Yes, Legal Pot Does Cost More Than Black-Market Pot (for Now at Least)

Colorado’s state-licensed pot stores
opened last week, and already they are
running out:

The two operational pot shops in Pueblo collectively sold
$87,000 of marijuana on Jan. 1, per the Pueblo Chieftain,
and store owners say if demand persists anywhere near the current
high, they’ll be sold out in the very near future. Likewise, Toni
Fox, owner of the 3D Cannabis Center in Denver, told the Colorado
Springs Gazette that a sellout is imminent. “We are going
to run out,” she said on Thursday, Day 2 of
legal-recreational-marijuana sales. “It’s insane. This weekend will
be just as crazy. If there is a mad rush, we’ll be out by
Monday.”

None of this is a surprise to Fox. “I would think that I would
be able to sell out of the cannabis that I had every day, because
the demand is going to be so great,” she told me a year ago. “When
recreational opens up and there’s a limited supply, I don’t have a
problem resetting my prices to street value and hopefully making a
profit finally.” The stores are charging as much as $70 for an
eighth of an ounce, compared to $20 or $25 per eighth for medical
marijuana before recreational sales became legal.

The problem, as I explained last
month, is that the short-term supply of legal marijuana is fixed.
All that’s available is repurposed medical marijuana, which was
grown under a six-plant-per-patient quota. Demand will continue to
exceed supply at least until marijuana from the first plants
officially grown for the recreational market is harvested this
spring.

The high prices are exacerbated by
new taxes: a 15 percent excise tax, plus a special 10 percent
sales tax. Denver, which is where three-quarters of the marijuana
stores are located, is imposing its own special sales tax of 3.5
percent. All of that is in addition to standard sales taxes, which
in Denver total 8 percent.

Black-market dealers do not collect any of those taxes, of
course. Nor are they burdened by Colorado’s regulations or
cultivation limits. The upshot is that prices for legal marijuana
are, counterintuitively, higher than prices for black-market
marijuana—a situation that critics of the hefty taxes imposed by
Colorado and Washington have been
predicting for months. One black-market dealer
tells The Pueblo Chieftan he sells high-quality
marijuana for $225 to $300 an ounce, compared to $400 or more
charged by state-licensed stores. “People will get real tired of
paying the taxes real fast,” he says. “When you can buy an ounce
from me for $225 to $300, the state adds as much as $90 just for
the tax.”

Prices in the legal market should go down this spring as
marijuana grown especially for recreational sales becomes
available. But the extra cost imposed by regulation and taxes will
remain a problem, especially since voters authorized the state
legislature and the Denver City Council to raise their special
sales taxes as high as 15 percent each. Politicians say the taxes
are necessary to pay for the strict regulatory enforcement that
will keep
the feds at bay. But if a robust black market persists after
legalization, that regulatory regime will be largely
irrelevant.