December 31, 2013

Tomorrow, in Colorado, you can walk into a marijuana store and buy marijuana, but what does it cost?

This article (linked at Drudge) doesn't say, other than to predict it's "likely to be expensive." Rachel Gilette, a National Organization for the Reform of Marijuana Laws lawyer, said:
"I did talk to a retailer yesterday who had just set his price points, and they were about double of what you have been able to get medical on the market for the last year... So it is going to be more expensive at least for the foreseeable future."
Theran Snyder, who runs a shop called Kine Mine in Idaho Springs, won't say exactly what he'll charge the new nonmedical customers (and whatever it is, there will be 31.9% tax on top of it). Currently, the medical customers pay $225 per ounce for medical marijuana, and, citing worries about short supply, Snyder plans to charge the nonmedical people much more:
"Obviously the way we're planning on controlling our inventory is with price, and unfortunately that means we're going to be charging a premium."
Also obvious is the incentive to users to continue to seek medical status and/or to remain in the black market. 

55 comments:

surfed said...

The very best California Kryptonite (so strong it slays Superman) bud is $250 an ounce in North Florida. And that price includes Fed Ex shipping. Or so I'm told.

surfed said...
This comment has been removed by the author.
SGT Ted said...

People will grow their own and/or form co-ops to avoid street prices for retail weed.

rehajm said...

The people that created this market were busy smoking weed with their English professor while those kids they wouldn't be caught dead associating with disappeared into the economics building every day. Demand elasticity, substitutions, competition, marginal utility won't apply to their creation, since they don't know they exist.

Meade said...

Maybe Congress should pass legislation, DOMA (Defense Of Marijuana laws Act), in order to keep hippies from flying to Colorado, hybridizing cannabis strains, and then blowing secondhand bong smoke in everyone's faces in places like, say, Muskogee where white lightnin's still the biggest thrill of all.

Revenant said...

With tax rates that high I would expect the black market to continue thriving. It does for cigarettes, after all.

MattL said...

Using price to balance supply and demand goes against the zeitgeist of the Obama era. The coming buzz inequality is immoral.

The Colorado legislature should draft a multi-thousand page bill to ensure that the currently buzzless will be able to afford the buzz to which all people are entitled.

The Pot Parity and Affordable Cannabis Act is something we could all be proud of.

Bob said...

As supply increases (more shops opening up), price will decrease. Basic economics.

Rusty said...

Bob said...
As supply increases (more shops opening up), price will decrease. Basic economics.

In this case the 31.5% is part of the fixed cost.That 31.5 can't be discounted for the retail seller.
Taxes drive players out of the market place and into black markets.
look for an increase in the sale of grow lights and hydroponic systems.

SGT Ted said...

The real unspoken issue is that the legal shops have to compete with wholesale prices that growers can get in non-legal States.

There is a significant portion of weed that is exported from CA to non-med/legal areas of the country, because they can get up to double the wholesale price.

There are weed brokers from other States that make connections with medical growers here to buy their excess pot for top dollar, which they sell back east.

So, this new damand might actually make weed prices rise for a spell, until supply can keep up.

SGT Ted said...

"That 31.5 can't be discounted for the retail seller."

Most of those shops will be out of business within a year I bet, unless they are selling tax free on the side. No one will pay that tax if they can get away with it.

More people will go medical to avoid the taxes and higher prices. Or form their own grow clubs and cut the Government leeches out altogether.

Phil 3:14 said...

Love the tax.

"You mean if we legalize it we can get how much revenue!"

Not quite what the libertarians had hoped for.

Matthew Sablan said...

It's one of the many reasons I'm not a libertarian. Just like communism, the idea [for libertarians, a low-government utopia, for communists, a communal-government by exceptional moral intelligentsia] are just unobtainable. So, while either would be great in theory, the implementation is always lacking.

In communists case, millions of people are relocated and starved. Libertarian has going for it that, usually, people are just disappointed, and the only people disappointed are the libertarians.

jacksonjay said...


Coming soon: House Sub-Committee Hearing

Wacky Weed Price Gouging in Colorado!

Maybe not, it would have to occur in the Senate.

jacksonjay said...


Coming soon: House Sub-Committee Hearing

Wacky Weed Price Gouging in Colorado!

Maybe not, it would have to occur in the Senate.

Original Mike said...

"I did talk to a retailer yesterday who had just set his price points, and they were about double of what you have been able to get medical on the market for the last year"

It's so unfair. Obama should get involved. I bet he could lower the cost of pot by, say, $2,500/yr.

Matthew Sablan said...

Maybe if everyone had to buy it, we could bend the cost curve down. But don't worry, if you like your pot, you can keep your pot.

David said...

This is working out so well.

(And I don't think it was the libertarians who put the vote on this over the tip. It was the trendfollowtarians.)

Bruce Hayden said...

Don't know why Matt Sablan is so down on libertarians. Libertarians (including me) voted for this, and the Dem legislature (until the next election) and Dem governor saw a gold mine just waiting for them to exploit (CO has pretty strict taxing limits) and, most never having had an economics class (which is why they are Dems), voted themselves a big tax on pot.

I am a bit torn here though. On the one hand, I am ready to go buy pot at one of the local stores, after it being illegal to buy (unless you fake a malady in order to get a prescription) for my entire lifetime in this state. But if I did, I would have to give it away, since I don't use pot, and don't know anyone who smokes pot who isn't harmed by it. (30-40 years of decently heavy pot use is debilitating).

Matthew Sablan said...

Because I'm a h8er.

Freder Frederson said...

Also obvious is the incentive to users to continue to seek medical status and/or to remain in the black market.

The first point is valid. The second point is only valid if retail marijuana is significantly more expensive (and less convenient) than black market.

There is no mention of the black market price of pot in Colorado, and since it has been more than thirty years since I was current on the price of marijuana, I have no idea if $500 an ounce is a good deal or not.

Harold said...

At those prices it will most likely be the pot tourists paying them. They won't have the option to get medical cards in Co. There is a lot of anticipation about pot tourism, in fact there's already a guy who has set up a pot tour bus business to haul people around to various shops and clubs. He's including a stop at a lawyers office so that people can be fully briefed on the rules that apply and the fines for violating them.

Original Mike said...

I'll be right over, Bruce!

Original Mike said...

Matt must think (like most everybody else), that society would be better if only he could structure it.

Matthew Sablan said...

Society may not be better, but I'd certainly like it better.

Original Mike said...

I wouldn't be so sure about that, Matt. Yo'du only get to structure the law. You can't control human behavior.

Ann Althouse said...

"The second point is only valid if retail marijuana is significantly more expensive (and less convenient) than black market. There is no mention of the black market price of pot in Colorado, and since it has been more than thirty years since I was current on the price of marijuana, I have no idea if $500 an ounce is a good deal or not."

Let me once again recommend the New Yorker article "Buzzkill," explaining many angles to the problem of "legalizing" marijuana:

"When legal marijuana goes on sale, sometime next spring, the black market will not simply vanish; over-the-counter pot will have to compete with illicit pot. To support the legal market, [Mark Kleiman, a professor of public policy at U.C.L.A. and a drug-policy analyst]  argued, the state must intensify law-enforcement pressure on people who refuse to play by the new rules. A street dealer will have to be arrested in the hope that 'you will migrate that dealer’s customers into the taxed-and-regulated market.'

"[T]ax revenue from the sale of legal cannabis will be devoted to substance-abuse prevention and research — not to police or prosecutors. Who, then, was going to pay for such a crackdown? Although Kleiman urged state officials to set aside funds for increased law enforcement, he can get impatient with such complaints. He likes to say, 'You don’t get any of the revenue for arresting robbers, either.'"

That article I linked to in the post talks about the supply problem, because to sell legally, they need to be legal plants. There's lots of supply in the black market from illegal plants, which the legal shops can't (legally) sell. If the shops short supply causes the price to be really high, then that's going to make the black market all the more enticing. And then the 30+% tax goes on top of that high price.

The black market won't go away. Why would it?

(Another reason for the black market is the prevalence of underage users.)

Ann Althouse said...

Also in that New Yorker article:

"Because of the state’s heavy surcharges, legal marijuana will likely be more expensive than the illicit equivalent; but, as production costs plunge, legal pot will become much cheaper. “We’re gonna have a tax that starts too high and winds up too low,” Kleiman said. He laid out a better approach: “The optimal tax system . . . if I were doing it on a blackboard, would have been somewhat homeostatic. You’re looking to maintain a price maybe a little bit below, or a little bit above, the current illicit price. And, therefore, you’d like to have the tax be low at the beginning . . . and rise as the cost in the industry falls.” The state didn’t reconsider its tax plan, however; the prospect of an immediate windfall was perhaps too tempting."

Matthew Sablan said...

Don't ruin the dream.

Original Mike said...

The black market for booze went away.

I think the difference here is that it's still illegal federally. That creates significant risk (i.e. costs) for a business. For example, I don't think a pot company can find anybody to lend it money. I'm not sure this is going to work.

tim maguire said...

Everything is expensive when new. Eventually, the price will come down to roughly cigarette level. Except cigarettes will be illegal.

Original Mike said...

I have a friend who grows commercial herbs. Greenhouses and all that. He said he wouldn't touch the pot business, because of the screwed up business model.

Rusty said...

The first point is valid. The second point is only valid if retail marijuana is significantly more expensive (and less convenient) than black market.

Retail will always be at least 31.5% more expensive than black market.h

Matthew Sablan said...

"Retail will always be at least 31.5% more expensive than black market."

-- We're assuming equal costs, save the tax, there. Which I doubt is true.

Matthew Sablan said...

I imagine, for example, the average drug dealer can't produce the same bulk that a retail store could, and that by their nature, they have to spend more time/effort to make contacts/sales until they're established.

I think it would be interesting, though, to compare the books for both, just to see how much the tax effects the price compared to the illegal merchants.

Gahrie said...

In California, the cheapest medical marijuana goes for $230 an ounce and the top shelf goes for $330 an ounce.

Trashhauler said...

Wait until Safeway begins to stock it on aisle 6. Can buying marijuana with an EBT food stamp card be far behind?

ironrailsironweights said...

I assume you'd have to pay cash, as the credit card issuers won't want to deal with this business.

Peter

jimbino said...

We two are planning to grow our own. 6 plants each.

We expect to make lots of new friends.

Bill, Republic of Texas said...

What is the percent of tax on gas, alcohol and cigarettes?

I think it will be OK but maybe the CO legislature should have learned the lesson of the frog in the pot.

Bill, Republic of Texas said...

What is the percent of tax on gas, alcohol and cigarettes?

I think it will be OK but maybe the CO legislature should have learned the lesson of the frog in the pot.

Unknown said...

The black market won't die, but it will shrink significantly. Buying retail, even with a high tax, has significant upsides, like convenience, predictable product, and the fact that you don't have to meet some seedy dude in an alley in the bad part of town.

You can grow your own tobacco and distill your own liquor, and yet almost no one does. Moonshining still exists, but it's pretty insignificant.

I fully expect that if legalization expands, tobacco companies will move into this space. They've got all the infrastructure to sell standardized, packaged marijuana joints.

mccullough said...

Taxes suck. Time to grow your own.

jr565 said...

Matthew Sablan wrote:
"It's one of the many reasons I'm not a libertarian. Just like communism, the idea [for libertarians, a low-government utopia, for communists, a communal-government by exceptional moral intelligentsia] are just unobtainable. So, while either would be great in theory, the implementation is always lacking.

In communists case, millions of people are relocated and starved. Libertarian has going for it that, usually, people are just disappointed, and the only people disappointed are the libertarians."


Well Said.

jr565 said...

Althouse wrote:
"the state must intensify law-enforcement pressure on people who refuse to play by the new rules. A street dealer will have to be arrested in the hope that 'you will migrate that dealer’s customers into the taxed-and-regulated market."


In other words, there would still be a war on drugs. Wasn't the whole point of legalization to stop that trend. And prices would be higher. And the govt would be even more into the regulation of the market. My guess, you won't get the tax revenue either.

So, way to go legalizers. you don't end the drug war,increase govt involvement and raise the price on pot. Is that an example of a pyrhic victory?

robinintn said...

Is everyone just going to ignore Meade's awesome Merle Haggard reference?

Original Mike said...

"for libertarians, a low-government utopia"

The "utopia" reference is lame, but as to low-government vs. high-government, you're really going to argue for more government?

ALP said...

Relaying the point of view of our long time dealer in WA state...

The customer base for legal, heavily taxed pot and pot edibles is primarily professional women. One only has to look at the bright, cutesy packaging of some of the edibles to see his point. Being female myself, members of my gender freely confide in me that paying through the nose in taxes is worth it to be "legitimate" and to funnel tax money through the government's coffers "for the children" and all that. Many otherwise straight laced women who have wanted to try getting high can now do so with the blessings of the government, high price be dammed.

I mean, now you can post images of your favorite edibles on Pinterest!

ALP said...

Unknown said:

You can grow your own tobacco and distill your own liquor, and yet almost no one does.
*************
Re: tobacco

Curious about this, I did a little Googling. From what I can tell, there are almost as many tobacco growing sites out there as general gardening sites. Looks to me that if one has the climate and the space...growing one's own tobacco is doable.

Original Mike said...

Convenient and legal is a big fucking deal (as Joe would say).

SGT Ted said...

Shopping at the pot store is really, really fun. Especially after it being strictly illegal for much of my lifetime.

But, it is expensive.

Weekenders will be able to afford it at $35-40.00 for 1/8 oz. It wouldn't be much different than buying a pricey wine, say $40.00 a bottle. It would last longer too, if used wisely.

Original Mike said...

Can out-of-staters purchase in Colorado?

Trashhauler said...

"standardized, packaged marijuana joints"

And then one can entertain people in a civilized fashion, giving each his or her own Marlboro-shaped joint. Much better than swapping spit with all and sundry, whilst passing around a badly-rolled blunt.

Rusty said...


I think it would be interesting, though, to compare the books for both, just to see how much the tax effects the price compared to the illegal merchants.

No matter what the production costs are for each-and at some point those costs will be approximately equal for both-the retailer will always have to add his 31.5%
The economic advantage will always favor the free market, unless the retail market is subsidized.

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