Perfect Example · UE University

Perfect Example

For whatever reason, speaking about the cannabis industry on YouTube is a major no-no. Very few videos I’ve made get demonetized and suppressed by the algorithm the way content about the cannabis industry does. That’s unfortunate, because it is a near-perfect real-world example of the Cantillon Effect, and a useful case study for applying the four economic forces.

I grew up in Oregon, where cannabis was never treated as a serious criminal offense. If you were caught with weed, it was a misdemeanor and you paid a possession fine. For many people, it was a popular and quietly profitable side hustle. The illicit drug market is heavily influenced by pop culture and by laws that make the risk-versus-reward tradeoff extreme.

At its core, this is supply and demand. If you take something people want and make it illegal, you don’t eliminate demand — you increase price. Sex, drugs, and firearms all demonstrate how prohibition creates extreme value through risk and limited supply.

In Oregon today, the opposite problem exists. An overabundance of cannabis production has driven prices sharply lower. Supply has overwhelmed demand. Prices are now determined not just by availability, but by the disappearance of risk and by access to surrounding markets. When cannabis was illegal, projecting massive profits was easy. Once the risk was removed, the value evaporated.

The uncomfortable truth is that cannabis is essentially worthless. Anyone can grow it, especially when it’s legal. The availability is nearly endless, and the volume that can be grown and harvested has completely overwhelmed the market. As a result, prices and projected tax revenues are collapsing, cutting into state budgets and creating shortfalls in social programs that were designed to fund behavioral health services and drug rehabilitation.

This is the exact opposite of what was expected. What was sold as a massive tax windfall has proven to be a limited resource with no meaningful long-term benefit. That raises the question: what could Cantillon and 3 other economic theories have taught us about this outcome ahead of time?

As one article puts it:

“That oversupply drives prices down, and since the tax is a function of price, revenues decline, too.”

Gresham’s Law

Gresham’s Law plays a role here. Traditionally, it describes good money and bad money, but the principle can be applied more broadly. When cannabis was illegal, or transactions are restricted to cash. That limitation created friction and scarcity in how the product could be exchanged.

In a normal retail environment, many forms of payment are accepted. Cannabis dispensaries, however, are largely restricted to a single form of currency. Fewer acceptable currencies mean fewer transaction options, which puts downward pressure on prices. What would otherwise be a normal exchange becomes constrained, reducing value rather than enhancing it.

The Bullwhip Effect

The bullwhip effect is also at work. Oversupply leads to collapsing profits, which eventually forces producers out of business. Over time, supply contracts, potentially swinging the market back toward balance.

I don’t expect true shortages — cannabis is too easy to produce — but that doesn’t mean the bullwhip isn’t present. Farms, processors, and dispensaries will come and go, amplifying instability throughout the supply chain as the system searches for a level of supply that meets demand under legal constraints.

The Cantillon Effect

Finally, the Cantillon Effect explains who benefits and why the collapse was inevitable.

In a black market, the government is absent. Transactions occur directly between individuals, and institutions are largely excluded. When money enters this system through production, the industrious producer effectively gains first access to that money. It isn’t proximity to a central bank, but it is access to income streams that are unavailable to most others. That separation creates “new money” within the system.

The moment cannabis is legalized, that advantage disappears. Initially, legalization appears profitable. But supply rapidly overwhelms demand, and the profits that once came from enforced scarcity collapse. Without heavy-handed law enforcement adding value through risk and limited supply, cannabis becomes an undifferentiated commodity.

With demand relatively constant and supply effectively unlimited, prices fall, tax revenues shrink, and the entire system moves into decline. What once appeared to be a sustainable revenue source reveals itself as a temporary distortion created by prohibition — not a durable economic foundation.

I’m not sure how Triffins dilemma plays into it, but maybe you can think of a way.

https://www.wweek.com/news/business/2026/01/24/oregons-crashing-pot-prices-put-drug-treatment-at-risk/

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