Monday, March 2, 2015

Look to Hops for Marijuana's Future

If you want a possible glimpse of marijuana’s future after it has been fully legal for decades, I would suggest looking at the hops industry. There is a surprising number of similarities between the two products, ranging from genetics to consumption patterns.

  1. Genetics - Research has found that Cannabis and Humulus (hops) are very closely related and belong to a single plant family.
  2. Biology - Both have been selectively bred for the production of many of the same (or similar) flavor chemicals. In addition, while marijuana can be grown in many places, it does well in the same locations that most of the world’s hops are produced.
  3. Production and product - The goal in both industries is to produce unfertilized female flowers. The “buds” of marijuana and the hops of the hop plant are what you want. On both types of farms, the male plants are culled to prevent the fertilization of the female flowers, which would degrade the final product.
  4. Use - The overwhelming primary use for both is in the production of a recreational intoxicant. This excludes industrial hemp, which has been selectively bred to be very different from marijuana.
  5. Consumption patterns - Both have similar patterns in their customer base. A large share of the population doesn’t consume any hops (beer) or marijuana. There are many that consume these products but do so infrequently, and a disproportionate share of both products are consumed by a relatively small number of customers. This is unlike, say, toilet paper, which is used by basically everyone at similar rates.
  6. Quantity - Even the amount that a person would consume of either is fairly similar. Annual consumption for a heavy consumer of hops (beer drinker) or marijuana can both be measured in ounces.

The analogy is not perfect. The two plants are grown and harvested somewhat differently. There are more beer drinkers than pot smokers. Frequent beer drinkers probably consume the equivalent of more ounces of hops annually than frequent cannabis consumers do marijuana. Most importantly, the government will probably always subject legal marijuana to more regulations and higher taxes than they do hops, artificially increasing production costs and prices. That said, the large number of similarities means the hops industry is a useful point of reference for marijuana.

With that in mind, here are a few important facts about the hops industry: The United States is the second biggest hops producer in the world behind Germany. Almost all of America’s hops are grown in a relatively small part of Washington State, Oregon, and Idaho. The wholesale value of the world's annual hop production is less than a billion dollars. A regular person can order hops online for around $2-4 per ounce, about 1% of what marijuana currently costs at legal dispensaries.

It is conceivable that in the future, the overwhelming majority of fully legal marijuana consumed in the United States will come from just a few small farming regions in two or three states where the climate is ideal for the crop. In addition, the annual wholesale value of the entire harvest (before taxes and fees are added) might be only in the hundreds of millions, not billions. Of course, it all depends heavily on what future regulations and taxes are adopted.

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