In early January 2018, California legalised recreational use of cannabis in the US making it the largest state to permit the use of the medicinal drug. The legalisation was after Initiative Ballot of 2016 which witnessed more than 56 percent of voters who turn out and supported the validation of marijuana fully. Initially, it was illegal to use the drug for recreational purpose, and validation will, therefore, lead to increase in demand for and supply of marijuana in the market. The new law on marijuana in the US, permitted adults aged 21 years or older to buy and use the drug without having a license for the non-medicinal purpose also authorised growing of the herb at their resident not exceeding six plants.[1]
Primarily, only those who had a license could use marijuana. Therefore, the demand for marijuana increased and at the same time, its supply in the market also increased as a result of increasing production. Similarly, the Australian government on January 4th, 2018, allowed specific products of cannabis to be exported into the international market.
The move by the Australian and California states to increase cannabis products exports and legalisation of the same respectively increased the demand and supply of cannabis[2]. Since the world still debates on the legalisation of marijuana, Australia is the fourth country to legalise the medicinal drug.
Figure 1 Shift in supply curve showing an increase in quantity supplied of marijuana from Q1 to Q2.
Figure 2. A shift in demand curve showing an increase in quantity demand of cannabis on the market from Qe to Q2.
Following the move, many state-licensed businesses in California and more than 300 operated on “California’s New Year’s Day sale.” The external economic factors that affect demand and supply and the behaviour of markets stimulated the supply of cannabis.[3]
The legal government, demographic factors, and future expectations of stable supply of marijuana influence the demand and supply of cannabis. Even though in Australia the cannabis production is relatively small due to illegal use for the recreational purpose, but for medicinal use only. The ready market in the US where is used both as therapeutic drug and recreation purpose opens the ready marketplace for Australian cannabis product[4]
Companies in Australia like Cann Group soared high demand for shares after the announcement of the legalisation of cannabis.
The countries involved will also put the resources available for good use in the production of cannabis. The anticipation of the incentives which will be realised from the output of the medicinal drug is high[5]. Therefore, the efficient use of resources concerning the drug product will be realised.
Figure: 3 Efficient use of resources in the production of cannabis.
As exhibited by the behaviour of the consumers and suppliers of cannabis, it is noted that government as an external factor influences economic activities. Resources may be available for production of goods, but if the output is not legalised, production may not take place. Restrictions by the government on exports may also affect the supply of a product on the market, especially in the international world. The demand for a product apart from an increase or decrease in prices can also be influenced by external factors from the government through restrictions, quotas, and tariffs.
Bibliography
Bowen, William G., and Julie Ann Sosa. Prospects for faculty in the arts and sciences: A study of factors affecting demand and supply, 1987 to 2012. Princeton University Press, 2014.
Wanapat, M. "Rumen manipulation to increase the efficient use of local feed resources and productivity of ruminants in the tropics." ASIAN AUSTRALASIAN JOURNAL OF ANIMAL SCIENCES 13 (2000): 59-67.
N.P. “Australia Plans Legal Cannabis Exports to a Lucrative World Market.” VOA, 2018. https://www.voanews.com/a/australia-legal-cannabis-exports/4191729.html
N.P. “Australia approves cannabis exports as the ‘Golden State’ goes green,”
Finfeed, 2018. https://finfeed.com/features/australia-cannabis-imports-california-recreational-marijuana/
[1] N.P. “Australia Plans Legal Cannabis Exports to a Lucrative World Market.” VOA, 2018. https://www.voanews.com/a/australia-legal-cannabis-exports/4191729.html
[2]. Bowen, William G., and Julie Ann Sosa. Prospects for faculty in the arts and sciences: A study of factors affecting demand and supply, 1987 to 2012. Princeton University Press, 2014.
[3] N.P. “Australia Plans Legal Cannabis Exports to a Lucrative World Market.” VOA, 2018. https://www.voanews.com/a/australia-legal-cannabis-exports/4191729.html
[4]. N.P. “Australia approves cannabis exports as the ‘Golden State’ goes green,” Finfeed, 2018. https://finfeed.com/features/australia-cannabis-imports-california-recreational-marijuana/
[5]. M, Wanapat, "Rumen manipulation to increase the efficient use of local feed resources and productivity of ruminants in the tropics." ASIAN AUSTRALASIAN JOURNAL OF ANIMAL SCIENCES 13 (2000): 63.
