Mark Kleiman’s reserved endorsement of Oregon’s marijuana legalization initiative, Measure 91, has crystallized in my mind a question that I would like to see other policy experts, political leaders, and regular people answer. What specific price would you ideally want legal marijuana sold for?
If marijuana were fully legalized without any special taxes, consumer protections, labeling requirements, or regulation, the price could drop dramatically. Exactly how much it would retail for in such an unlikely scenario is hard to predict, but similar agricultural products can give us a range. On the high end, some of the most expensive and labor-intensive crops like vanilla bean and high quality white tea sell to consumers for around $7-20 per ounce. For a low end estimate, perhaps the most comparable crop is hops. Hops flowers often sell to small consumers for around $2.50 an ounce.
This means that after marijuana is fully legalized, the government has substantial direct and indirect power to set a price anywhere between a few hundred dollars an ounce to a few dollars an ounce.
The government can just give itself a monopoly over all legal marijuana sales and directly set a price, like Uruguay is planning to do. Or if marijuana is being sold by private businesses, the government could use taxes, license fees, and regulations to significantly adjust the price to consumers. While taxes are the most direct mechanism for adjusting price, regulations can play a big role. The frequency and types of product tests required by law add some real costs to production.
Like most consumer goods, a reduction in the price of marijuana will probably result in some increase in the amount purchased, but how this demand curve is actually shaped is still a matter of significant debate.
Deciding an ideal price for legal marijuana all depends on your priorities. Here are just some examples of several possible priorities with the likely impact on price they would have, with the highest prices at the top. The possible prices I list for each are purely educated guesses, simply designed to give readers a rough idea of the tradeoff — they could end up being significantly wrong.
1) Highest price possible that still reduces the black market - (possibly around $180 an ounce) – It seems this is Kleiman’s preferred choice. The goal would be to eliminate the black market but also keep prices high to reduce consumption.
I would like to see experts try to put an exact figure on this, because there is no one magic number at which the entire black market would instantly disappear. There remains a very small black market in almost everything from cheese to laundry detergent. It is more of a sliding scale based on many factors, so is the goal eliminating 97 percent of the black market, or would a price that eliminates 85 percent be good enough? In addition, if marijuana were also legalized in neighboring countries where it was subjected to a very low tax rate, the local price would potentially need to be dropped to stop the grey market smuggling of legal marijuana across the border.
2) The most government revenue possible – (possibly around $120 an ounce) – The goal here is to soak from the market as much money as the government can get from it. This might result in a price higher or much lower than the first option, depending on the demand curve and how much of the black market remains at a given price. The argument for this option is that the tax revenue could be used for all sorts of other priorities which may have a much bigger positive impact on society than any change in marijuana consumption.
3) Maximize new jobs – (possibly around $100 an ounce) – Taxes aren’t the only way to keep prices higher. Demanding frequent testing, substantial security measures and limiting the size of farms all make legal marijuana more expensive but also end up creating more jobs. The marijuana industry could be made artificially inefficient, localized, and diverse with the top goal of making it an indirect jobs program. This might end up creating a price similar to option two, but with much of the money going to workers and companies instead of tax payers.
4) Maximizing substitution for more dangerous drugs while discouraging overuse - (possibly around $60 an ounce) – There is some indication that people might substitute marijuana for more dangerous drugs for either medicinal or recreational reasons. A study found opioid deaths dropped significantly after states legalized medical marijuana. While it would be hard to determine, it is theoretically possible the optimum price for overall public health is between option one and the lowest price possible. The price would have to be low enough to encourage beneficial substitution while also high enough to discourage some users and still raise sufficient revenue for public health programs.
5) Whatever it costs to create extremely accurate information or maximum security – (possibly around $50 an ounce) – The primary thing determining price could even be some goal separate from tax revenue or demand, like assuring the most accurate chemical labeling possible or super aggressive security measures. If the regulator burden was big enough, it could end up indirectly setting a high floor on the overall price. Under priorities like these the “ideal” price is whatever it costs for the industry to meet the goal.
6) The “fair” price relative to alcohol – (possibly around $15 an ounce) – Polling shows most adults want to see marijuana taxed and regulated like alcohol. One could argue the “fair” thing to do is treat marijuana just like alcohol by subjecting it to the same relative tax rate and overall regulatory burden.
7) Let the market decide – (possibly around $6 an ounce) - Several ideological arguments can be made for allowing the market to mainly decide the price by subjecting it to only basic regulations. Some people don’t think it is the government’s place to pick winners, make judgments about morality, or try to be a “nanny state.”
Some priorities can be combined easily while others are often mutually exclusive.
At the moment I’ve heard relatively few people even state their top priorities when it comes to the price of fully legal marijuana, and basically no one is coming up with concrete numbers. As more states and countries legalize marijuana, this is a question that deserves real attention.
Jon Walker is the author of After Legalization: Understanding the future of marijuana policy
Picture from Katheirne Hitt licensed under Creative Commons