Washington has been much better than California at displacing the weed black market

Washington has been much better than California at displacing the weed black market

A new report says Washington, which legalized recreational marijuana in 2012, has been far more successful in displacing the black market than California, where voters approved legalization in 2016. In a 2021 survey by the ‘International Cannabis Policy Study (ICPS), 77% of Washington cannabis users said they had purchased “any type of marijuana” from a “store, co-op or dispensary” in the past year, while that 17% said they got marijuana from a “dealer”.

The share of consumers in Washington who say they buy marijuana from a “store, co-op or dispensary” is higher than the average for states that have legalized recreational use, which was 57% in 2021, according to a national survey. of the ICPS. The Washington Liquor and Cannabis Board (LCB) paid for the ICPS report on cannabis use in that state, and the ICPS has not released California-specific survey data. But calculations based on estimated total consumption and legal sales suggest the black market accounts for somewhere between two-thirds and three-quarters of the marijuana purchased in California.

California’s striking failure to transition consumers from illegal to legal dealers is largely due to a combination of high taxes, onerous regulations and local retail bans. While Washington has a relatively high retail marijuana tax (37%, plus standard sales taxes), in other respects the state has made it easier for licensed suppliers to compete with illegal sources.

A 2022 study by Reason Foundation (which publishes Raison) notes that local restrictions in California have created “massive cannabis deserts” where “consumers do not have access to a legal retailer within reasonable distance of their home.” Washington has more than three times as many legal dispensaries per capita as California.

In their book Can legal weed win?, economists Robin Goldstein and Daniel Sumner of the University of California, Davis report that “low-end” marijuana prices in Washington are among the cheapest in the country. “Low-end retail prices in California are more than double the low-end prices in Washington state,” they note. Goldstein and Sumner describe Washington as a state with “relatively light regulations”, adding that there is “no clear reason for costs to be lower in Washington State unless the differences are based on regulations”. After all, “the cost of producing other crops where markets are integrated — such as wine grapes, apples, and blueberries — are all similar from state to state.”

Data from the ICPS Cannabis Consumer Survey indicates that legal marijuana in Washington is generally less expensive than illegal marijuana. In 2019, the average price for dried flowers purchased from legal retailers was $6.06 per gram, compared to $7.01 for the jar purchased from unlicensed dealers. According to survey data, the gap has widened since: in 2021, the legal average price was $6.51 per gram, compared to an illegal average price of $13.58, up sharply from $8.04 in 2020.

These prices are based on purchases of different quantities, and the price per gram is lower for larger quantities. At Uncle Ike’s in Seattle, for example, you can buy seven grams (about a quarter ounce) of Rozay Cake Flower for $40.50, or $5.79 per gram including tax. Overall, according to the ICPS, marijuana is cheaper in states that have legalized recreational use, and prices in Washington are lower than the average for those states.

“When Washington’s first LCB-regulated retail stores opened in July 2014, the price was considerable[y] higher than [it was in] illicit market because the legal demand exceeded the legal supply,” LCB Director Rick Garza said in a press release. “We knew then that if the total price fell below $12 per gram, the regulated retail market would be able to compete with the illicit market. . As new stores opened, the price steadily declined month-to-month until it leveled off over the past five years.”

Ian Eisenberg, co-owner of the Uncle Ike’s chain, agrees that licensed retailers in Washington have been able to compete with illegal sources on price. Even with a hefty retail sales tax, he says, “our pot is arguably the best and cheapest in the country.” He thinks it’s plausible that licensed retailers account for something like three-quarters of marijuana sales in Washington.

Eisenberg attributes the state’s success to two main factors. Unlike California, he notes, the medical marijuana industry in Washington was never blessed by state legislation, so it was easier for newly licensed recreational retailers to take control of the market. market. And because Washington banned vertical integration, he says, there was “massive processor-level competition to get into stores and a lot of price competition from the early days.”

Regulatory differences aren’t the only reason marijuana prices are lower in Washington. “Unless there is a specialized limited resource (such as a fantasy land),” write Goldstein and Sumner, “competition, economies of scale, technology, consolidation, and other gains of efficiencies quickly reduce costs as markets grow, although taxes and regulations remain costly. .” Since Washington legalized marijuana four years before California, those efficiencies have had more time to kick in.

“Some costs in the legal weed market will surely decrease over time as companies learn to comply effectively,” Goldstein and Sumner say. “It’s possible that legal weed production could eventually reach a scale of sophistication that allows for efficiencies to overcome taxes and regulations. Such efficiencies could allow legal weed to compete on price with the unlicensed cannabis. Such convergence may be happening in Colorado and Washington, where low-end legal flower now sells for less than $300 a pound wholesale.” But Goldstein and Sumner argue that tax and regulatory reform would accelerate this process.

“We are often asked about the impact that the regulated market in Washington has had on the illicit market,” Garza said. “This study is the first to our knowledge that shows how strongly consumers in Washington choose licensed cannabis retail stores over illegal sources. It shows that the legal market we have operates much as it This is a testament to the state voters who endorsed the initiative 10 years ago, and the fact that since [then] our political leaders, including the governor and lawmakers, the LCB and industry, have worked to follow the will of the voters and create a safe and well-regulated system.”

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