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How Much Will Legal Marijuana Really Cost In Seattle?

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seattle washington marijuana cannabis costNow that marijuana has become legal in Washington and Colorado, reformers are drawing battle lines over its taxation.  Anti-tax libertarians and medical marijuana industry opponents of Washington’s I-502 are now raising fears about $17 to $25 gram after-tax prices and the destruction of the medical marijuana industry.  Sadly, they are using the same sort of scaremongering tactics opponents of marijuana legalization use to maintain prohibition in other states.

Jacob Sullum, a writer for the libertarian Reason.com published an article this week in Forbes entitled “High Marijuana Taxes Could Derail Legalization Plans“.  In it he describes an analysis by BOTEC, the consulting firm handling Washington’s legalization rollout, which explains, “based on a production cost of $2 per gram… the after-tax retail price will be $17 per gram, or $482 per ounce. Another projection, based on a production cost of $3 per gram, puts the retail price at $25.50 per gram, or $723 per ounce.”

In addition to the $2/gram production cost and 25% excise tax at the producer, processor, and retailer level, BOTEC assumed a 100% double-your-money markup at each level, too.  Sullum’s mistake, and those who’ve latched on to the $17/gram figure to frighten consumers, is failing to read the report’s explanation of that 100% markup figure.

“A review of retail markups across 53 sectors find an enormous range of average markups, from 14% for gas stations with convenience stores to 139% for optical goods (e.g., glasses),” writes BOTEC.  “[I]f we replace the arbitrary assumptions of 100% markups with the processor markups typical of a dairy (34%) and retail markup typical of beer, wine and liquor stores (31%), then the numbers would look very different. The projected retail price would then be less than half as high ($7.46 vs. $16.99)…”

And what’s this $2/gram production cost, anyway?  Really, it costs over $900 to produce a pound of marijuana?  We consulted this RAND analysis from 2010 that analyzed figures from illegal grows.  They found “a well-run 5′ x 5′ hydroponic grow producing 4 harvests per year might yield 10.5 pounds per year with tangible costs of $225 per pound.”  Jorge Cervantes’ Dutch case study revealed a long-term cost of $238 per pound.

So it appears the cost of growing marijuana – even under the restrictions of prohibition, unable to grow at large, industrial scale and required to take precautions to hide the activity – turns out to be somewhere around 52¢ per gram.  Plug that 52¢ into BOTEC’s inflated 100% markup scheme and you get weed at $4.42 / gram.  Bring your markups into the 33% real-world range and you get weed down to $1.95 / gram.  (Do it yourself – online spreadsheet available at http://rad-r.us/botec.)

Now, we don’t think (in the short term) we’re going to see retail $2 grams.  Legal growers will face regulatory, security, licensing, and employee costs a typical 5′ x 5′ grow doesn’t incur.  But even if weed costs $1.32 per gram to grow (Colorado State University’s estimate for Amendment 64), at 100% markups the post-tax cost is still just $11.21/gram.  Since the market will bear people paying $7-$15 a gram, that’s where it will be priced.  No tokers in the Pacific Northwest are going to spend over $300 on an ounce of cannabis.  Growers, processors, and retailers who want their business will be forced to reduce production costs and markups.

But the $17/gram exaggeration won’t die because it fans the flames of hatred some in the medical marijuana industry had for I-502 all along.  Sullum explains that the untaxed, unregulated medical marijuana dispensaries in Seattle charge $250 per ounce.  Already the Seattle City Council has called for merging the recreational and medical markets.  This is the “I told you so” moment for the No on I-502 crowd who claimed all along that legalization would harm medical marijuana patients, blaming the regulation of recreational marijuana rather than the lack of regulation for medical marijuana.

The real fear for medical marijuana dispensaries in Seattle is that taxed recreational marijuana may come in at a reasonable price.  Then many patients decide the annual medical permission slip they buy so they can shop for untaxed medical marijuana isn’t worth it.  Then there are fewer registered patients, meaning fewer people to fill in those untaxed 10-patient 45-plant collective grows that feed the unregulated medical dispensaries.

Sullum’s title warns high taxes would “derail legalization plans”.  In another article, he worries that Colorado’s marijuana taxation would “preserve the black market”.  Yet nothing about taxing of marijuana is going to repeal Initiative 502 or Amendment 64.  If the taxes are too high, those states may not realize the tax revenue they hoped for and the black market might continue unabated.  So then states will be forced to lower those high taxes to capture more market share, just as the cannabis market will have to adjust if their markups are too high.  These tax rates aren’t commandments; they can be changed.  If they are as odious as predicted, the support for lowering the taxes will be substantial.  The black market isn’t the boogeyman; it’s the leverage that forces legal marijuana prices lower.

It’s strange that the people who usually preach about the corrective power of free markets are making an exception for legalized marijuana.

Source: National Cannabis Coalitionmake a donation

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About Author

Executive Director: Russ Belville has been active in Oregon marijuana reform since 2005, when he was elected second-in-command of the state affiliate, Oregon NORML. After four years with Oregon NORML, Russ was hired by National NORML in 2009, working as Outreach Coordinator and hosting the NORML Daily Audio Stash podcast until 2012. Since then, Russ launched the 420RADIO marijuana legalization network and is the host of The Russ Belville Show, a live daily marijuana news talk radio program. Russ is also a prolific writer, with over 300 articles posted online and in print in HIGH TIMES, Huffington Post, Alternet, The Weed Blog, Marijuana Politics, and more.

77 Comments

  1. The problem with your (and every one elses) whole analysis on the cost, is that the more you make, the more your “Cost per gram” goes down. You can easily make (and sell) 120 pounds a month. And the difference between 10 pounds per month and 120 pounds per month are negligent at best towards your over all costs. In CO 1/8 ounce bags are selling like hotcakes for $50. The shops there are selling over 12 pounds a day (each!) right now since they opened. That buzz will die down a little but let’s say they manage to sell 4 pounds a day. That’s 1800 grams a day. Are you telling me operating cost seems low at $3600 a day (1800 x $2 per gram) ? You think it costs $108,000 a month to run a pot shop? You’ve been smoking a bit too much if so. And even if it did cost $1,296,000 a year to run a pot shop (which it doesn’t) they’re selling $10,000,000 in weed a year IF their sales drop by 66%. If the sales stay strong, they’re making 30 million a year in sales. About 35% of that is going towards taxes and then you substract their tiny “cost per gram”. 10,000,000 – 3,500,000 = 6,500,000 – 1,300,000 = 5,200,000 profit.

    Yes, it’s a profit of $400,000 + a month to run a pot shop, if you can grow 120 pounds a month. If you can grow and sale more, and if you can get your costs under $1,300,000 a year (which I think you could get the costs down to 1/10th of that) then it’s that much more profit.

    Basically $300,000/MONTHLY profit if you don’t know what you’re doing and you waste money on useless consults…., $400,000 if you’re average and about $600,000 – $1,000,000+ /month if you’re business savvy and keep raking in customers…..

    Cost per gram??? Who cares..? It varies by volume and the bottom line is this business is extremely profitable….
    but if the question must be answered I’ll show you the calculations.
    Cost per gram for a shop that has a knowledgeable owner and about 5 employees (you really wouldn’t need more than 3, but i’ll use 5 just to be fair) and sells are a consistent 120 pounds a month;

    Employees = $15,000 a month. (payroll, payroll taxes, insurance)
    Shop = $5,500 a month. (rent, bills, insurance)
    Harvest = $3,000 a month. (pesticides, water, nutrients, upkeep)
    Lawyer fees = $3,000 a month.
    Unknown costs = $5,000 a month.

    Total costs = $31,500.
    Total grams = 54,000
    Equates to 58 cents a gram. And I even high balled every thing.

    Opening costs would be about $30,000 and you could write off $10,000 from that in taxes your first year. There’s other things you could write off but we’re not including any of this.

  2. Marquita Cravens on

    Jordan, you’re absolutely right. The biggest reason people didn’t want Ron Paul and Obama was afraid of him was that they thought he was too extreme. We’ve gone that far away from the constitution that it actually seems extreme and radical to follow it. One of my favorite quotes from Dr. Paul is: “The most basic principle to being a free American is the notion that we as individuals are responsible for our own lives and decisions. We do not have the right to rob our neighbors, neither does our neighbor have any right to tell us how to live, so long as we aren’t infringing on their rights. Freedom to make bad decisions is inherent in the freedom to make good ones. If we are only free to make good decisions, we are not really free.” The last two sentences are my favorites. That goes for everything. From motorcycle helmets, car seats, yes cocaine, heroin, and anything else. And that scares the hell out of us. Nothing’s perfect but I think it might be best to err on the side of freedom. Because we breathe we are entitled to everything this world has to offer. The same amount that everyone has a right to. We don’t have to check in with the boss when we’re born and get a list of the rules. Ron Paul understood that. And, and this is the amazing part, at the cost of the election, he would not lie. I wanted to tell him to shut up but he didn’t. His only source was the constitution. Again…he would not lie.

  3. The market will correct itself after initial growing pains that will last for about 3 months. At that point the competing entities will have become defined and prices will smooth over to sustain itself, as all of the players have made an investment that they must recover. All must see what the potential will be for things to settle down. Issues like taxes pushing people to the illegal trade will have to play out and the sociological landscape after about a 3-6 month period will also have to be reviewed and assessed to project the future with any reasonable accuracy. If people don’t get stupid and allow it to spread like an STD then things may turn out just fine.

  4. High prices will only push willingly legitimate buyers to ‘illegal’ growers. Sometimes it’s not about charging the highest taxes (surprise!) it’s about providing what the market is willing to pay, I hope you’re right!

  5. I think you’ll find that the production price, when grown on 160 acre plots in central Washington under irrigation circles, is considerably less than 50 cents per gram.

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  9. It’s quite likely. After all, if they take your money and never deliver, what options would you have?

  10. Fuck you Russ. Your an idiot. It won’t keep people out of jail and it is going to create criminals out of patients. Your a moron and must work for the same dbags that Holcomb takes orders from. Yea keep believing that drug dogs just stopped smelling for cannabis. Once home growing is eliminated thanks to 502 the drug dogs will be back to arresting patients who refuse to be forced to pay way overpriced prices for there meds. Your a fucking idiot.

  11. are most of the “sellers” on here scams. I really need to know. It is hard for those of us that live in states that need medical weed and cannot get any. These guys sound so sincere….are they all scams

  12. I would not depend on the pot-loving public’s response to legalization to “show” people how well things will work. We can’t predict the future. Most people should agree that cannabis is less harmful (or equal to, if you like) than alcohol, so we should always begin any argument right there. Whatever happens after legalization should be compared to what things looked like after alcohol prohibition. Whatever the cannabis consumer market looks like should be compared to what the current alcohol consumer market looks like. To me, this seems like it would always be a winning argument, because when you make the comparison between cannabis and alcohol, well, cannabis will always win.

    Do MMJ patients have to come out of the “closet” to prove that we aren’t going to cause societal havoc? I don’t think that’s necessary. But until we decide that everybody deserves to medicate with cannabis (just like aspirin, cough syrup, and Benadryl), than the opposition will say that MMJ is just a “gateway” to legalization. (You know, like dieting is a gateway to anorexia. Not.)

    I do not want to wait around while politicians evolve into a rational position on cannabis just because, OMG!, they FINALLY know someone who medicates with cannabis. (Oh, my nephew/son/granddaughter is gay! I never new! Now all gay people should get married! Please.)

  13. I look at all the current legislation being approved as finally getting the door to legalization open. First show people that the sky won’t fall and civilization won’t implode if the government lets responsible adults use cannabis without fear of arrest or prison then once that is done the new laws can be shaped and amended to fit their new reality.

  14. You both (passionately) make some good points. Since ya’ll are talking about things that might happen in the future, I guess we won’t know who’s right until everything shakes out.
    Just because a law has been passed doesn’t mean it will be implemented like you want, or implemented at all, for that matter. Ya’ll might not like the fact that both places won’t allow home grows, but from the outside, I see a potentially great experiment. (Not so much fun for the participants IN the experiment, that’s a fact.) I’m disappointed that Washington state and Colorado are not really going for “full” legalization, as I had hoped the polls would show politicians that this was a good idea. (shrug)

    Without the people who work within the political structure, things would not get done. Without people pushing at that political structure, things would not get done. You both have a roll to play and it sure would be nice if ya’ll could play nicely.

    However, Matt makes a good point about organizations as big as NORML. I have been appalled at what has happened to the Pink Ribbon breast cancer organization (corrupted political involvement and marketing blitzes that have destroyed that so-called “brand”). (Just try and count the number of places you see pink ribbons, imagine the dealers and brokers behind the scenes making these marketing deals with corrupt corporations, and how long this “institution” has been trying to “cure” breast cancer. End rant.)

    Matt, if you think NORML has some questionable political connections, I wish you would say so. I understand the reach of NORML and that they are very important to our cause — so maybe you would feel better not saying anything more. Regardless, thanks for the post.

  15. “Yes, even though Measure 80 was written by Hererites, had no money or
    serious backing, and offered unpalatable language like allowing
    possession and cultivation of unlimited plants and mandating all seeds
    and starts be completely unregulated, NORML and others “hyped” it
    because it made the ballot, even as behind the scenes they knew it would
    be unlikely to pass. And what do you know, the measures with serious
    language and serious money won with 55% and the one without lost with
    46.5%.”

    This point is, again, self-defeating. With almost NO hyping, funding, and with “doom-and-gloom” predictions that Measure 80 was going to fail horribly, it still got 46.5% of the vote, back in 2012… about the SAME as hyped and well-funded Proposition 19! As the years drag on, support for marijuana legalization is increasing, and dramatically, judging by statistics. If Measure 80 were introduced in the same circumstances in 2016 or later, at this rate, you could safely say it would have a safe chance of passing. Imagine with just a little bit of support behind it!

    So again, tell me, why do we need restrictive legalization similar to I-502, and not something like CCHI 2014, Measure 80, and Regulate Marijuana Like Wine?

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