Review: Can Legal Weed Win? Yes, but Only Through Deregulation

Extreme taxes and regulations are hampering legal marijuana markets.

When California legalized recreational marijuana in 2016, the state had more than 3,000 weed shops. They ostensibly served the medical market, but the rules were so loose that pretty much anyone who wanted pot could buy it legally. Six years later, California had less than half as many licensed marijuana merchants, accounting for between a quarter and a third of total sales.

Something clearly has gone wrong "when you try to legalize weed and accidentally end up illegalizing it instead," note University of California, Davis, economists Robin Goldstein and Daniel Sumner. In their book Can Legal Weed Win?, they explain how burdensome licensing requirements, regulations, and taxes have frustrated plans to displace the black market.

"In many states that have fully 'legalized' weed," Goldstein and Sumner write, "there is now a relatively small legal weed market and a much larger illegal one." That's not surprising, since legal marijuana often costs substantially more than illegal marijuana. Even apart from the direct costs of going legit, the authors note, the vicissitudes of that process impose a "risk premium" that can be bigger than the one reflected in black market prices.

While legal pot prices can be expected to fall over the long term thanks to increased efficiency, Goldstein and Sumner say, tax and regulatory reform would hasten that trend. They suggest that policy makers could learn a thing or two from Oklahoma, where legal medical marijuana is strikingly cheap and accessible, thanks largely to fast application approvals, light regulation, and modest taxes. "When the bluest of blue-state liberal activists are looking to red states for guidance on regulatory policy," they observe, "you know something's gone haywire."