Pot Black Market Thrives In Colorado


-by Michael Penner
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It became legal for adults over the age of 21 in Colorado to consume marijuana beginning November of 2012 due to the passage of Amendment 64. Several promised benefits propelled legalization. Among them, less criminal activity related to marijuana growth, distribution, and sales. This would reduce stress on law enforcement and medical resources while creating a new revenue stream for the state through taxation. While the tax revenue has been realized, criminal marijuana enterprises are thriving partly because of pot taxation and partly due to the heavy regulatory environment legal marijuana businesses have to shoulder.

Legal marijuana dispensaries have to cover the cost of regulatory compliance. It ends up reflected in product prices. Add taxes to this, and you’ve got a much more expensive purchase than could be had from a trusted street dealer.

For legal dispensaries, Colorado currently imposes a Retail Marijuana Sales Tax of 10% and a Retail Marijuana Excise Tax of 15%. A simple (and not complete) explanation of the excise tax is that it activates when product is moved off the farm. There is also a 2.9% state sales tax.

Medical marijuana is exempted from all but the 2.9% state sales tax.

The regulatory environment is predictably heavy and expensive to comply with. Everything has to be tracked, every gram accounted for, with pharmacy-like precision. That consumes person-hours, which costs money. Then there are the compliance reviews and audits, the actions documented to fix compliance deficits and prove remediation…the list goes on.

Quality is another story. In this environment, the black market competes quite well with legal establishments on price. The regulations, as onerous as they may be, assure a higher quality product that is also safer to consume. The black market has no such safeguards, and as concerns about products laced with unknown substances become urgent, especially in light of the fentanyl crisis, this might slow it down eventually.

The Colorado marijuana black market is also an export boon. Colorado cannabis commands a higher price, sometimes up to three times higher, in other states due to its excellent reputation.

Perhaps a review of regulatory requirements is due. After 10 years of legalization, there may be things that no longer need to be imposed or there may be better ways of doing things that reduce the cost of compliance. This, combined with a national average retail cannabis price drop of 20% over the past few years, could better position safer cannabis in the minds of consumers.