Uruguay Understands You Can’t Tax Legal Weed If You Want to Undercut Black Market

only governmentvia High TimesUruguay is the first nation in the world that's embarked on the project of legalized and regulated marijuana. In many respects, Uruguay's legal marijuana market is more tightly controlled than those emerging in Colorado and Washington. The government, for example, will be a primary distributor of the product, and all users will have to register with it.

But Uruguay's government has had a moment of clarity, at least, on the counterproductivity of taxes. Via Reuters:

Uruguay will exempt marijuana production and sales from taxes in a bid to ensure prices remain low enough to undercut competition from black market pot smuggled in from Paraguay, according to consultants advising the government on a legalization plan…

"The principal objective is not tax collection. Everything has to be geared toward undercutting the black market," said Felix Abadi, a contractor who is developing Uruguay's marijuana tax structure. "So we have to make sure the price is low."

Uruguay's government is run by a pretty leftist president, but it seems to grasp this market basic: a black market will persist so long as it can offer prices lower than those in regulated markets.  Colorado and Washington's governments doesn't appear to be there yet.

In both places, legal marijuana continues to be more expensive than the stuff you can get on the street, and it shouldn't be a surprise, while Washington is plowing ahead with a legal marijuana system that imposes command economics on the drug, limiting the supply available by statute rather than allowing it to be determined by demand. Small wonder then that drug dealers don't seem too worried about the "legal" competition.

For a more free market-minded approach to legal marijuana, look to… California.

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  • gaijin||

    Small wonder then that drug dealers don't seem too worried about the "legal" competition.

    Prohibitionists/LEOs will use this as proof that legalization is a mistake. Tax and spend pols will be conflicted about losing tax revenue. Epic derp should ensue.

  • sarcasmic||

    "The principal objective is not tax collection. Everything has to be geared toward undercutting the black market,"

    There's something you'll never ever ever hear an American politician say.

  • Austrian Anarchy||

    Those idiots in Colorado voted in the tax and regulation approach by referendum. Who says government schools don't work as designed?

  • Austrian Anarchy||

    Those idiots in Colorado voted in the tax and regulation approach by referendum. Who says government schools don't work as designed?

  • Austrian Anarchy||

    Those idiots in Colorado voted in the tax and regulation approach by referendum. Who says government schools don't work as designed?

  • Austrian Anarchy||

    Good Lord.

  • Outside the Box||

    "In both places, legal marijuana continues to be more expensive than the stuff you can get on the street".

    Well, now, there's a trick, considering it isn't actually for sale in Washington yet.

    "a black market will persist so long as it can offer prices lower than those in regulated markets. Colorado and Washington's governments doesn't appear to be there yet."

    Incorrect: the people in Washington tasked with implementing this are explicitly and overtly aware of the fact that retail prices have to come in lower than black-market prices, and a lot of the delays that have occurred so far have been from them wrangling with how to hit this (I have a friend on the team tasked with doing this).

    "Uruguay will exempt marijuana production and sales from taxes in a bid to ensure prices remain low enough to undercut competition from black market pot "

    It is not necessary to have zero taxes to undercut the blackmarket, since the latter still has to deal with the costs of enforcement. The taxes just have to be *less* than that cost.

    Pretty sloppy article for Reason, to tell the truth.

  • frankania||

    Pot is so easy to grow at home; why pay ANY money for it?

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