Apr 20 2010

The production cost of marijuana

Posted by J. Craig Canada in business, cultivation, Examiner.com

When Maine recently passed legislation authorizing sales of medical marijuana through dispensaries it assumed the cost of the marijuana to be $50 per ounce.

There are about 28.5 grams per ounce, so that works out to a cost of $1.71 per gram.

In the video on the right, Ethan Russo states in 1978 the federal government reported the cost of cultivation and production of marijuana on its farm in Oxford, Mississippi was 90 cents per ounce, and that 2/3s of that cost was security, including electric fencing and razor wire. 

Russo states the true cost of growing marijuana in 1978 was 1 cent per gram, or about 28.5 cents per ounce.

In 2009, according to Measuring Worth, $0.28 from 1978 was worth between $0.92 and $1.74, and $0.90 was worth between $2.96 and $5.59.

The federal marijuana farm in Oxford, Mississippi generally grows a crop every two years.  The plants are grown outdoors in fields under heavy security.  The males are not pulled.  However, the report notes that the males die upon flowering, a month or more before the females, and that by late September or October the males are dead and only females remain.  Further, that using such a cultivation method, about 42% of the females remain unfertilized – sensimilla.

Health Canada charges patients $5 per gram ($142.50/ounce) for the marijuana it grows in an abandoned copper & zinc mine in a town called Flin Flon somewhere beyond the fringes of civilization near the arctic circle – about the most inhospitable place for plants imaginable.

Health Canada states its price to patients of $5 per gram is "based on the actual cost of production and an estimate of costs associated with the distribution of the product."  Growing medical marijuana in an abandoned copper & zinc mine is arguably the most expensive (not to mention ridiculous) method imaginable.

Indoor plants require wind the equivalent of a standard oscillating fan pointed at them in order to have stalks strong enough to support the plant.  Also included in the cost are expensive lights, huge amounts of electricity, and soil and nutrients.

Wikipedia notes that "Because of the city’s rocky geography, agriculture is not possible."  It also notes that processing any sulfide material, in this case zinc, produces huge amounts of sulfur dioxide.

Health Canada tests the marijuana it grows in this abandoned copper & zinc mine for 28 different  metals.  It also irradiates it to kill any viable mold spores.  Health Canada completely ignores the U.S. farm in Mississippi when it states:  "This is a process which is also used in the Netherlands, the only other country which grows and provides access to marihuana for therapeutic purposes."

Health Canada reports that as of June 2009, 798 of 4,029 federal exemptees are receiving medical marijuana from the Flin Flon Mine.

Canada requires medical marijuana patients to pay sales tax on their medicine.

New Mexico recently began licensing medical marijuana dispensaries.  While the data is too preliminary to draw any hard and fast conclusions, of the 5 dispensaries licensed, only two are providing cannabis to patients at less than $10 per gram:  one for $4/gram ($114/ounce) and one for $5/gram ($142.50/ounce).

The $4/gram cannabis accounts for 13% of the business at the one dispensary that offers it.  That dispensary accounted for about 75% of the business in New Mexico at the time of the report.  The other dispensary that offered medical marijuana for less than $10/gram reported no sales of their $5/gram product.

Maine will allow one medical marijuana dispensary in each of its eight health care districts and charge them $15,000 per year for a license.  Maine charges $200 per year to license a pharmacy or "retail drug outlet".

Additionally, Maine will tax medical marijuana at a rate of 5%.

Maine expects 500 patients to purchase 60 ounces per year from the dispensaries, for a total of 30,000 ounces per year.

It should be noted that while Maine expects patients to need about 5 ounces per month, they only allow patients to possess 2.5 ounces.  This limit means it will be impossible for the seriously ill to grow enough marijuana to supply their needs.

Maine currently has about 200 caregivers who are authorized to supply up to five patients each.  These caregivers will also be required to pay the 5% sin tax.

DrugScience.org reports that retail (street) marijuana price in the U.S. averaged about $6.14/gram ($168/ounce) in 2000, trended downward to $5.47/gram ($192/ounce) in 2004, and then began to climb back up in 2005 at $5.91/gram ($174/ounce).

Medical marijuana patients in California generally pay at least $10/gram or $300 per ounce at the dispensaries.  Many pay considerably more, especially in Southern California where prices often start at $400/ounce.

UPDATE:  23 Apr 2010

NBC Washington writes:  "$100-$400 dollars in upfront costs and a yield of anywhere from $2,100 to $6,000 – per pound".

UPDATE:  7 Jul 2010

Rand publishes study:  "RAND researchers say one effect of legalizing marijuana would be to dramatically drop the price as growers move from clandestine operations to legal production. Based on an analysis of known production costs and surveys of the current price of marijuana, researchers suggest the untaxed retail price of high-quality marijuana could drop to as low as $38 per ounce compared to about $375 per ounce today."


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