Marijuana Economics: Wholesale Prices Plummet In California

California's medical marijuana law makes for an interesting economics case study.

A new, legalized trade in the drug has increased competition. That, in turn, has driven down wholesale prices for growers in the "emerald triangle," the region in Northern California produces more marijuana than any other part of the country.

But it's not just about quantity.

Prices are now well below $2,000 a pound for growers in the region, down from a peak of $5,000 decades ago, when a government crackdown limited supply, NPR reports.

Quality, as well as quantity, plays a role. Increasingly, dispensaries want marijuana that's grown indoors, for its potency and consistency, according to the story. This form of the drug can cost twice as much as what's grown outside.

"What's happening is the people that don't have quality product aren't selling it," one grower tells NPR. "So they're the ones that are creating this panic. So it really comes back down to that, just like in every other agricultural industry. When you get too many vineyards and too many people growing vines out there, then only the good ones make it."

More on marijuana economics: Here's a post on how retail prices for drugs vary around the country. Here's our podcast on the economics of legalization.