The Premium On Legal Weed, Ctd

Oct 22 2013 @ 10:52am

Obama Admin. Unveils New Policy Easing Medical Marijuana Prosecutions

A reader writes:

Just a reality check: Most coffee shops in Amsterdam charge between 10 and 15 euros per gram ($13 – $20) – and on rare occasions, more than that – for their highest quality weed, which, after conversion in dollars, is equal to or higher than the per gram street price for comparable weed in NYC or Washington D.C. Perhaps medicinal marijuana users will feel pain from excessive taxation (assuming medical usage is not exempted from that), but for the recreational user, $15 – $20 per gram is a small price to pay for being able to obtain and consume high quality pot legally, without risk of incarceration.

I have bought any number of bottles of wine for $300 or more. And some wines costs thousands of dollars per bottle because of scarcity. I guaranty that each expensive bottle of wine that I have purchased was consumed within 8 hours, and pissed into the toilet shortly after that. Whereas that ounce of high quality weed that I bought for $450 a month ago, and have used at every opportunity outside of work since, is still going strong.

Another reader:

I’ve followed the Dish since ’08 and I’m happy today to join your illustrious list of subscribers.Thank you for all you do; you dish_crop have given me a deeper appreciation of poetry and divinity, not to mention politics. Regarding your short thread on “The Premium On Legal Weed”, enclosed is a pic of me in my medical cannabis grow catching up on the news after getting back from a seminar held for potential applicants to the new state-run marijuana market by the Washington State Liquor Control Board.

I’m not sure how many “industry voices” you get to hear, but as someone who has extensive knowledge growing the highest quality medicinal cannabis, and as someone who is considering his options and the merits of my state’s foray into unknown waters, I thought you might be interested in a “boots on the ground” report to go with the “ivory tower academics thinking they’re businessmen” side of the story I’ve seen so much of lately.

Your readers should know that the report Jacob Sullum references in Forbes about over-taxing leading to really expensive marijuana was made by Mark Kleiman’s company BOTEC. Washington State hired BOTEC as its lead consultant to draft the new rules. And so along comes Kleiman in his Oct. 19 post writing that legal cannabis will be much, much cheaper than illegal cannabis. He says, “Anyone who’s worried about the price of cannabis is spending far too much time stoned”. Are his BOTEC analysts a bunch of stoners then? Because he seems to contradict the findings of his own report to the state of Washington. To a small business owner weighing cost and benefit, blogger Kleiman seems to be talking from the opposite side of his mouth that he uses when he’s playing consultant Kleiman.

A lot of economists and policy wonks throw around a lot of predictions, but the fact is, nobody knows what will happen with the price of legal marijuana. Let me share my outlook from what I’ve learned in the six years since I started growing and selling for a living.

Consumers of course want cheap weed. Kleiman notes Colorado dispensaries selling $5 grams (untaxed). But guess what Mark? That’s nothing; today it’s even cheaper than that! In Seattle you can get it for $2 or $3 a gram; the product is called Mexican schwagg. This is the stuff smuggled over the border in semi-truck tires, usually mostly seeds and stems, state of the art circa 1974. Point being, consumers already have this choice in the black market but few buy it because its very poor quality.

The current black market may be illegal, but it is definitely an efficient one. It’s a market that has been in place in Seattle for a very long time, and if there’s one thing Seattleites have learned to love with their improved coffee, improved microbrews and culinary culture, it’s improved buds. Consumers expect better but want it cheaper, ’twas ever thus. It’s more realistic to say cheap weed compared to what? Cannabis comes in many grades. To not mention that we already have super cheap crappy weed seems to me disingenuous, or maybe he doesn’t know.

The conventional wisdom is that once marijuana’s fully legal, the prices will crash. This may happen. But based on what I’ve researched and lived, I’m siding with Mr. Sullum’s concern, for the following reasons. First, I seriously doubt how much cushion the black market provides to price support. Can you name a commodity used by hundreds of millions, maybe billions of people daily that has maintained the same price since 1988? How about illicit drugs? An eighth ounce bag of decent smoke has cost $40 on the street for 25 years. I think gasoline was about a dollar a gallon in ’88. Here in Seattle, home of Hempfest, it’s practically legal already, leading to wholesale prices that have already fallen 25-50% since medical dispensaries really took off about four years ago. The War On Drugs has been a failure, most would agree, illicit drugs of all stripes have had their real prices go down. You could say this war is also a failure at keeping prices high. It’s not a stretch to think maybe illegality isn’t the big reverse price subsidy to the pot industry some people think it is.

People make a good point that economies of scale will bring down costs of production and distribution, and I definitely believe this to be true, to a small extent. But I also think it’s true consumers I serve have been rightfully spoiled by the high level of product development lately; they expect the best. When Kleiman equates weed to tea in a teabag or Marlboros in a pack, the practical product equivalent is freeze dried coffee or rot gut in a pop top can. That’s because marijuana, unlike most plant crops, as you probably know, has trichomes, which break with handling; they’re fragile; they taste bad when grown poorly and keeping them in the good condition discerning buyers expect takes some work and skill. Nice flowers command the price they do because of the labor involved. Demand is high because most growers aren’t very good at it.

I also think it’s probably safe to say that big factory grows (which already exist and supply the medical market) will probably have the same problems they already have in their quest to equal the quality of smaller ma-and-pa farms. Budweiser doesn’t make an India Pale Ale. Legal production may offer efficiencies to lower the price a little on some grades of product, but probably not the better ones, because here in western Washington it is practically legal already and broadly tolerated, even encouraged. The big price shake-out has probably already occurred courtesy of the medical marijuana market.

Considering these views of price history, current consumer product expectations, a practically already legal environment, the comparative difficulty in producing and the high market demand for quality buds, we now have a very diverse existing market about to be taxed and heavily regulated for the first time. BOTEC’s reports say about 40% of the consumer’s new price will be excise taxes. For growers, there are also new compliance costs, new testing costs, new security costs, difficulty obtaining banking services, difficulty writing off expenses on federal taxes, difficulty finding suitable real estate (some landlords here are bumping rents 20-40% if you’re cannabis related) etc., etc. Market efficiencies will most likely not offset these new administration and tax expenses.

Kleiman blogs that this time next year the legal market’s prices will be much, much lower than prices in medical dispensaries today. That’s a pipe dream. Real prices might decline in five years time, as they gradually have since the late ’80s, but if the Feds come in and add an excise tax on top of the states’, all bets are off.

Regarding this reader’s complaint that “blogger Kleiman seems to be talking from the opposite side of his mouth that he uses when he’s playing consultant Kleiman,” Jacob Sullum explains why Kleiman has changed his tune:

When I interviewed UCLA drug policy expert Mark Kleiman about marijuana legalization in Washington a couple of months ago, he worried that the state-licensed stores will have trouble competing with black-market dealers and medical marijuana dispensaries. He called the projected price advantage for those alternative sources “a big problem,” adding, “The legal market is going to have a hard time competing with the illegal market, but a particularly hard time competing with the untaxed, unregulated sort-of-legal market.” Kleiman, whose consulting firm, BOTEC, was hired to advise Washington’s marijuana regulators, now says he is more optimistic, partly because of the Justice Department’s August 29 memo suggesting that federal prosecutors will refrain from interfering with legalization as long as regulations are strict enough, which Deputy Attorney General James Cole issued a few days after I talked to Kleiman. “I think the DoJ announcement makes a big difference,” Kleiman says in an email message. “Of course things could change. But if they don’t, we’re going to see prices drop like stone.”

Kleiman adds that BOTEC’s June 28 projections suggesting that marijuana in state-licensed stores will cost two to three times what it costs in the black market were based on the assumption that legal pot would be grown indoors, which imposes additional regulatory and logistical burdens. But the Washington State Liquor Control Board later decided, perhaps partly in response to BOTEC’s projections, to allow outdoor growing as well. “Marijuana as a dirt-farmed licit product will be dirt-cheap,” Kleiman says.

(Photo: Dave Warden, a bud tender at Private Organic Therapy (P.O.T.), a non-profit co-operative medical marijuana dispensary, displays various types of marijuana available to patients on October 19, 2009 in Los Angeles, California. By David McNew/Getty Images)