Green currency at the Emerald Exchange farmers marketEXPAND
Green currency at the Emerald Exchange farmers market
Star Foreman/L.A. Weekly

Pot Prices Could Actually Rise After Legalization

Marijuana legalization is good for social justice, its backers say. For too long, drug laws have been used to arrest and incarcerate minorities at much higher rates than whites. Plus, pot has been proven to be, as President Obama himself put it, less dangerous than alcohol. So instead of creating a black market for criminals, why not tax it and regulate it to benefit the people of California?

Those arguments sound reasonable — noble, even. But if you are voting purely out of self-interest, you might just vote no on Proposition 64, the measure that would legalize recreational marijuana for those 21 and older. Why?

Fifteen percent taxes on recreational marijuana under the measure will boost the price of weed compared with that guy who sells it out of his apartment. Sales tax in some parts of L.A. County is already 10 cents on the dollar. So you're looking at a steep price increase for your organic produce if you were to buy it legally for recreational use. Now a study says that even the base wholesale price of weed is likely to go up, at least temporarily, if voters legalize it Tuesday.

A white paper released this week predicts pot prices will increase after Propositions 64's rules open the door to recreational retailers starting in 2018 — if the measure passes. "After the Gold Rush: California, Cannabis & the Election" by marijuana price data firm Cannabis Benchmarks looked at what happened after recreational legalization in Washington, Colorado and Oregon to come to its conclusion.

Washington Oregon, in particular, saw rising weed prices in response to legalization, including a $200-per-pound spike, to a price of $1,941, late last year, and a 12 percent spike again this year, according to the paper. The first increase was a result of dispensaries stocking up to meet increased demand; the second was a response to a "supply bottleneck" as regulations forced retailers to buy product that had been tested by accredited laboratories, according to analysis.

Jonathan Rubin, CEO of Cannabis Benchmarks, explained that the following factors could increase postlegalization prices in California:

Compliance: Proposition 64 will mandate licenses for growers and sellers, and it will regulate packaging and labeling. This stuff costs money.

Stocking up: Dispensaries will engage in "advanced buying to make sure their shelves are stocked" on Jan. 1, 2018, when, if 64 passes, anyone with a heartbeat and an ID proving they're 21 or older can walk into a dispensary and buy pot, Rubin said.

Demand: Because almost anyone will be able to buy weed, demand is expected to multiply. Higher demand can mean higher prices.

Testing: Mandatory product testing not only slows down the supply line and adds costs for producers but it also means that noncompliant product can be held and even destroyed, Rubin explained. Less supply can mean higher prices.

These are all factors that contributed to price increases in other states that have legalized recreational marijuana. However, Rubin acknowledges that California is a different beast. He says experts generally agree that about 80 percent of America's weed comes from the Golden State. Outdoor growers here have massive capacity, and that might help to mitigate some price fluctuation.

But Rubin says he believes consumers will still see higher-priced pot. "In almost every commodity market, the end user is the one costs get passed on to," he says.

The increases could be temporary, part of a "boom-bust cycle" where entrepreneurs rush into an emerging market and create so much product and so much competition that prices soon level off. "When prices are high it attracts more players, you have more competition, more supply, and price goes down," Rubin says.

"Longer-term, prices will stabilize as market forces reach equilibrium," he says. "This will afford existing cultivators and early entrants the opportunity to optimize their operations and secure their competitive position."

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