A Tax Rollback in (Weed-)Cloud Cuckoo Land

Years ago, I commented that Uruguay's move to legalize marijuana was compromised by its immediate imposition of a heavy regulatory apparatus. I even made a tongue-in-cheek recommendation -- my belated apologies to Wayne Crews -- for the news outlet to employ the following alternate title: "Uruguay Replaces One Government-Fabricated 'Crime' with One Thousand, Man."

(And yes, I do sometimes poke fun at marijuana users. I think it should be legal, but I do not wish to use it myself.)

Amusingly and interestingly, San Francisco has helped me make my case in part by suspending its tax on marijuana dispensaries so they can compete with dealers. We can see this directly from the tacit admission that taxation is destructive, as well as from some anecdotal data I encountered regarding this story.

Although marijuana is not technically legal in California, the quasi-legal -- read: heavily regulated and taxed -- status is reminiscent of the earlier story. And the comment thread from Hacker News, where I encountered this story bears this out.

Here are a couple of examples of how not-really-legalizing has worked out there. First, one person reports on taxation:

In most recreational states, cannabis is taxed heavily at every step in the supply chain, so the highest quality still ends up being very expensive -- upward of $400/oz. The black market has the exact same quality at the wholesale price, typically 40-60% less than retail, with the added bonus of not having the government involved. For a daily or heavy smoker, a ~50% discount is a massive amount of money.

And then, there are regulatory costs:

It may not be much of stretch to say that shoplifting is closer to being legal in California than marijuana. (Image by Mjpresson, via Wikimedia Commons, license.)

... Every product follows a chain of custody similar to pharmaceuticals. Even the scales used must be of the same spec used for gold weighing and cost roughly $1,500 each. It's not just the dispensaries but the wholesalers, processors, and cultivators need to buy these scales and register them once a year with the state for $100. Furthermore the batches sizes are too small for the cultivators and processors. In Oregon, it was 15lbs each. An outdoor harvest may bring 1,500lbs an acre. Each test costs roughly $50 plus the labor for a human measuring it. Even if it was all going to biomass processing (think isolates and distillates used for edibles and vapes), the same process applies.

Those are just a couple of examples of how this industry is being held back by its quasi-legality. (To be clear: These apply to California and similar states. Without checking on how Uruguay has fared, it is possible that its industry is less regulated or taxed and so more closely resembles other heavily regulated ones, like alcohol here, and so is more healthy.)

But since it's not really even as legal as it is in Uruguay, this industry is further hampered by financial regulations, for example:

... The places are loaded with cash because they cant legally accept credit or debit cards. So you have to bring cash or use their ATM and get charged a withdrawal fee. This also means they are targets for robbery so security at these places is crazy with guards, waiting rooms and check points. This means you have to wait upwards of 20 minutes just to get inside to wait on a counter line for another 10 minutes. The experience is miserable.

Of course, this commenter is relaying past experiences. Things may become worse, given that blue states, which is where most dispensaries are located, are gutting legitimate law enforcement, with predictable results, as we saw yesterday.

-- CAV