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Episode #424: Dr. Robin Goldstein & Daniel Sumner – The Economics of Weed – Meb Faber Research

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Episode #424: Dr. Robin Goldstein & Daniel Sumner – The Economics of Weed

 

Guests: Robin Goldstein is an economist and author of The Wine Trials, the controversial exposé of wine snobbery that became the world’s best-selling guide to cheap wine. He is Director of the Cannabis Economics Group in the Department of Agricultural and Resource Economics at the University of California, Davis.

Daniel Sumner is Frank H. Buck, Jr. Distinguished Professor of Agricultural and Resource Economics at the University of California, Davis. He grew up on a California fruit farm, served on the president’s Council of Economic Advisers, and was Assistant Secretary of Economics at the US Department of Agriculture before joining the UC Davis faculty.

Date Recorded: 6/8/2022     |     Run-Time: 1:04:04


Summary: In today’s episode, we start with the history of weed and what led to it becoming illegal in the US. Then we get into the competition between the legal and illegal markets, the impact of both good and bad regulations so far, and the future of the cannabis industry from both the business and investment perspective.

As we wind down, our guests share predictions for when it will be legalized at the Federal level, and what their worst-case scenario is for when that happens.


Sponsor: AcreTrader – AcreTrader is an investment platform that makes it simple to own shares of farmland and earn passive income, and you can start investing in just minutes online.  If you’re interested in a deeper understanding, and for more information on how to become a farmland investor through their platform, please visit acretrader.com/meb.


Comments or suggestions? Interested in sponsoring an episode? Email us Feedback@TheMebFaberShow.com

Links from the Episode:

  • 0:40 – Sponsor: AcreTrader
  • 1:40 – Intro
  • 2:28 – Welcome to our guests, Robert Goldstein and Daniel Sumner
  • 8:42 – Can Legal Weed Win? and the origin story of 420
  • 11:18 – The legal history of cannabis
  • 15:41 – Overview of the legal, recreational, and illegal sides of cannabis
  • 18:34 – How Vermont & Oklahoma handled legalization differently
  • 21:10 – The relationship between the legal and illegal markets
  • 31:01 – The importance of premiumization
  • 38:26 – Is there actually a difference between indica and sativa strains
  • 41:54 – Robin & Daniel’s thoughts on Federal legalization
  • 50:31 – Advice for politicians about regulating the cannabis market
  • 55:32 – General thoughts about what’s going on in the world and rising inflation

 

Transcript of Episode 424:

Welcome Message: Welcome to “The Meb Faber Show,” where the focus is on helping you grow and preserve your wealth. Join us as we discuss the craft of investing and uncover new and profitable ideas, all to help you grow wealthier and wiser. Better investing starts here.

Disclaimer: Meb Faber is the co-founder and chief investment officer at Cambria Investment Management. Due to industry regulations, he will not discuss any of Cambria’s funds on this podcast. All opinions expressed by podcast participants are solely their own opinions and do not reflect the opinion of Cambria Investment Management or its affiliates. For more information, visit cambriainvestments.com.

Sponsor Message: Today’s episode is sponsored by AcreTrader. In the first third of 2022, both stocks and bonds were down. You’ve heard us talk about the importance of diversifying beyond just stocks and bonds alone, and if you’re looking for an asset that can help you diversify your portfolio and provide a potential hedge against inflation and rising food prices, look no further than farmland. Now, you may be thinking, “Meb, I don’t want to fly to a rural area, work with a broker I’ve never met before, spend hundreds of thousands of dollars to buy a farm, and then go figure out how to run it myself.” But that’s where AcreTrader comes in.

AcreTrader is an investment platform that makes it simple to own shares of farmland and earn passive income. And you can start investing in just minutes online. I personally invested on AcreTrader and can say it was an easy process. If you want to learn more about AcreTrader, check out episode 312 when I spoke with founder, Carter Malloy. And if you’re interested in a deeper understanding on how to become a farmland investor through their platform, please visit acretrader.com/meb. That’s acretrader.com/meb.

Meb: Hey, hey, everybody. We got a really fun show today. Our guests are Robin Goldstein and Daniel Sumner, two economists who wrote the book, “Can Legal Weed Win? The Blunt Realities of Cannabis Economics.” In today’s episode, we start with a history of weed and what led it to becoming illegal in the U.S. Then, we get into the competition between the legal and illegal markets, the impact of both good and bad regulations so far, and the future of the cannabis industry from both the business and an investment perspective. As we wind down, our guests share predictions for when it’ll be legalized at the federal level and what their worst-case scenario is for when that happens.

Now, do you know someone who may be interested in hearing about the freakonomics of cannabis? Be sure to send them this episode. I promise they’ll enjoy it. Please enjoy this episode with Robin Goldstein and Daniel Sumner.

Meb: Robin and Daniel, welcome to the show.

Daniel: Thank you.

Robin: Thanks, Meb.

Meb: All right. We got a whole crew of economists on the podcast today. For the listeners, we’re kind of doing this all over the world. Where do we find you today?

Robin: I’m in Paris, on my way to a beer economics conference in Dublin next week.

Daniel: What he left out is, last week, he was in Tuscany.

Meb: Oh, man.

Daniel: Whereas I’m sitting right next to the campus. I’m in my home office. I work mostly at home, but I’m two minutes from the University of California, Davis campus.

Meb: Well, I got something to chime in on both of those. UC Davis used to be on my route right out of college. Right after the Internet bubble burst, I had the unwise decision to move to San Francisco, because at the time, it was the land of milk and honey. ’98, ’99, all my friends moved to San Francisco, making tons of money. Champagne was flowing like water. I timed it a little late. Anyway, then lived in Lake Tahoe, working for a commodity trading advisor, a.k.a ski bum. But my stop every time on the way from San Francisco to Lake Tahoe and back was a divey burger joint on their campus that’s now, I hear, closed, called Murder Burger, or Redrum Burger. I don’t know how you say it. Did you ever…?

Daniel: Yeah, no, it was Murder Burger, but they had to change their name, because that was when people were sensitive, and it was around forever. And you’re right, it didn’t make it through the pandemic.

Meb: Oh, man. That’s a bummer. Well, I’ll pour some out for it. But speaking of pouring some out, what is a beer economic conference? I have your old book here, Robin, “The Beer Trials,” and I actually am going to take some issues with you later in the show. Actually, I’ll just take it with you now. What’s a beer economics conference?

Robin: It’s economists who like to drink beer and study beer a little bit. There’s some good, interesting work there. It’s mostly economists, some industry people. I used to study prices and price-quality relationships, as you, I guess, know from the book. But learned a lot from people who know a lot more about the beer industry than I do.

Meb: Well, every economist I know drinks beer, I feel like. And so we have a decent amount of listeners in Ireland, and I think, hopefully, this publishes after your trip, because…I mean, you got to take issue. These Dublin folks, when they see Guinness is rated a 5 in here, 5 out of 10 from your blind taste test, they are going to burn this book in Ireland.

Robin: Wait, wait. That was not drinking Guinness in a pub in Dublin. Different thing. Tell the Irish people to try it on a hot afternoon where somebody cooled a Guinness down to 32 degrees, etc., etc.

Meb: For the listeners, Robin had put out a couple of books called “The Wine Trials,” Beer Trials, but “The Beer Trials” one is a little closer to my heart. Wine is a lot tougher for me. But I’m going to tell you a funny story real quick, and then we’ll actually talk about some economics. A couple of years ago, I had some friends, and we had to debate, none of which to my knowledge that he read your book. And you can buy tasters of beer. Listeners, if you’re not a beer drinker, many breweries now, it’s sort of the renaissance of time to be alive if you’re a beer drinker, and so most of the pubs, you can get four or five tasters, and usually, you were getting IPAs or Dealer’s Choice, or whatever expensive beers. But we were having a debate, could you differentiate between the domestic light beers, Bud Light, Miller Lite, Coors Light? And so we ordered a bunch of these tasters. The waitress was very confused, because she’s, like, “You know, you guys, economics of this, basically,” she said, “It doesn’t make sense for the light beers,” which are, at the time, $3. Inflation is much worse than now. Anyway, almost everyone got them all completely right, which is, I feel like, it could be a negative connotation that this audience was that well versed in fairly average domestic production beers but also could tell the difference. So fun day to point for you. I don’t really have a…

Robin: I went to a beer bar in Portland one time called the Green Dragon and ran this experiment where we served Heineken, Stella, and Budvar to a bunch of people, and these are sort of serious beer drinkers. This is, like, a real kind of a craft beer bar that enthusiasts would go to. And we started to a couple of hundred people, and the test wasn’t which is which. The test was just, “We’ll give you two Heinekens and one Stella,” or two Budvars and one Heineken, and we’d say, “Which two are the same, and which one is different?” It’s called the triangle test. And people basically fail the triangle test again and again. So I don’t know. Maybe it’s that those three beers are more similar than these light beers, which may differ in things like sugar, but after that, I had an inkling that normal beer was kind of a commodity and interchangeable except for the packaging.

Daniel: Except Meb knows really tasteful people. His class of friends are way above yours, Robin. That’s what that’s saying.

Meb: I think, more than anything, it was, like, the familiarity with it. There’s another joke I’ll tell you. One of my closest friends here in Los Angeles, he worked at a divey bar at university, and this was in Yale. But he joked that all of the light taps were actually just Miller Lite, one of the light beers. He’s like, he said Bud Light, he said Miller Lite, he said Coors Light, or whatever, and he’s like, “They’re all just Miller Lite. And it’s, like, we got a much better deal on the Miller Lite.” Nobody ever knew the difference or something. But funny story.

Robin: Most of the beer ends up on the floor. But floor beer stench, it sort of converges between brands.

Meb: Before we go, what’s your favorite beer? You can give me a couple. But what’s on the list for you right now?

Robin: Samuel Adams, that’s my favorite beer.

Meb: Oh, wow.

Robin: Yeah, Boston Lager.

Meb: I feel like that is a rare answer.

Daniel: He’s from Massachusetts. What can he say?

Meb: Yeah.

Robin: Old-fashioned provincialism. That’s what I grew up with. Grew up drinking in high school.

Meb: He has a weird theory. I remember reading about him. I think the article was about how they kind of missed, like, the IPA boom or something. But doesn’t the founder do something weird where he, like, eats a package of yeast or something to try to avoid hangovers? Have you ever heard this story?

Robin: I haven’t heard that one, but Jim Koch, he’s a weird cool guy. I can totally see him doing that.

Meb: We will add this to the show note links if we can find that story somewhere. It will be funny. I never tried it. Gentlemen, you got a new book. For the people who can see it, it’s called “Can Legal Weed Win?” And this is funny. I love reading books from people who study economics, because it gives a little bit of history. So kickoff question, there’s going to be some fun trivia in here too, a lot of things I learn, what’s the origin of 420, guys?

Daniel: I’ll leave it to Robin. Even I knew that one, though. That’s local.

Robin: So there are a lot of competing theories on that one. Some people claim it was referring to a police code. Calling in a 420 was, like, a weed offence. But a guy named Dale Gieringer, who was one of the leaders of NORML, weed legalization activist group in California, he told me that the definitive story, in his view, is that it was a bunch of high school kids in California who used to get together and smoke after school. They named it 420.

Meb: All right. And it stuck.

Robin: At 4:20 p.m.

Meb: And so the subtitle of the book is great, The Blunt Realities of Cannabis Economics. Cannabis, I feel like, more than anything, lends itself to great puns for the headlines. But you had an interesting note in the beginning where you said, “We’re going to refer to it as weed,” which I feel, like, feels a little less formal or a little different than the vernacular the most. Like, give us the reasoning why weed, not marijuana, cannabis, dope, all the names we’d come up with.

Daniel: Let me start, and I’ll let Robin finish. I said pot. Robin said, “You’re about four decades too late on that one, Sumner.” The basic answer is that’s what people call it. Cannabis works great if you’re a biologist, because, really, that refers to a plant. The legal agencies thought cannabis sounds more formal, and they abandoned the word marijuana because it’s, essentially, a racist word, or at least ethnic slur against people from Mexico. And that’s the way it started. And then I’ll let Robin take the story from there.

Robin: That’s most of the story. I mean, cannabis can be confused. Cannabis includes hemp, for example. That’s not what we’re talking about in our book. We’re talking about stuff that gets you high. And so you have…the U.S. government divides the whole cannabis products to the cannabis plant into hemp and what they call marijuana or cannabis, which is just on the basis of what per cent THC, the active ingredient in it. So anything that’s less than 0.3% THC is called hemp, 0.3% and above is called cannabis or marijuana, depending on what state you’re dealing with. And so we think, actually, although weed is more informal, it’s actually more precise, because it’s specifically about stuff that you smoke or inhale or eat to get the effects that people associate with weed. So we called it weed.

Meb: And I think most people who are a little familiar with weed, in general, was legal. And then, now, it’s sort of not. Maybe give us sort of, like, a quick overview, because there are some pretty big waypoints thinking about weed as a medicinal or recreational substance over the past century or so. But there’s a couple of big moments in this, with both prohibition and Nixon. Maybe give us a little historical overview.

Robin: I can start on this one. So, as we’ve talked about in the book, weed’s been used in various forms for thousands of years. So it’s nothing new as a product. It’s nothing new as a therapeutic product. Used as medicine in the late 1800s. It wasn’t only used recreationally, it was also used in…some people say, like, 50% of medicines that were prescribed by doctors at some point in the 1800s had cannabis in them in some form. So it’s got a long history. There was no talk anywhere as far as we know about making it illegal until the 1920s and ’30s in the U.S. And we were in the throes of a temperance. They call it the temperance movement. That was just this general push to prohibit everything from alcohol to tobacco to any kind of narcotics or stimulants. That movement resulted in U.S. prohibition, and another part of that movement was this movement to ban weed.

There was a guy named Harry Anslinger who was, like, this towering figure in this movement, and he was the guy who kind of led this charge to, first, sway public opinion against it by, as I mentioned before, having this slur. He named it marijuana. And then, as you might have seen in, like, “Reefer Madness,” people are probably familiar with that, they put these propaganda posters up all over the country, sponsored by the U.S. government, showing things like Mexican men in sombreros smoking weed and sexually assaulting white women, stuff like that. They were both trying to position it in this racist way and then also as a drug that inspires violence in people, which is, obviously, very different from the effects as they’ve ever been studied scientifically. So that was the first movement. That was when it started to become illegal. And then the states did it one by one, kind of, like, they did with prohibition, and then it became national.

We fast forward it to the 1970s and President Nixon was the next big figure. Weed had been illegal up to then, but he kind of upped the ante by both increasing the penalties and having this big crackdown. He hated hippies and people who he associated with the drug, and they were kind of the people who are against him. So as a political move, he wanted a pretext for throwing these people in jail. And so he also imposed on other countries not by law but by sort of strong-arming them politically, also, all around the world. Until the 1960s or ’70s, there wasn’t many prohibitions in other countries either, and under Nixon, we’ve pushed other countries to do that. It became illegal just about everywhere.

Late 1970s, you had this situation where Carter came into office and commissioned a study by the American Medical Association. All these doctors said, “Hey, wait a minute, weed doesn’t look like it’s any more…it’s probably less harmful than alcohol, tobacco, a bunch of other legal things. There’s been no documented deaths from overdoses of weed. We should probably legalize it and treat addiction as a health problem, not as a criminal issue, and free all these people from jail.” And that seemed like it was on the verge of happening toward the end of the 1970s.

Then, in the 1980s, you had this turn toward the war on drugs under Reagan, and everything got shelved, all these idea that it was going to become legal. And so the penalties became harsher again. 1980s war on drugs, kind of building up into 1990s. And then the pendulum finally starts to swing back the other way in the ’90s when, first, California and then a bunch of other states in the mid to late ’90s, early 2000s, start to legalize medical. And then you have this decade where the only legal weed was medical weed, and then you start to have the legalization. And the so-called recreational or adult-use, meaning you don’t need a doctor’s recommendation to get it, starts to happen in the 2010s.

Meb: It’s kind of a crazy history when you look back about incentives and just, like, little moments that kind of change, like, a huge trajectory of history. I’m not going to spoil the book because listeners need to buy the book, but there’s a great sidebar on prohibition and whiskey and convenience stores. You have to go read the book to listen to that. But learn something new there. So here we are today, and you guys can kind of maybe walk us through, starting in the ’90s in Cali, I’m here in Cali, that kind of started the push forward. What’s the state of affairs look like today? And we’ll kind of get to the main thesis of the book and this sort of weird legal, black market, recreational, medicinal, patchwork we have in the U.S.

Daniel: Yeah. Well, let me say a couple of words to get us rolling about this distinction between medicinal and adult-use, some places call it, other people call it recreational. The products are the same stuff almost everywhere, and it’s about the same stuff as you can buy illegally if you want to. It’s not that there’s no medical value to cannabis. That hasn’t been much studied. There’s lots of word of mouth. People say, “Gee, it does me good,” and a doctor will sometimes recommend it or even prescribe it in some settings. But most of medical cannabis is anybody, with anything at all, in most places, can get it. Not everywhere. Some states are much more restrictive.

Let me tell you, when we started digging into the economics of this, back 2016, before the California legalization proposition for adult use, I went to a guy who’s working for me here at Davis, Iowa kid, middle-aged man. I said, “Gee, would you figure out about this medical stuff? I don’t really know anything about the rules.” Fifteen minutes later, he walked in with his medical card. I said, “What the hell, Bill?” He said, “Yeah. I went to the web. There was Dr. Miller. Dr. Miller asked for three things. He wanted, first, my credit card. Secondly, he wanted my driver’s license. He’s a legal operator. I had to prove I was a California resident, over the age of 18. And third, he asked my symptom.” I said, “Yeah, my boss asked me to do stupid things.” He said, “That’s enough.” Okay. So there’s this…

Meb: Thought he was going to say glaucoma. That was the big one.

Daniel: What the hell? I gave him a headache. What a pain in the ass, this guy is? However he phrased it, that was fine, and he had his medical card. So I said, “You just got ripped off.” He paid 45 or 50 bucks. And so he went back to his office, and five minutes later, he had a delivery on the way. And I said, “No, no.” For some delivery service, which he found on the web, I said, “Cancel that, Bill. You can’t have cannabis delivered to the university office here. That’s ridiculous, man. You’re going to get us all thrown out of here.” So the point is there was no difference. There was no particular…and that’s the way it operated in California for a very long time and many other places, not everywhere. Some places were very strict, you had to be a cancer patient, and you had your own long-time physician had to prescribe it, things like that. But most places, and currently, for example, the state of Oklahoma, has more cannabis retail stores than any place else per capita, is Oklahoma, and it’s all medical.

Meb: And by the way, why is that? What’s going on in Oklahoma? What’s in the water there?

Daniel: The quick story is this. Oklahoma likes business. So once cannabis went from being an illegal drug to a business, the politicians said, “Oh, business?” The state government said, “You mean, a business? Well, we don’t regulate businesses, so you betcha.” And as Robin likes to point out, the day after they legalized it, the next day, there were stores open in Oklahoma. Vermont went through the same process, four years later, I don’t know if they do today, but they still didn’t have anything open. Because Vermont, like its government. It’s not real fond of business. So they said, “Well, gee, we have to regulate this carefully. You can’t just let anybody open it. You can’t let them just open anywhere. You better do it carefully and systematically, and we’ll make sure it’s done right.” Well. Now, there’s just as much weed in Vermont as there is in Oklahoma, but it’s just illegal weed.

And so part of our message is wonderful regulations, we all love them. Less regulations, they’re great, but they’re not free, and in this case, what they did was shift much of the business, in fact, most of the business either shifted to the illegal market or leave it in the illegal market. And in a lot of ways, in California, it was effectively legal. Like Bill, you could get it anytime you wanted it. And now, it’s much harder to get it legally, because there are lots of regulations and taxes and licenses and all that stuff, which, under the California medical system, wasn’t there.

Robin: Yeah. So we think, for example, there were more than 3,000, maybe 4,000 stores, just they were called dispensaries at the time, under the old medical system in 2017 when we took a survey. And then, four years later, under the recreational system, you have more, like, 1,000 stores, retail stores, and that’s partly because the barriers are much higher to opening a store, you need to get a license, you need to pay tax, and so forth, which, then, gave the local authorities the right to opt out of the system. So once they created this new tax-regulated system that rolled out in 2018, they called it local control. If you’re a city or a county, it has the right to say, “We don’t want it. Not in my backyard.” And so what’s interesting is a lot of the…even cities and counties who voted in favor of Prop 64, in favor of legalization. Their county board of supervisors or their cities, or whatever, decided not to allow legal businesses in those places. You didn’t have that under the old medical system.

Meb: So you have this weird sort of bipolar world but patchwork, not just by legal or illegal but by state and all these various situations. That creates kind of, like, an economist dream for pricing and what’s going on in the world. So give us sort of the freakonomics 101 of the market. Like, what is the relationship that legal and illegal have to each other? How has that impacted sort of the economics of these last few years?

Daniel: Well, you’re certainly right. The economics, freakonomics of cannabis is just fascinating. There’s just so much going on, and it’s so interesting. I’ll tell you two quick stories. When a woman named Lori Ajax called me up six, eight years ago, and said, “Would you help us?” She was the cannabis czar of California. She was the head of the group, at that time, initially was named the Bureau of Medical Marijuana Control, wonderful name. They then changed it to Cannabis Control. But Lori Ajax called me and said, “Would you help us? We’re trying to figure out what to do with cannabis regulations?” And I said, “I don’t know, Lori. I don’t know what you heard, but that was a long time ago. I don’t do drugs anymore.” And she chuckled, which was a bad sign for me, and then she said, “We would like some help understanding. We have to put on a bunch of regulations. That’s the law. Will you help us try to figure out what the regulations might do?” And I said, “Yeah.” That’s music to an economist’s ear for an applied economist to say, “The economics you’re going to be doing might actually have some effect on something. It’s not just academic study. You’re actually doing something that somebody might use.” And they did use it. Now, there was lots of things they couldn’t do. And if you want to blame somebody for the regulations, don’t blame me. Blame Robin. But we did the best we could, explaining those consequences, but it really is…that patchwork is just passing.

The second story I’ll tell you is, yesterday, I testified in front of a county board of supervisors meeting for Yolo County, and they were trying to decide what they were going to do with the Yolo County cultivation tax, which is a per cent of gross revenue for every farm, every farm has to be registered with the county if they grow cannabis, grow weed, and they have to have a state license, they have to have a county permit, then they have to pay 4% of their gross revenue. And there was a movement to try to move that down to 2%, because, as a matter of fact, not only farmers are making any money at all in terms of net income, but they still had to pay based on their gross revenue. There’s also a 15% per unit tax or $160 per pound tax levied by the state, and then a percentage tax levied by the state on retail sales, and a county tax of 5% leveled on every sale at each step. So that’s just taxes. When you get to regulations, you can see why these things are bizarrely complicated.

Let’s say you happen to be a cannabis grower in Humboldt County, famous Emerald Triangle, and you said, “Gee, I guess I’ll go legal.” And before you actually told somebody where you lived and where you grew, and all those things, you started looking at the rules. And I guarantee you, I don’t know if we can say on the radio what you would have said to yourself at that stage. “Holy crap. What have I done here? I can’t do this. I’ll never figure out these rules, let alone try to comply with them. I’ll stay in the illegal business.” And most people have.

Meb: There are some things that this book made me think a little differently about, in my hard, just the assumption of, “Hey, if it’s legal, why in the world would anyone buy illegal?” And you guys kind of walked through all the reasons why that makes sense, to be clear, but maybe we’d love to hear it from y’all’s point of view. Instead of walking down to the local MedMen or Cookies, or whatever is the storefront, dispensary, why is somebody going to call up Bob, the delivery guy, and buy it from him?

Robin: I’d say reason number one is, to start out with, I give you a nug of legal weed, I give you a nug of illegal weed. You could roll it up and smoke it. You could put it in a pipe and smoke it. You could smell it. You could inspect it. You could be the world’s number one cannabis tasting expert, and there’s nothing that would enable you to know just from sampling the product or consuming it whether it came from a licensed or an unlicensed producer or seller. The base of the problem is that the products are basically the same, aside from the packaging. And the packaging, it’s funny, because the packaging, of course, on legal weed has these certification stamps, and it varies by state, but it might have test results, THC potency. You’re getting that. Even in illegal segment now, you have nice packaging. So there’s not even, necessarily, that much differentiation in packaging. You’re able to get maybe a wider variety of products in the legal market, like tinctures and all these sort of exotic different tinctures, and wax, and shatter, and stuff, but the vast majority of the market is just flower, and vape pens, and vape cartridges, and that stuff. The products just aren’t much different. So they’re close substitutes for consumers.

So problem number two, the illegal stuff costs about half as much as the legal stuff in California. It varies by state, it varies by product, but basically, consumers care about their money. People have budget constraints. And people given two similar products, when they can buy one for half the price or two-thirds the price of the other, and they’re not really distinguishable by the experience of consuming them, why would they spend extra for the legal product?

Now, there’s some people who do want to spend the extra money for the legal product. There’s a few reasons why some people do. Some people just like the idea of consuming something legal, prefer the convenience of going to a legal store. There may even be some people, though I don’t think it’s that many, who had never smoked weed before, and just because it became legal, they’re willing to sample it, and they’d only buy legal stuff. By our analysis, we think that’s a relatively small segment of consumers. Most people care about price, and there’s no penalty. From the consumer side, there’s no penalty for possessing or smoking weed that’s not licensed. Once you’ve got it, it’s yours, and you’d smoke however you want. So there’s really just not much incentive to pay extra for most folks, we think.

Daniel: So the question is, why do 25% or so of the total weed consumption in a place like California, why is it up to 25% legal and probably a higher proportion of the individual customers? Because the people…if you buy a lot, you’re a little more price-sensitive, probably. There’s the average hedge fund guy who smokes a lot of dope. Oh, maybe he doesn’t care about money. But real people, if you’re a heavy consumer or something, you pay attention to price for value for money. Let’s say half the people say, “Gee, I don’t buy very often.”

In my neighborhood, it’s more convenient to buy legal than illegal. There’s lots of neighborhoods where the legal stuff is more convenient. Much of the legal and illegal is delivery services. So you go to Weedmaps or you go to some delivery service, and you can have somebody deliver it to you. If it’s illegal, you got to know a guy who knows a guy. Your Bob is a guy. I may not even know the guy’s name. But he is a guy, and I’ve been buying from him for 20 years. Or, “Gee, I’m kind of new at this,” or, “Gee, back in college, I used marijuana, and I haven’t for the last 20 years. What am I going to do now? I’ll go down to the mall. That’s where I buy everything else, so I’ll go there.” But the fact is, most of the weed, and particularly for people that buy quite a bit of weed, it’ll be illegal, purely for price, and because they may say, “Oh, yeah, I’d like to be legal,” they may say that. Of course, Robin’s crowd, they’d rather be illegal just for the hell of it. So that’s a different group of people. But, yeah, I’m teasing. That’s not true.

Robin: And there’s people who take pride in buying something underground. There’s also people who care deeply about supporting the guy they’ve been buying from for years, who’s their friend and who’s growing stuff they like, and they want to support him or her, whether or not they want legal. There’s also a big segment of people under 21 who are not allowed to buy legally under the recreational system, or under 18 who are not allowed to buy legally under the medical system, so everything they buy is illegal, although some of it may be coming through legal channels and then being resold. But generally speaking, those people will support the illegal market too.

Meb: Not to mention, you guys say that, like, after, what, 10 p.m., you can’t buy it, or something, anyway. So then you’re forced into the illegal cohort after a certain time of day too.

Robin: Yeah, in California, that’s…

Daniel: In fact, that regulatory stuff, I’m really glad you raised that, because, for example, almost every town, even towns where it’s legal in your county and it’s legal in your town, the city council says, “Oh, yeah, but we don’t want very many stores, so, therefore, we will assign a license only to a few stores whoever is particularly nice to us. There’s no corruption involved.” Maybe there’s not. I mean, there’s plenty of places where there’s corruption involved. But maybe everybody’s honest. They say, “Oh, gee, if somebody has lived in this town for a long time and goes to the same, I don’t know, golf club I go to,” or, “Their kid plays soccer with my kid, then we’ll give them the license to operate this store down the street. But there’s only a few of them, so it’s not convenient,” or, “Maybe we’ll only put it in the part of town we don’t go to, because we wouldn’t want a cannabis shop near where we live,” etc., etc.

And every city in California and around the country had been that way, with Oklahoma, perhaps, as an exception, because they’ve got storefronts everywhere, even though it’s just medical. Regulators just can’t help it. They just want to regulate stuff, and that raises prices, of course. Once you say, “Gee, there’s only five stores in the whole town,” that’s sort of a license to print money as well as a license to sell cannabis.

Meb: This is interesting. Like, does this resemble…I’m trying to think, what does it resemble? Does it resemble…as far as the substitution effect here with cannabis, I think the growers or the product developers would like to say there’s premium product or there’s a reason to be paying double, triple, quadruple, whatever it may be. Is that sort of like a lion country argument where you’re trying to convince people that it’s superior? What does that look like? Is that surmountable, or is that something that is just, like, “Hey, it’s called weed. It’s commodity. Like, it’s not a problem they’re going to be able to overcome?”

Daniel: I’m going to let Robin deal with this, but let me just say, even without all this regulation stuff, you could still have lots of product differentiation in a voluntary sort. You know that if you want to buy a loaf of bread, you can buy the cheapest stuff in the supermarket and make your tuna sandwich and be perfectly happy with it. At the same time, you could go to a bakery in your neighborhood and buy something with specialty grains and take it home, and it’s a celebration. It’s wonderful. You like it much better. Same thing can be true for weed, but that’s letting you make the decision as opposed to having the local politician make the decision for you. And those are different things. But product differentiation is Robin’s specialty, and I’ll let him talk about that a bit.

Robin: I mean, I think Dan’s getting at the point that there is this natural market that arises for these specialty grain products, craft beer, elite wine, appellations from Napa Valley that wine aficionados know or can taste the difference, although my research suggests that they actually can’t. The truth is when you’re buying one of these specialty fancy products, and it’s basically rich people who buy these products, they’re not just paying for the sensory differences between the products. The more self-aware among those consumers know that that’s not what they’re paying for. They’re paying to support some family farm that they like, and they met the person, or they like the story, or they like the packaging, and they enjoy the process of consuming a product that has a good story, and so forth. And as Dan says, it’s all well and good. There’s a place for that in the market. In craft beer, it’s maybe 10% or less of the beer by volume. Maybe it’s 20%, 15%, 20% by value of the beer market. Wine isn’t so cleanly different between craft and non-craft, but you have the same phenomenon. Many people are often shocked to hear that the average bottle of wine bought in America costs $6 or $7. Most people I talk to, in academic circles, let’s say, or in wine circles, can’t imagine paying less than 10 or 12 bucks.

Daniel: Yeah, Robin talks to good old people.

Robin: They’d think of that as a cheap bottle.

Daniel: But, Robin, the people I talk to say, “What do you mean bottle? I thought wine came in a box. Come on.” Yeah, I mean.

Robin: Franzia, yeah. When I was in college, it was such a great tradition. You get a five-liter Franzia box, and when it got near down the end, there’s just a little bit left, but there’s always more than you think, because it’s, like, the bottom of the bag, and it doesn’t come out of the spout. And so you’d have to start tipping the box at, like, a 45-degree angle and drinking it straight from the box. And we had a tradition where the person who got the last drop out of the bag got the privilege of getting to kick the box off the porch.

Daniel: What you never did with your bottle. That’s right.

Robin: Right. That’s not a good idea.

Meb: Yeah. I’m going to give a shout-out to…I had a drink the other night with a boxed wine startup that’s trying to do premium boxed wine. It’s called BOXT, based out of Austin, Texas. So shout-out, Sarah, if you’re listening. They’re doing some cool different take on wine [crosstalk 00:34:36].

Daniel: And real wine snobs would say, “That packaging is great packaging, and the worst thing you can do is stick it in a bottle with a cork in it.”

Robin: Yeah. It keeps longer, the bag, because it doesn’t let oxygen in. It’s more environmentally friendly, less packaging per unit volume. It’s great.

Daniel: You don’t have to finish the whole bottle or the whole bag.

Meb: We did a taste test. They do it based on flavor profiles, the names of grapes, or traditional. And what I thought I liked, I didn’t necessarily like so much, but there was a Red Zinfandel or something that was my favorite, and I was, “I don’t think I’ve ever even had that before.” So, anyway.

Daniel: Ah, well, after this, we’ll go up to Sonoma County and get some.

Meb: All right. I’ll pick you up on the way from L.A. But, so the question…let me ask this slightly differently, and maybe this will be revealed in “The Cannabis Trials,” when you do the next, third, the finale in the trilogy, because there’s some interesting comments in the book about, there’s the assumption of the difference between Cannabis sativa and indica and the effects. And I’m just even curious. I wonder, how much…like, is it even a thing that there exists a premium product that would be universally seen as, on a blind experience, as “better” or craft, in a way that… Because in beer, if you’re, like, 99 times out of 100, if you had a really crappy beer versus a really good one on your list, like, most people would probably get that directionally right. I mean, tequila is probably the number one there. Because, like, a terrible tequila versus a good tequila, like, no one would confuse those two. But with wines, that’s problematic too. So, where does cannabis fall on this? Is this known, or do you have a guess?

Robin: I think the key here is that you see with wine and with beer that is the key to cannabis also. Premiumisation is coming from somewhere specific. So you have this regional origin. It’s a small producer, and it’s from a place that you know. And so, one thing that cannabis hasn’t really developed that wine certainly has and that I think beer has in a different way is knowing what farm, knowing what town it’s coming from and how it’s being grown and the process. And so this, like, extreme localization, that’s something that consumers have shown that they’re willing to pay extra for, people who care about that stuff. They want the story not just of how it tastes or smells different. They want to know who made it, how, where it comes from, maybe what techniques they used. And usually, that means having used techniques that are more costly, and that helps justify the higher price.

One interesting thing about weed is that, right now, the state of the market is that the outdoor-grown stuff tends to be the lower-priced stuff, partially because it’s lower potency, in general. And although, certainly, not universally, the indoor-grown stuff is this highest, and you get this super 35% THC, super-premium stuff that’s selling for $100 an eighth. But what’s interesting about the indoor stuff being the premium and the outdoor stuff being the lower end is that climate doesn’t matter as much when you’re growing indoors, whereas California-grown weed from some special place in California, Sonoma, or Humboldt County, whatever… The reason why California emerged as a leading producer of weed for the whole country illegally for many years is because of its great climate for growing.

In so far as there are unique characteristics, and I think there are, for weeds coming from different places, then I think what needs to happen for the industry is to reestablish outdoor as a premium type of weed and to talk more about where it comes from because of the climate and the soil. In other words, make it more like wine. Market it more like wine and less like beer where it doesn’t matter as much where it comes from. So that’s one point I like to talk about with this future of premium weed. But nonetheless, it’s never going to be a huge percentage of the market, because most people are just going to be price-sensitive. And the people who smoke the most, who consume the most, are going to care more about price, and so they’re going to be the ones who just really buy the cheapest decent stuff that they can get, week in, week out.

Meb: I think most people assume, Cannabis sativa, that’s the, like, heady high, Cannabis indica, sitting on the couch, eating Doritos, watching “Avengers.” Is that right, or is there any scientific basis to that?

Robin: So I’m not going to say whether it’s right or wrong, but I will say, I don’t think there’s much scientific basis to it from what we’ve seen. In terms of comparing the sensory effects of sativa versus indica or the psychological or behavioral effects, there’s been very, very little work done, partially just because it’s been hard for many years to do cannabis research. But the one or two studies I’ve seen on it have found, basically, no effect. The deeper problem seems to be that what’s labeled as sativa or what’s labeled as indica, genetically, may not have much or anything to do with the plant. So it’s problem, also, that goes deeper than the distinction. It goes to the labels not really meaning anything. So I’d encourage consumers to not pay much attention to what’s sativa versus indica, you know, the tasting notes, notes about the effects, or your advice from your friendly budtender is probably a lot more useful than the words indica or sativa in the package. Basically, everything is a hybrid of some sort, and you really can’t rely at all on what they say the percentages are or what that means.

Meb: Good to know.

Daniel: And we all know the placebo effect is great. So you read that it has certain effects, reasonable chance it’ll have those effects just [inaudible 00:39:52].

Robin: Yeah, exactly.

Meb: Yeah.

Robin: I mean, I was convinced, for many years, that, you know, I liked sativa and I didn’t like indica, and so I would only buy sativa. And so it’s only very recently that I’ve looked more at the science and talked to people I know who work in testing labs and know 100 times more about this stuff than I do, that I started to question that orthodoxy.

Meb: So you’re saying the dosist and others where they say, “All right, this is for romance, this is for focus, this is for calm,” that’s a little more marketing than science?

Robin: I think you could say that safely.

Daniel: You know, the real point that Robin was making there was that the genetic testing of what that product is almost never done once it’s a product. So the dispensary you buy from or the retailer you buy from labels it as sativa, they bought it as sativa, they think it’s sativa, the grower may well think they grew sativa, but nobody has really tested the seed, and it’s not like USDA certified seed of a certain sort. I mean, I work with seed companies a lot. In fact, I’m doing work with the California plant seed-for-sowing industry. And for every other crop, there’s a whole bunch of regulations and a whole bunch of science behind it. And there’s not for this one, just because it hadn’t been legal to do that. And so the first step you need to actually know that sativa is actually sativa and not indica, and it may be largely, as Robin said, just a hybrid of the two, not a hybrid seed but just a mixture of the two, and we really don’t know what you’ve actually got, even though everybody in the system has tried to be honest about it.

Robin: Yeah. Yeah, no one’s intentionally lying about this, but I think the most important lesson for me, even, that I learned myself about this is just, as with wine, you know, just take the foam, taste it, do a blind tasting, learn your own taste, explore your own preferences by trial and error, and don’t trust what the packaging says you’re going to feel or taste.

Meb: The place where I think the book takes a left turn, I think, versus consensus views, I enjoyed your discussion about the big cannabis conference, because I’ve attended one of those, and that is a topic for an entire another podcast. But…

Daniel: Were you wearing a suit?

Meb: I would have been probably halfway in between. I’m a pretty casual dresser already. But I attended the institutional investor day, and let me just say, it’s unlike anything I’ve been to in 20+ years of working in investments. But I can’t remember if it was in a boom year or a bust year, because the mood is very different, whether it was Armageddon or jubilation. But you guys have somewhat of a different, I feel like, or maybe not as much now, that cannabis talks are down 80%, but certainly, more than a year prior or a few years prior, on sort of the future of what the cannabis business looks like. So you guys want to walk us through a little bit of your thesis and how you see things unfolding going forward?

Daniel: I’ll set the stage. Cannabis is like lots of other businesses, and we think it’s going to become more efficient in production, in marketing, in distribution, in standardization, in product design. And all of that will be handled much more efficiently partly because of scale, but partly because it’s just applying good old-fashioned know-how and having that spread widely. And I sit here on a campus with lots of agricultural scientists. They haven’t been able to work with weed. It’s mainly illegal for them to use it in their trials. They have lots of science. And now, it’s moving in that direction because there’s a big incentive, the same with testing, the same with manufacturing processes that are efficient, all the way down. All of that brings down cost and, therefore, brings down price. So you could say, “Gee, we’re selling 50% more weed than we were 5 years ago at less value, because the prices come down.”

So we say two things. The only way you’re going to sell a lot more weed is if the price comes down, and the price is likely to come down because of good old-fashioned efficiency. So when people say, “Gee, the total revenue in the industry is going to triple, and double, and triple again,” how does that work? It can only expand in quantity if the price comes down, and we think the price may well come down as fast or faster than the quantity goes up. And remember, we’re just talking about the legal side. So the first step is, how does legal find a way to compete against illegal? And then the second is, if it does, how can you increase the quantity more than the price comes down when the only way you can increase the quantity is have the price come down? So it just doesn’t add up when people have these boom forecasts. Over to you, Robin.

Robin: You said it well.

Meb: I think a lot of people would counter-argue to say, “You know what, there is a savior on the horizon,” and that is federal legalization. Everyone is going to be free. What’s your response to that?

Robin: I think that anyone who thinks that federal legalization is just going to be a blanket win, victory, help the whole industry, is either super high or not looking at the realities. Because the first issue is, okay, so people talk about banking and IRS. So there are two big things that will be helpful about federal legalization. I’ll start with that. It’ll be easier to do banking. It’ll end these problems that companies are having with not being able to deduct expenses, business expenses, on their federal tax returns, and so having to report these much higher profits and pay taxes on them than the profits they’re really making or, in many cases, losses, most cases. So those problems will be solved.

Those are two relatively minor problems compared to the two really big threats, I think, of federal legalization. The first one is that interstate trade…once you have interstate trade, you’re going to have a bunch of states, like California and Massachusetts, where weed is made relatively expensively, because costs are higher, labor costs are higher, electricity/water costs are higher, regulations and taxes are higher. So the fact that you have this patchwork where some states are more expensive places to grow weed and sell weed, and others, means that you’re going to have a competition between higher priced and lower priced weed between states. And let’s say Wyoming or Oklahoma is able to produce it, or Washington and Colorado, which are making the cheapest weed in the country right now legally, you’re able to get all this imported stuff from other states, which is not legal in any state right now, which is federally legal.

Once you have this interstate trade, you have competition. So there’s going to be winners, and there’s going to be losers in that game. You’re going to have some big winners who are able to locate in places where it’s cheap to grow and also take advantage of kind of economies of scale and technology improvements that Dan was talking about. And then you’re going to have companies that were surviving pretty well under their protected little state protectorate where all the weed in Massachusetts is expensive. So they’re competing in the local market, and they’re able to survive. And so you’ll have growers and sellers and manufacturers who are in trouble in that situation.

The other big kind of threat I’ll say, which is really a big unknown is, what form is federal legalization going to take? The simplest way they could make things easier and better for the state industries right now is just to deschedule it. Descheduling, meaning, just taking weed off the list of federally illegal narcotics. Right now, it’s in the same category as heroin, the top category of illegal. That would take away the threat of the feds coming in and busting local folks. It would also solve these IRS and banking problems. Just a caveat there, there haven’t been a lot of federal busts these days in states. Ever since what was called the Cole Memo, there haven’t been a lot of feds intervening in local state industries.

So that hasn’t been as much of an issue as it was in previous years. But that would solve the banking issues without adding any new problems. The problem is, when the feds start regulating a new industry, they tend to go further than just leaving it alone. And so, if they add a whole another level of taxes and federal bureaucracy including something like federal licensing or federal excise taxes or the kind of system you have in place for alcohol, then that’s going to make what’s already a difficult situation harder, not easier, for a lot of local folks who are just trying to scrape by, figure out how to be profitable in their own states. And so that’s why we say the idea that federal legalization is just going to be a boon for the whole industry is pretty misguided.

Daniel: One thing about the trade side, consumers as a whole will win on trade. That’s the economics of free trade. It’s why the U.S. economy has done great over a 200-year span, is because we have a big market out there, and people in Ohio aren’t trying to grow all the tomatoes that they consume in Ohio. California grows a lot of tomatoes. If you eat pasta, you don’t know this, but you’re buying wheat from North Dakota, because they grow a lot of the spring wheat of the durum form that makes the semolina, which is the flour that’s used in spaghetti. Unless you’re rich and then you buy your spaghetti from Italy. People don’t know where their stuff comes from. There’s no reason to. You don’t even have to think about it. You just go buy good-quality stuff at a reasonable price.

The problem is, even people in California who say, “Gee, we’re good growing weed, look at the weather we’ve got,” it hadn’t really sunk in that maybe the price of electricity for running an indoor warehouse full of cannabis is more important than the outdoor sunshine under the current market, and probably under the national market. So you may have a bunch of California growers in Santa Barbara, say, or somewhere like that, saying, “Wait a second. We can’t compete with the people in Eastern Washington State where they have, I don’t know, hydropower and really cheap electricity.” And we can grow anything in California, but we don’t grow everything, because some places are even cheaper to grow.

And with respect to what the feds are going to do, it would be nice to think…Robin’s heard me say this, I like to say, “Let cannabis be kale.” We don’t need a whole bunch of new taxes, new regulations, another layer. We’ve got the city. We’ve got the county. We’ve got the state. We really don’t need the feds. But can you picture, can anybody seriously picture the House and the Senate saying, “Oh, yeah, we’ll make it legal, but we will resist the temptation to tax and regulate it?” I mean, this is Washington, D.C. If you’ve ever been there, look at who we’re talking about here. These people cannot resist. They’re addicted. What can you say?

Meb: As we talk about our friendly politicians, let’s say the president, and I know you guys have had a little political consulting before, particularly Daniel, but then let’s say they waive you in. They say, “Okay, we want to get this right. What are some big suggestions? What should we be doing as we think about the next 5, 10 years of cannabis and what we can be doing on a federal level?” What would you say?

Daniel: Robin would have been a great advisor to passing the proposition in California. But as we pointed out in the book, and Robin has gone through it very carefully, it’s a compromise. How do you get enough votes to get it through? Well, you bring in the police, and you say, “What would it take to make you happy?” You bring in the activist, and you say, “What would be enough to make you happy?” And on, and on. And once you put down to gather this coalition… Robin and I were both heavily working with the Bureau of Cannabis Control and others, and I’ve done this for agricultural policies for a very long time, other than cannabis.

And what I think the two of us would say, “First, do no harm.” This is something where there’s already lots of state and local and county regulations and taxes. Local control, love it or not, there’s plenty of it. And the federal government really doesn’t need to do anything here. So I think we’d want to spend a good bit of time thinking it all the way through. But Robin, and I think he said it best, figure out a way to pass a law that doesn’t require a bunch of added stuff and then relax a little bit.

Robin: Yeah. Sit back and relax. One thing I’d add, though, is I think if we played our cards right, America could turn out to be a big net exporter of cannabis. Once the whole world legalizes, it’ll probably take Asia the longest. They’ve got the strictest penalties, again, stuff that they all put in place under Nixon’s strong-arming, but they’re very slow to relax things. You haven’t seen any real legalization just almost anywhere in Asia. Europe is more advanced, let’s say, in this way. But America is leading the way. America and Canada are really leading the way. We’ve leapfrogged the Netherlands.

Amsterdam, for many years, had this reputation of being, like, the world’s legal weed capital, and really they’ve, if anything, gone backwards. They’ve done nothing. They’re talking about shutting down some of their dispensaries and tourist areas. They haven’t created a legal system for cultivation or for manufacturing or distribution. It’s just sort of…it’s kind of like the medical marijuana system that was in California before. It’s actually even less legal, let’s say, than that.

So we could be a world leader in this industry. We probably won’t be the ones to produce it the cheapest. We probably can’t compete with Mexico on price, which has very low cost of various kinds. But we could be the premium leader, like we are with steak. We export some steak around the world. They think it’s the best steak. We export products where we’re able to have a reputation of doing it best, and I think that there’s a chance that we could have a good export industry. I don’t know. Dan might disagree. We’ve never discussed this.

Daniel: Well, we don’t know. The point is we don’t really know. The U.S. exports lots of products around the world. We’re the cheap place, whether it’s weed or soybeans, so.

Robin: We could also figure out how to do it really cheaply, I mean, over time. We could even compete on price, internationally, if we’re far enough ahead compared with other countries.

Daniel: Not jumping that far in the future and just thinking about federal legalization, which could happen in the new few months or the next couple of years.

Meb: I’m going to hold you all’s feet to the fire, over and under, when are you expecting it? I need a prediction, a prediction with no accountability.

Daniel: Washington is dysfunctional enough. I can’t see it happening this year. And then…

Robin: Two years, that’s my prediction.

Meb: Two years.

Daniel: It’s possible. And the problem is Robin may be right, and it will probably be the worst sort of legalization. That is to say, you will have people from each party saying, “I don’t want to be blamed for anything,” and you’ll end up with a bunch of federal taxes and a bunch of very detailed federal regulations. And not just normal health and safety kind of things, like you’d put it on cheese or tacos, but a bunch of other stuff. We’ll probably spend the next few decades unravelling because we realize we went so far that we helped the illegal industry more than the legal industry.

Robin: Here’s the worst kind of legalization we could do. Here’s my doomsday prediction. In two years, we federally legalize medical but not recreational. I can see that turning into an even bigger nightmare because, then, big pharma comes in and tries to basically take over the industry nationally. They set up a system that, essentially, enables that. I’ll leave it at that without delving too much into the conspiracy theories I may have.

Daniel: I love big pharma…

Robin: I’ve heard talk of this.

Daniel: …so I’m all for it.

Robin: It may be the political compromises that it’s able to work. It’s, like, the worst of all worlds. The states that have recreational, but they’re still breaking federal law, so they don’t get the benefits of banking and IRS, and so forth. Meanwhile, the feds come in and start taxing and regulating the hell out of everything and imposing another layer on top of it and start intervening more in states than they are now.

Meb: Well, this has been a whirlwind tour. I got to ask you guys a few more questions before we let you go into the Parisian and Sacramento, Davis evenings. All this talk of tacos is making me hungry. Daniel, while we’re talking about your background with foreign policy and just thinking about what’s going on in the world of ag, 2022 has been, and 2021, a little bit of crazy time. Inflation has ramped up, and you’re starting to see all sorts of crazy COVID, post-COVID prices in corn and wheat and lumber, and everything else. Any general thoughts on what’s going on in the world? Do you have any insights as we look on the horizon? What the heck is happening?

Daniel: I’m just finishing something, in fact, today, related to the Ukraine war and California agriculture, because that’s a big deal. It turns out, we grow a lot of sunflower seed in California that’s shipped to Ukraine to help… Turns out, that shipping all happened back in the middle of the winter. We had our crop from last year. Maybe things will settle down. But one is it really is an interconnected world even before the war, and farm stuff goes all over the place. It’s not just tomato paste going from California to Ohio. It’s stuff going to both directions all the time. In general, the biggest worry has been people trying to be too activist about things. And I’ll give you one quick example.

The big news in the last month or so has been the baby formula mess. You say, “Ah, gee, what’s going on in the food system? Baby formula’s a mess.” Well, here’s what happened. Baby formula is controlled by two or three companies. Why would that be? Because the FDA and the USDA programs designate those companies as the only ones that can sell it in certain states, because it’s all funded, or almost all of it, big chunk, by the Women, Infants, & Children federal program that buys baby formula for poor people. But rather than say, “Here’s the money, buy baby formula,” they say, “Buy baby formula of certain package sizes only from certain companies, which we will designate the only ones that are available.”

And then, FDA, great people, in general, went to a particular baby food factory in Michigan and said, “We’re shutting you down.” Okay, maybe there was a problem there. But rather than say, “And, therefore, we need to think about where these babies are going to get their formula,” the FDA said, “That’s not our job. We’re not in charge of thinking about where supplies would come from.” It’s a different part of the government that kept… “That’s the only company you can buy from,” and FDA shut them down. And nobody sort of put it together and said, “Wait a second, we just shut down the only place these people are able to buy from by law.” This is all law. And those kind of things pop up here and there all throughout the food system. It’s sort of, like, to bring it back to cannabis, “First, do no harm.” Just relax a little bit about this stuff. The same thing with international trade, just relax a little bit and things will flow. And I think we’ll be back to more, like, normal.

The last quick thing I’ll say there is I’ll bet nobody listening to this was hungry because they didn’t have food available to them. So even in the midst of pandemic, I can tell you, there was eggs that weren’t available on the shelf in some places. How long? About a week or so. And what was the problem? Well, we shut down all the restaurants. So they had a bunch of eggs packed in great big cartons that were going to restaurants to crack in the back of the restaurants. Within a week, what do you do? Well, they had to get a bunch of cartons, like we like to buy in the supermarket, took them about a week or so, and it’s done. I think, in general, the food system has been just remarkably resilient. Shockingly resilient, given all stuff they’ve had to go through. And what we need for cannabis is that same kind of resilience. Relax a little bit, I guess, is the most important thing I’d say.

Meb: Well, gentlemen, loved your book. Listeners, pick up a copy. “Can Legal Weed Win?” When’s the drop date?

Robin: July 5th.

Meb: Oh, boy. Celebrate in a legal state, of course, or illegally.

Robin: But you can pre-order now on Amazon.

Meb: Pre-order on Amazon. People want to find what you all are up to, what’s the best places to go?

Robin: I’m on Twitter, @RobinSGoldstein. And then I have a website for research group, cannabis economics group, and you can find us there at cail.ucdavis.edu. That’s a pun that stands for California Agricultural Issues Lab. We also have canecon.ucdavis.edu, and we’re going to start posting some more stuff on our book. There’s also a bunch of cool stuff about the book at the UC Press website. But if you just Google “can legal weed win,” you’ll find lots of stuff about it, reviews.

Daniel: Yep. And I was going to say, you can Google Robin’s name or Google my name, and if you put economist after it, then you’ll find out what we’re up to.

Meb: Good. Look, guys, we would love to have you back on down the road to hear what else you’re working on in 6, 12 months hence.

Daniel: Maybe CAIL.

Meb: Yeah, once the book’s behind you. We talk a lot about farming and farmland on this podcast and investing, so it’s an area, certainly, of interest to the listeners as well. Gentlemen, thank you so much for joining us today.

Daniel: Thanks a lot.

Robin: Thanks, Meb.

Meb: Podcast listeners, will post show notes to today’s conversation at mebfaber.com/podcast. If you love the show, if you hate it, shoot us feedback at feedback@themebfabershow.com. We love to read the reviews. Please review us on iTunes and subscribe to the show anywhere good podcasts are found. Thanks for listening, friends, and good investing.



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