California Sticker Shock: Will Dispensary Prices Jump 70 Percent?
A report last week estimated that Californias high taxes on cannabis will drastically increase the price of marijuana for consumers.
The business world is full of phrases and aphorisms that are often deployed like excuses, with explanations that dont require further thought. The cost of doing business is a fine example. Why must we acquire a drivers license and pick up insurance before we can go motoring? Pilgrim, thats the way of the world er, the cost of doing business.Well, the cost of business for is about to go up for operators in Californias cannabis industry.
This particular cost of business phrase is often usuallyan idiomatic way to complain about the high cost of onerous and needless government regulation. But in the world of legal cannabis, the cost of doing business is both an idiom and its also literal. In California, the many costs of doing business in marijuana may cause retail cannabis prices to soar by as much as 70 percent a cost that will soon be passed onto the consumer.
This past weekend, Fitch Ratings, a global credit-ratings firm, released a report analyzing Californias marijuana market, which will be subject to new, never-before-seen taxes and regulations beginning in January. These include a new 15 percent excise tax, a per-ounce cultivation tax, and new pesticide and quality-control regulations. In some jurisdictions, marijuana sales will be subject to a combined tax rate of 45 percent.
Add everything else, and the cost of participating in the weed business could cause the price of an eighth to rise by as much as 70 percent,FORTUNE magazine estimated.
Fitch believes that these high prices will keep legal marijuana sales down and be a boon to Californias black market which is as active as ever, even absent of these new, higher-than-ever costs. According to a highly circulated report prepared for the state released in August, California marijuana farmers produced 13.5 million pounds of cannabis in 2016 and an estimated eighty percent of that harvest was sent out of state to be sold on the black market.
More of that black-market cannabis will stay local, the reasoning goes, as consumers react to new price points on the regulated, taxed and tested market with sticker shock.
Other states have had similar experiences. In Washington, the average price of gram of dispensary-boughtcannabis briefly exceeded the $30 mark in 2013. This was mostly a problem of supply: Too few growers met the new, strict standards. And then, true to another basic building block of knowledge, there was an equal and opposition reaction: Producers flooded the market with cannabis.
Now, four years on, retail prices in Colorado, Washington, Oregon and other places where cannabis is sold-over-the counter are lower than ever. In ...
