Why Legalized Marijuana Will Not Kill Black Market

Amendment 64 & The Black MarketMarijuana Leaf

I’m here in Colorado, and obviously legalized marijuana has been a hot topic in our state. We’ve got the first legalized retail and people have vacationed all the way to Telluride to be among the first people to legally purchase marijuana. During the legalization campaign and debate, the reduction of criminal-related marijuana retail was a major selling point.

Legalized marijuana does have the potential to destroy the black market, but not how it’s been implemented. Why? Obsessive tax rates.

 

Weed Dealers Don’t Have Overhead

Your local dispensary has a grip of overhead. Aside from the licensing fees, there’s storefront, wages and taxes. The tax rate isn’t light either. Legal marijuana is to be taxed 25%. These are expenses your neighborhood drug dealer doesn’t have to deal with. Their profit is untaxed and they don’t have to pay out employee wages, or half the tax on those wages. (Yes, employers pay half of your income tax. Something you probably never realized.) Depending on what benefits the company offers, there could be additional overhead on-top of that.

Therefore, it could be stated that black market dealers could sell their product for 25% less and still easily be profiting more than dispensaries. (No storefront / licensing / wages). And guess what? Legally purchased marijuana is expensive! Much more expensive than you can find on the street.

 

How To Legitimately Fight Black Market

Now that we’ve discussed the reasons why legalization won’t kill the illegal weed black market, let’s discuss what must happen in order to fight illicit weed sales;

A) Reduce Tax Rates – This is the no-brainer. by reducing the tax rate on legalized retail, it’s possible for the dispensaries to become more competitive with the street. As long as the streets will sell weed at a lower price, there will always be a black market.

B) Easier Application Process – The easier it is to start selling weed, the more legal retail locations will pop-up. I don’t think the state of Colorado wants 50 dispensaries per town, but this would actually hinder the black market. Greater competition leads to more competitive pricing. The dispensaries competing with each other would indirectly compete with the streets. As mentioned above, there will always be a black market as long as better pricing can be realized illegally.

C) Encouraging Legal Grows – If everyone was growing their own pot, nobody would need to purchase it anymore. Without the demand, the black market will naturally take a hit (pun intended).

D) Prosecute Illegal Grows – In addition to encouraging legal growing, the illegal grows would need to be prosecuted. Six plants isn’t enough to supply an entire town. The real hardcore growers are still doing it illegally. Taking out the supply would definitely hinder the black market.

E) Legalization In Surrounding States – Colorado has obtained the title of “Humboldt Of The Wild West“. Other states are starting to cross state lines to buy in Colorado. Since dispensaries limit the purchase amount (and charge ripoff prices) all the marijuana going to New Mexico, Arizona and Utah is purchased on the black market. If more weed was growing in those states, there would be greater supply for them domestically, and Colorado wouldn’t be illegally exporting as much.

D) Enterprise-Level Legal Distribution – If Marlboro or Camel was to release their joint version and get the growing and production streamlined as possible, it might be possible to put it on the market at a cheap enough price to compete with the streets. This might not be possible with the 25% tax rates, but any increased efficiency in growing and producing will result in a cheaper product. This will make legal retail more competitive which will directly hurt the black market.

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