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


Jacob Sullum

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.