The Cannabis Black Market Has A Kill Switch, And We Know What It Is

We keep hearing over and over again that the black market for cannabis comtinues to persists despite legalization for several years in several states.  And we also are learning that this black market is selling notoriously tainted counterfeit THC vape products which are the primary cause of the "mystery" vaping lung illness now known as EVALI.  National legalization should really be a no-brainer at this point.

But why does the black market persist so tenaciously even in states like Colorado and Washington that have had legal recreational sales for over five years now?  The answer is overtaxation and overregulation, particularly in terms of retail licensing fees and quotas.  And the kill switch for the black market is thus really quite simple:

So what to do?  Cut the taxes on cannabis, yesterday, for at least a year or two before raising them again.  Consider a complete tax holiday for a few months, like Oregon did when legalization began there.  Ease up a bit on licensing regulations (and fees) for both producers and retailers.  Allow at least all liquor stores to sell weed alongside their booze, and further consider allowing any store that sells cigarettes to also sell weed as well, including grocery and convenience stores.  Lower the age limit to 18, yesterday.  Encourage current black market dealers to "go legit", by giving amnesty to unlicensed sellers and allowing them to obtain retail licenses.  And once these things are done, then crack down hard on what remains of the black market, particularly the illegal commercial growers and higher-ups in the illegal businesses and organized crime syndicates.

Problem solved.

And of course, fully legalize cannabis at the federal level as well.  Period.

Of course, once the black market is dead and gone, then by all means, tax away.  But now is NOT the time for overtaxation or overregulation.

So what should the tax on cannabis be?  To start with, we at Twenty-One Debunked believe it should be no higher that $10/ounce for bud and $2.50/ounce for trim at the production/cultivation level, with no other taxes aside from regular sales tax.  Consider a three-month tax holiday as well, like Oregon did in 2015.  Then, after the first year or two, the tax should be no higher than $50/ounce for bud and $15/ounce for trim, much like it is in Alaska today.  As for concentrates and edibles, those are best to tax based on THC content, e.g. 1 cent/milligram of THC.

Indeed, recent studies in both the USA and Canada do bear this out.  Allowing a legal alternative to the black market will out-compete with the latter, but only if the price of legal cannabis flower remains below about $14/gram.  Above that threshold, adult customers will readily switch back to the black market if it is the cheaper option, at least in the first few years post-legalization.

As for the price elasticity of demand for cannabis, that has been a controversial topic, but recent studies find that it is relatively inelastic at low prices, but becomes quite elastic at high enough prices, implying an "elastic zone" above some threshold (in one study, $15/joint, or about $30/gram based on the study's half-gram definition of a joint) for high-quality weed.

Interestingly, some other studies find cross-elasticity between alcohol, tobacco and cannabis among young people, such that raising the cigarette tax and even the beer tax can lead to reduced cannabis consumption.  Thus, any fears that falling cannabis prices will lead to more teen use can be addressed by simply raising the taxes on the other two substances in the meantime, before the cannabis black market is eradicated.  (Which will also decrease the use of alcohol and tobacco as well, by the way.)

Remember, there is really no good reason why cannabis needs to be regulated any more stringently than alcohol or tobacco.  After all, while it is not completely harmless for everyone, the fact remains that by just about any objective, rational, scientific measure, cannabis is safer than alcohol, tobacco, most prescription drugs, aspirin, and even Tylenol, while it is less addictive than coffee.  Thus our laws and regulations need to align accurately with reality, since facts > feelings, even in a "post-truth" society.