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Pubdate: Sun, 18 May 2014
Source: New York Times Magazine (NY)
Copyright: 2014 The New York Times Company
Note: The New York Times Magazine is a section of the Sunday edition 
of the New York Times
Author: Annie Lowrey


It's the Economy

There are many things that bother Jon Cooper about the market for

"It's nearly impossible to find a consistent product," said Cooper,
one of the legion of tech start-up guys and M.B.A.s plunging into the
world of pot. "You go into a dispensary and buy something called 'Sour
Diesel' and try it. You go to another dispensary, buy 'Sour Diesel,'
and it's a different experience. You go back to the first dispensary,
buy it again and it's not the same, either."

Despite the inconsistency, nobody doubts marijuana's popularity as a
consumer product: 38 percent of Americans admit to having tried it,
and 7 percent use it on a regular basis. But for decades, it has been
produced and sold primarily on the black market, which has only
recently developed shades of gray and white.

This has wrenched the ancient psychotropic substance into the
machinery of 21st-century consumer capitalism - with all the
consultants, marketers, brand advisers and scientists that come with
it. A joint might never be as easy to access as a can of beer or a
cigarette. But thousands of people and millions of dollars are hard at
work to make it as predictable and dependable as one. Call it the Bud
Light-ification of bud.

There's a pressing economic reason for the pot industry to get better
if it is to survive, aside from its formidable legal challenges. The
plant is relatively cheap and easy to grow, and not complicated to
process either. Left to the whims of the open market - meaning
ignoring taxes and regulations - the price of a joint could plummet to
the price of a tea bag or a packet of sugar. So how will investors
help the market mature while still making money?

The market for marijuana is nothing like the market for corn or wine
or tobacco - at least not yet - and the reasons start in the ground:
Marijuana growing and processing is downright bush-league compared to
modern American agribusiness. Much of the pot produced in the United
States still comes from illegal or semi-legal grow sites, even given
the surge of production and processing in states with recreational or
medicinal laws. And strains remain understudied and underanalyzed,
compared with the wheat in your cereal or even the marigolds in your

The inefficiencies continue to pile up after the harvest. Marijuana
has to be cured, then trimmed, before it is sold, and much of this
work is still done by hand. Workers use scissors to cut away tough
outer leaves and expose the smokable part of the plant. It's a
labor-intensive process, the kind that in other instances is completed
by a machine, like a thresher or a cotton gin.

Already, the booming industry has started ironing things out. Growers
House, a Tucson-based "indoor gardening center," offers a wide variety
of mechanical trimmers on its website. At the low end, for a few
hundred dollars, they resemble salad spinners studded with blades; on
the high end, they look more like propane grills. One of these, the
Triminator ($17,900), can process 18 pounds of "material" in an hour -
90 times faster than hand-trimming, by the company's own estimate.

Peter Adams, the executive director of Rockies Venture Club, an
investment group that is researching the cannabis industry, thinks
numbers like that mean an inevitable plunge in the price of pot.
"People selling the ancillary products won't see that," Adams said.
"You're still going to have the same cost for LED's, soil, heating,
ventilation, air conditioning, those things."

With costs and prices falling, producers might try to scramble up the
value chain, complicating or sophisticating their offerings to get an
edge. (Why sell nail polish when you can sell French manicures? More
to the point, why sell cornmeal when you can sell Doritos?) There,
they're going to have to do a better job of luring and keeping
customers if they want to midwife pot into the great big American
consumer market, where consistency is king.

Crack open a can of Bud Light, then another and another. The beers
should taste identical. Try the same with a McDonald's hamburger, a
Marlboro red, a stick of Wrigley's gum or even a glass of name-brand,
middle-market wine. Unless something has gone terribly wrong, it
should feel as if you were sipping or smoking or eating the exact same
product again and again and again.

In spite of marijuana's significant popularity, there is still an
element of roulette when it comes to smoking a legal joint or eating a
legal brownie. Federal law does not require companies to test for and
disclose levels of the drug's active ingredients, like
tetrahydrocannabinol. (Federal law does not hold that pot is legal,
after all.) Many dispensaries and producers fail to test for potency,
contaminants or mold. And different states have different disclosure
laws with different levels of efficacy. As such, a gram of "AK-47"
bought in an Oakland dispensary might affect you differently than a
gram of the same purchased in Colorado. (As Cooper pointed out: "What
is AK-47 supposed to be, anyway?")

Cooper's lament also applies to the realm of edibles, where marijuana
oils and snacks can vary wildly in quality and potency. A recent study
by The Denver Post, for instance, revealed large disparities between
the amount of THC stated on an edible item's package and what the
product actually contained. Usually, the problem was underdosing: One
chocolate "Star Barz" had 0.37 milligrams of the drug's main
psychoactive component, when it had been advertised as having 100 milligrams.

"Under a commercial system, the rules could be a lot tighter," said
Mark Kleiman of the University of California, Los Angeles, an adviser
to Washington State."Right now, you have some products where you're
supposed to eat, say, an eighth of a cookie. Who's going to take a
circular cookie and geometrically divide that friable object into eighths?"

Sensing the opportunity for something more predictable, Cooper and his
partner at Ebbu, a Colorado pot start-up, are creating a variety of
predosed products - like prerolled joints, or little Listerine-style
strips. They have eschewed the silly strain names, instead labeling
their products "high-energy," "relaxed," "bliss," "create" and "giggles."

Lauren Ely, a librarian from Erie, Colo., is working on a start-up
called DisposaBowls - prepacked, disposable ceramic pipes."I joke
around and tell everyone I'm the old, fat Nancy Botwin," she said,
referring to the character from the Showtime show "Weeds." She said
that she hoped the product would appeal to experienced smokers looking
for a convenient way to bring the product with them while they go on a
hike, for example. But she also saw it as a good way to introduce
novices, seniors and medicinal smokers to pot, with gentle,
predictable results.

The legal pressure on even legitimate marijuana businesses helps to
explain much of the immaturity, by scaring away capital, both monetary
and human: The industry until now has mostly been made up of potheads
and lawbreakers, after all. But the investors I spoke with said that
pitches have gotten better, and money has been rushing in, too.

Despite the potential, many investors are still hesitating at spending
the money that might make joints and brownies less ad hoc, more
corporate. Why spend $20 million on a grow site that might be shut
down, or a new brand that might get stamped out by the next
administration's Justice Department? A surfeit of laws - and confusion
between them - is holding the market back.

"It's a little bit like Alice in Wonderland," said Adams, of Rockies
Venture Club. "All the rules of physics are broken, and you're trying
to figure your way through a strange place." To be fair, it will
probably feel like that to new consumers too.

Correction: May 13, 2014

An earlier version of this article misidentified the cable network
that aired the show "Weeds." It is Showtime, not HBO.

Annie Lowrey is an economics reporter for The Times.


Deep Thoughts This Week

1. Marijuana growing is on the brink of modernization.

2. Pot products are cheap, but inconsistent.

3. So how do you make money from it?

4. Think like Frito-Lay.  
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