You Mean People Make Money by Selling Drugs?

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Sometimes following the news makes one feel as if everybody else is willfully living in some sort of fantasy.  Today’s Providence Journal article on the profits of medical marijuana in the state, by Jennifer Bogdan and Tom Mooney, gives me that sensation:

Medical marijuana is big business in Rhode Island. It wasn’t intended to be.

Advocates wanted dispensaries to provide a safe, ample supply of medicine for those who needed it. But the program has proliferated virtually unchecked, offering yes, relief for the ill, but also opportunity for investors who can operate behind the opaque screen surrounding Rhode Island’s three dispensaries. …

There were so many questions that they couldn’t answer at the time [legislation was crafted]. “I mean who knew?” How should the dispensaries operate? How much marijuana should they be allowed to grow? Would the legislature be more receptive if dispensaries weren’t influenced by shareholders?

“We said they were supposed to be nonprofits. Why? Well, first of all, we didn’t want them to be in it for the money.”

Oh, come on.  Are people really that unable to break down issues to their core components and categorize them properly in order to predict outcomes?  With medical marijuana, our (famously corrupt) state gave oligopoly authorization to three entities to sell an otherwise illegal product.  As I put it in 2011, the state was estimating that each dispensary would be “an instant $20 million business facilitated by the Department of Health.”  According to today’s article, the profits appear to be smaller and not quite so instant, and yet, the article presents 78% growth over a year, to $17 million for all three dispensaries, as if it’s unexpected and suspicious.

To the extent that the organizations aren’t making big returns on their investments, the article expresses suspicion about other ways in which participants are trying to make money.  It never fails to surprise that people really believe that those who work for non-profits can’t be “in it for the money” and that government power tends to breed corruption.

Look, there’s nothing wrong with making a profit.  Money is just an indication of value, and our economic system is supposed to determine what people value and provide it — whether that means innovating to create new products or building new capacity to produce and supply existing products.  People value drugs, but it takes an investment to get the industry over a start-up hump, and then it takes the flow of money to prove the consumer interest.  (As a society, we love to harvest the fruits of investment, but we never want to pay the reward.)

The way in which Rhode Island legalized marijuana was almost expressly designed to ensure that the government maintained pent-up demand in order to drive up prices and increase the tax take.  That’s been obvious along; people who are surprised really need to go back and review the assumptions that they have about the way things work and reevaluate how they believe government should behave.



  • Joe Smith

    Always fascinating that people think “non-profit” means no profit..

    Not sure pent-up demand – the demand has and will continue to exist, more that the supply is restricted and the fact the federal laws increases significantly the cost structure (tax, no traditional banking/financing, security, risk, transaction costs). Yes, of course more firms would lower the price – all things equal – but so would legalizing it for recreational use.

    RI should learn from CO/WA – yes, taxing can produce revenues, but legalization and taxing does not reduce the black market if the tax rates are too high and the current industry conditions (mainly illegal at the federal level) exists.

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