digging deeper into the literature on the economics of marijuana. It's an unusual commodity; legal (for medical purposes) in some states, but still illegal as far as federal law goes.

One strange thing is that prices can vary pretty dramatically. According to this 2004 report (by the Office of National Drug Control Policy, Executive Office of the President) a dime bag in Phoenix went for $20 (that works out to around $70 an ounce) but in San Diego the price was $450 an ounce.

This National Bureau of Economic Research paper has this to say:

Only two studies empirically examine the role of specific factors on the prices paid for marijuana. In an early study, [Jonathan] Caulkins (1995) examines data from nine states reported in the Middle Atlantic-Great Lakes Organized Crime Law Enforcement Network (MAGLOCLEN) and tests two conjectures about how prices vary from location to location within the United States. The first conjecture is that prices increase as one moves away from the source, which in the case of marijuana is largely domestic.

The second conjecture is that prices are lower in larger markets, as proxied by population. He examines these hypotheses by evaluating prices for cocaine, LSD, and marijuana. In the case of marijuana, Caulkins only finds support for the firsthypothesis. The mean price per bulk gram paid for marijuana got statistically higher as the cities got more distant from the mid-west /Appalachian growing region. These results, however, are based on a very limited number of price observations (fewer than 60 in total) that were not representative of all transactions within these states. Thus, although they are suggestive that transportation costs might explain some of the geographic variation in marijuana prices, the evidence cannot be viewed as definitive.

Obviously price will vary with quality. (That government report says hydroponically grown weed can sell for $1,200 an ounce in NYC.)

I was just reading online reviews of some San Francisco dispensaries for instance: "OH! And the concentrate they call "Buddha's Earwax" is [expletive deleted] insane.... try some if you can afford the high price."

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