Police pressure on medical marijuana has eased. An initiative on the fall ballot could legalize pot here. So it's no surprise the state is seeing a rush of marijuana growers, brokers and even Internet entrepreneurs. Amid that surge, some are struggling to adjust to the new market realities.

POT AND E-COMMERCE

To understand how California's pot economy is maturing, you might want to take a ride on the Internet with Robert Mitchiner. Mitchiner operates a website called Budtrader from his home in San Francisco. It's a kind of Craigslist for people looking to buy and sell pot in California under the guise of the state's medical marijuana law.

"It's a marketplace, a community marketplace," Mitchiner says. Since its launch last year, Budtrader has seen the number of listings explode to hundreds each day. And Mitchiner says people who use the site are remarkably open about themselves. "People put their phone numbers on budtrader," he says. "They use their real names, too. It's not unique to Budtrader. It's unique to where medical marijuana is."

The rise of Budtrader and other web sites devoted to the pot trade in California is a measure of the intense competition in the marijuana industry, which is boosting quality and pushing down wholesale prices. "I can't see how they can go much lower," Mitchiner says. "We're about to hit where the real bottom is -- what it costs to produce."

ONE GROWER STRUGGLES

This fierce competition is forcing some growers to overhaul their operations. To get a better sense of this, we visited a grow house in a major California city where the owner pipes in classical music because he thinks it promotes plant growth.

The owner cultivates hundreds of plants here in two basement rooms where vents snake around the low ceilings and powerful fans whir in the corners. The owner agreed to talk about his business, his prices and profits and his concern about the future, provided we not reveal his identity. Several years ago he was living the high life. But that's changed.

"It's a full time job now," he says. "I'm working seven days a week. But my margins are getting thinner."

At the peak of the market about five years ago, the grower says he could sell his pot to brokers in California for $5,000 a pound, sometimes even more. The pot was then re-sold to medical marijuana dispensaries and on the black market. But last year the market was flooded and prices dropped under $2,000 a pound. So the grower bought some new equipment, learned advanced growing techniques and rented a second house so he could cultivate premium "Kush" strains that fetch a higher price in the dispensaries. As for the pot he couldn't sell in California, the grower started looking to the underground market out of state.

"You don't want to go out of California if you don't have to," he says. "The feds could always bust you. And that can be a serious felony."

Still, he took the risk and is now moving about five pounds a month to the East Coast via commercial delivery services. "Business will never be what it was, but things have stabilized," he says.

We heard similar accounts from other growers who are now moving pot out of state. And federal and local drug agents say they've detected an upsurge in the shipment of pot out of California as wholesale prices here continue to drop. Tommy Lanier, director the National Marijuana Initiative, says drug agents are re-doubling efforts to intercept pot being sent through companies like Federal Express and UPS.

"People in New York think the only dope to smoke is that that comes out of California because it's such high grade," Lanier says. "So it will bring a higher price. You can almost double your prices in some cases."

RETAIL PRICES STILL HIGH

With all this turmoil in the wholesale pot market, you might expect retail prices at medical marijuana dispensaries would be falling, too. But economist Rosalie Pacula of the Rand Corporation says that is unlikely for now.

"There's no reason to believe that the retail price has to come down," Pacula says. "The competition really is, right now, on the production side and not on the retail sales side."

Some growers say retail prices aren't dropping because dispensaries are fixing prices. But Pacula says it may be more about basic economics: There are lots of growers but a lot fewer outlets. Richard Lee, a prominent Oakland dispensary owner and marijuana activist, agrees.

"If you only had that many alcohol outlets in the whole city, or that many coffee outlets in the whole city, it'd be easy for them to charge a lot more for it. They've screwed up the system and created monopolies by limiting the number, and that's one thing I hope will change soon, and then we would see more competition and prices drop more," Lee says.

Lee is putting his money where his mouth is. He's backing an initiative to legalize pot, which is on the fall ballot. If California voters approve the measure, experts say marijuana prices could drop a lot more.