According to an article in yesterday’s San Francisco Chronicle Colorado is raking in the tax dollars on legal marijuana sales. A photo heading the story shows an employee at a pot store standing in front of a whiteboard with their legal pot prices:
- Gram: $14.50
- 1/8 ounce: $50
- State sales tax: 21.12%
That means pot is retailing for about $400 per ounce ($50/eighth) or, as the article states, “much more than the $202 an ounce forecasters guessed last year.”
$400 per ounce is the retail equivalent of $6400 per pound. I’m listing “retail equivalents” as I go here for easy comparison, since growers sell by the pound, and to make two points: that the black market screws most pot farmers; and that legalization will be a good thing for them.
According to priceofweed.com, high-quality ounces in CO are going for $237 on average (about $3800/lb retail equivalent). While that site doesn’t specify or differentiate between black market or legal sources, if the sign in the photo is representative, then the site’s listed price is probably “street” price. On the East Coast, the site lists prices (mostly black market, but some could be legal medical stores) consistently in the $350/ounce range. ($5600 retail equivalent).
A quick web search at Harborside Health Center, CA’s largest dispensary, sells ounces from just under $200 to well over $300 ($3200 to $4800/lb+ retail equivalent).
I’m told by grower friends that Harborside and most other dispensaries pay $1000 to $1500 (at very most) for wholesale pounds and that black market buyers are now paying Humboldt growers in the $1,000/lb to $1200/lb range, with some getting up to $1400/lb. (Someone contribute better numbers in the comments section if you have them.)
While I don’t know what legal growers are getting for wholesale pounds in Colorado, I doubt they’d accept Humboldt wholesale prices while watching stores do a six-fold mark-up in front of their eyes!
But that’s what happens all the time to Humboldt growers in the black market. People know the out-of-state buyers are making extreme profits, because black market transportation and distribution is where the risk is, especially in an over-produced market. Buyers with lucrative East Coast connections know they can come here and, with a little searching, find growers desperate to sell their ever-increasing harvests at lower and lower prices. Local “middlers” can connect their grower friends with these buyers, making a nice “point“—i.e. $100/lb—for their services.
To the low wholesale black market price, add the risk to the grower that their pounds or money will disappear en route or that they themselves will get busted in a bad deal.
Even at a fraction of the present legal market price in Colorado, legalization can still be a very good deal for growers. As the summer’s outdoor crop and early greenhouse or light-dep crops come in and supply increases in the Colorado market, prices can be expected to drop significantly. For the sake of discussion, say the legal retail price plummets to half of what it is now—$200/oz. ($3200 retail equivalent), below even the black market price. Growers should then expect to get something near $1600/lb or maybe $1200/lb (the current black market wholesale rate in Humboldt) at the lowest. I think most growers would find it hard to justify a legal store making too much more than that on their markup. I also think most Humboldt growers would be more than happy to sell their pounds for $1600 right now.
When the system is transparent, regulated and risk-free, it’s inherently going to be more fair to everyone from growers to smokers. If you’re a regulated grower, labor laws will protect your workers. Smokers who care will know their pot came from organic or environmentally friendly farms and not pesticide-soaked trespass grows. Growers who sell wholesale will know how much their pot is selling for and can demand a fair cut of the profits. Retailers or distributors who don’t pay can be taken to court or have their licenses revoked by the state.
The cost of this is regulation, paperwork, security camera systems, tracking and taxes. For some, especially those for whom weed growing is wedded to the outlaw lifestyle or who have a direct, high-profit New York connection, this will be a poor tradeoff. For most family-farm growers in the Humboldt hills, looking to the long term and a sustainable living, this is better than constantly asking their friends if they “know anyone buying pounds?” and sweating every time they see a helicopter.
I realize that California is not Colorado and it’s especially not Washington. California has a much better growing climate than either state and a greater knowledge and experience pool than both combined, so our state will always be a massive pot producer. In a legalized economy, that could mean lower prices for producers while still keeping prices high at the retail end—much like the dispensary system at present.
I think such an unfair price disparity is unlikely for a variety of reasons, but the main one is that California’s medical-use laws—Proposition 215 and SB 420—have created a vast gray area where risk—and its necessary profit margin—is still a factor. For example, a grower can get an official doctor’s recommendation and legally buy 200 clones or seeds at a dispensary. Once out the dispensary door, the grower enters a free-fire zone. Whether possessing and growing the plants is legal all depends on whether the cops find them and whether or not they decide to bust the grower. It makes sense to think that harvesting, drying and selling the finished pot back to the dispensary would be legal but, again, that depends on whether the cops think it is. If the CHP finds twenty pounds in your car, telling the officer that you’re a medical patient selling it to a dispensary in L.A., even if you have a stack of paperwork, won’t get you a pass.
In a legal economy, that would not be a problem.
Another factor that drives dispensary prices up is the risk of federal intervention—that risk/profit equation at work again. Many dispensaries and growing operations have been shut down by federal raids or threats. Most dispensaries quickly fold. California’s loose rules provide the feds with the PR and legal cover to crack down somewhat randomly, even at times on some of the most squeaky-clean operations. A future California legal economy that closes these loopholes will also shut out federal intervention, thereby reducing the risk/profit factor’s effect on prices, both wholesale and retail.
Washington State’s soon-to-open pot production and sales system is specifically designed to appease and stave off federal intervention. As a tightly regulated, closed-loop system, it will be very hard for licensed legal growers, processors and retailers to divert pot to the black market, in-state or out-of-state.
In the longer term, eventual federal legalization will allow California growers to supply the whole country’s pot cravings. Only this time it will be legal and you won’t have to worry about your driver getting busted in Kansas or your money courier getting picked off by cops in Reno or your “guy from L.A.” with a disposable crack-phone number disappearing with your entire harvest.
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I think growers’ fears about legalization—that Big Tobacco will take it over, that growers will be regulated out of existence or that the price will be too cheap to survive on—are unfounded. None of these things has happened in the medical-pot states, nor in the two legal states and this does not seem to be the direction the pot economy is headed.
Washington’s State Liquor Control Board (the entity charged with regulating the legal marijuana industry), for example, recently, reduced the number of growing permits each entity could possess from three (which would have allowed for about two acres in cultivation) to one and also reduced the square footage per permit (to about one half acre in cultivation). They did this because so many people applied for growing permits that the amount of production that the state estimates could be sold through pot shops was vastly exceeded. The state could have granted fewer large licenses for the same net acreage, but instead granted everyone a license to grow less, a move that inherently favors smaller farmers and a diverse, democratic pot economy. By reducing the initial production levels, this will also help push prices up for these small growers.
The real risk to the Humboldt grower community, as I see it, is not legalization, but a widespread unwillingness to accept, adapt to or lead the inevitable changes in the marijuana industry. It’s been a good ride, folks, but it’s time to look to the future.