The black market for weed has been estimated at more than $850 million in New Jersey, using an average price of $350 an ounce, according to the think tank New Jersey Policy Perspective. As the legal market develops, the tax rate is important, but so is access to the product, said Adam Orens, co-founder of the Denver-based Marijuana Policy Group. He said if a consumer can’t conveniently access legal pot, for instance if there are too few stores or not enough product, the black market won’t go away.
“The availability and the price work together,” he said. “They could probably get away with charging 25 percent, but if truly want to get rid of the criminal element you have to think about access.”
Jonathan Caulkins, a drug policy researcher and professor at Carnegie Mellon University, considers the debate over marijuana taxes silly. In his eyes, it doesn’t make sense for states to set the tax rate low in a bid to quickly eradicate the black market. He argues that cannabis consumers will gravitate to retail stores, even if the prices are high, with societal norms eliminating illegal sales.
Cannabis Commodity
He sees marijuana becoming a commodity, like wheat or cotton, and that eventually the price per gram will plummet, leaving states without their promised pot of gold from tax revenue if their tax rates are low.
“It’s fine if the market is small five years after legalization, you don’t have to lose the benefit of a sensible tax rate,” Caulkins said.
So far, there’s little consensus about the right way to tax marijuana. One idea -- starting the tax rate low to make prices competitive and then hiking it in subsequent years -- had been on the table in New Jersey before the Legislature settled on its combined 14 percent rate. There’s also an argument that many existing cannabis consumers, and some who are curious but waiting on the sidelines, would prefer not to break the law, and will be willing to pay up to obtain marijuana legally.
Another part of the appeal of shopping legally: Cannabis dispensaries on the West Coast have massive menus of buds, edibles, vape pens and other products, far beyond the offerings of the typical street dealer.
“In the early days of a program, 25 percent is too high when the infrastructure isn’t there to meet demand,” said Kris Krane, president of the cannabis company 4Front Ventures, and a former executive director of Students for Sensible Drug Policy. “But in the end, it might not matter that much -- once the market develops, people get used to it.”
This article was provided by Bloomberg News.