Pundits and politicians talk a blue streak about the dangers of inflation. But what do the rising or falling prices of illegal commodities like marijuana tell us? What lessons can we learn from the economic geography of underground economies and, well, weed?
Consider this fascinating analysis of the geographic variation in marijuana prices across the United States by the Floating Sheep collective of geographers. They find that weed prices range from a low of $256 per ounce for high-quality pot in Oregon to a high of $450 per ounce in Delaware (nationwide, the average price per ounce for high quality weed is $377.02; mid-quality herb can be gotten for $245.14; the average going price for schwag is $138.12). Floating Sheep built its database from the website PriceofWeed.com, which crowd sources the street value of marijuana from consumers, collecting and providing data on the retail prices of marijuana by quantity, quality, and location. Their database includes 16,502 price records from 2,397 US cities (a more detailed explanation of their methodology can be found in the draft paper "Data Shadows of an Underground Economy: Volunteered Geographic Information and the Economic Geographies of Marijuana").
The map below from their report, based on data for cities with 30 or more records, shows the geography of marijuana prices across the United States. Marijuana is cheapest in Northern California and the Pacific Northwest, the Four Corners region and a swath of the Great Plains, Illinois, Indiana and Northern Kentucky, and South Florida. Weed prices are highest in the northeast, much of the Old Confederacy, and especially in Minnesota, Wisconsin, northern Michigan and Illinois.
The Floating Sheep geographers also examined a range of factors which might be expected to affect marijuana prices – such as the percentage of young people (15-to-24 years of age), arrests for marijuana possession and sales, the number of marijuana plants eradicated by law enforcement officials, the distance from Humbolt County, California (the largest domestic marijuana production center), attitudes toward marijuana use, and existence of a state medical marijuana program. Their main finding is that marijuana prices rise the further a location is from the major center of production. Decreased supply leads to a rise in transportation costs and risk. Clearly pot prices are as low as they are in the Pacific Northwest and Florida for the same reasons that potatoes are cheap in Idaho and corn is cheap in Iowa—because they’re close to the source, the places where the product is either grown, imported, processed, or all three. Marijuana prices are lower in states with medical marijuana programs because the supply is higher and also because some of the demand is being met legally. The effect of enforcement is harder to ascertain. "State level regimes of legalization have a negative and significant effect on price," they report. "In contrast rates of arrests for possession or sales do not produce statistically significant effects on the price of marijuana, but these demand side effects are more complex to interpret."
But what other socio-economic and demographic factors might be related to these prices? Using the state level average prices published in the report, my Martin Prosperity Institute colleague Charlotta Mellander and I compared weed prices provided in the Floating Sheep study to key economic, social, and demographic indicators. Two caveats apply. One, states are big economic units. As can be seen by just a glance at the map, there is considerable variation within (as well as across) them. And two, our findings are based on correlations and do not attribute causality. Nonetheless, the results—or perhaps I should say the lack of results—are intriguing enough to merit further investigation.
The first thing that stands out is the number of things that are not correlated with marijuana prices. You’d probably expect weed prices to rise as regional incomes grow. But they don’t. There is no statistical association at all between weed prices and state income or wages. You might think weed use (and hence weed prices) would rise as economic conditions worsen and unemployment increases, but we found no such correlation. What about stress levels and unhappiness? Unhappy, self-medicating populations should increase demand, putting pressure on supply, right? Again, nothing. Or you might expect weed prices to be higher in states with larger bohemian concentrations. Nada again. We also checked on levels of college grads and the creative class and found no associations whatsoever.
Of the roughly two dozen variables in our analysis, weed prices are correlated with just three. Many have noted that minority populations tend to pay more for certain goods, from groceries to mortgages and auto loans. Sure enough, this holds for weed: the price of marijuana is higher in states with larger shares of African-Americans (the correlation is a sizable .5). Weed prices are negatively affected by two other variables: illegal drug use (-.5) and the share of voters who identify as Republicans (-.3).
As the arguments over medical marijuana, decriminalization, and even legalization continue apace, one thing is clear: the marijuana trade is brisk and prices vary greatly across the United States, for reasons that are sometimes straightforward and sometimes altogether mysterious. One thing, however, is perfectly clear: anyone who tells you that they have all the answers is just blowing smoke.