A Slouching Pot Economy?

by Daniel Mintz, March 21, 2012

A local banker has named $1 billion as the minimum value of the county’s marijuana economy and she’s warned the Board of Supervisors of the potential effects of its decline.

In a presentation to supervisors at their March 6 meeting, Jennifer Budwig, the vice president of Redwood Capital Bank and its Fortuna branch manager, said she’s conservatively estimated that 800,000 marijuana plants are grown annually in the county. The yearly marijuana mass amounts to $1 billion, which is 26 percent of the county’s economy, she continued.

But the recent emergence of a “supply glut” has undermined prices. “As I’m sure a lot of you are aware of, we’ve seen a drop in the price of marijuana which has already depleted dollars out of our economy,” Budwig said.

Ten years ago, the price of indoor-grown marijuana was $4,500 to $5,000 a pound, she continued, dropping to $4,000 a pound as of five years ago. She said indoor pot is now valued at $2,500 a pound.

The price of outdoor pot, ranging from $3,500 to $4,000 a pound a decade ago, has also dropped sharply, down to as low as $700 a pound, Budwig said.

“So as these prices continue to drop, unless people are growing more, what happens is that those margins are decreasing and ensuring there’s less discretionary income being spent in our economy,” she continued.

Studies have predicted as much as a 90% drop in pot prices if legalization occurs, said Budwig.

Statewide marijuana legalization is expected to be on the November election ballot. Proposition 19 failed in 2010, with 54% of the county’s voters opposing it, apparently due to fear of economic impacts.

Budwig said that if legalization is approved, the impacts would depend on how it’s implemented and the extent of federal interference. But the county would “see a dwindling of these monies” and recent trends suggest a continued decline.

“With pot prices already coming down because of the increase in supply there’s been cushion to the erosion but many people feel this is only the beginning,” said Budwig. “And there’s going to be a lot of discretionary income pulled out because of those margins shrinking.”

Long term impacts “have the potential to be devastating,” she continued, and the best hedge against the loss of marijuana income is a diversified economy.

Saying the county is “at a crossroads,” Budwig said the marijuana industry “backfilled” losses from the declines of the timber and fishing industries and “if those dollars continue to leave, the question is, what’s going to backfill that?”

Budwig said attracting new businesses and encouraging entrepreneurship are key to diversifying the county’s economy and making it less dependent on marijuana income.

Her $1 billion annual estimate is based on the amount of plants seized by law enforcement, which in recent years has averaged about 200,000 plants. Budwig said police think they’re seizing only two percent of the county’s total yield but she gave them credit for 25% to ensure that her estimate falls well on the conservative side.

She told supervisors that she thinks marijuana actually accounts for much more than 26% of the local economy.

Supervisors acknowledged the value of Budwig’s research but Supervisor Jimmy Smith vouched for the contributions of the county’s natural resources industries. He said the county is still the number one timber producer in the state, the fishing industry has stabilized and this year’s Dungeness crab season has been the best ever.

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