Tag Archives: economics

Why is medicine more expensive in the dispensaries than it is on the street?

It’s logical to assume that when a product goes from illegal to legal, its street price drops. But not with medical marijuana. Colorado medical marijuana patients are discovering what California patients have known for years: legal pot is more expensive. From NPR:

“We found that if you go to a dispensary, it’s more expensive,” he says. “You go through a buddy, least expensive. Speaks for itself.”

There’s no consumer price index for pot in Denver, but police commander Jerry Peters has a pretty good idea of the cost. He heads a drug task force in the metro area.

“An ounce of marijuana goes anywhere between $270, $280 to about $400 an ounce… that we’re seeing in the different dispensaries,” Peters says. “In the black market, though, when … we buy an ounce of marijuana, it’s about 150 bucks.”

The biggest thing that communities fear when a dispensary comes to their town is not the spectre of stoned citizens giggling hysterically as they wolf down a pint of Ben & Jerry’s, it’s the possibility that the medicine sold at the dispensary will end up being re-sold on the streets. Every California dispensary I have been to makes a point of telling new members that re-distribution is strictly prohibited; usually I’ve had to initial that paragraph, but it’s been in a prominent place on just about every collective Membership Agreement I’ve seen (and I’ve seen dozens).

This fear of re-distribution exerts an upward pressure on prices in a number of ways. First, the dispensary has to compete with the black market for product, so they have to offer attractive prices to growers. Next, the dispensary has to price the product near or above the local street price in order to discourage resale by unscrupulous patients. Then, the dispensary has a host of other costs to cover: rent, utilities, taxes, payroll, etc.

Put it all together and you can see why a dispensary will never be able to compete with a street dealer on price. It’s ironic that while full legalization would drive prices downward, semi-legalization has had the exact opposite effect.

UPDATE: Joe at the 420 Times makes this point, which I should have remembered to include in my post:

“The marijuana you can buy at a dispensary is generally of much better quality than marijuana on the street. You can get carefully grown strains that target specific symptoms, and since the medicine is so much better, you can consume less of it. Also as she points out, it’s safer; if you’ve ever been to a bad neighborhood trying to score some weed, you know what she’s talking about.”

Indeed. The selection and quality at the dispensaries is quite good, and the shopping experience is generally fun, comfortable and safe. Those are all worth paying a bit more for, but the prices are still artificially propped up by the coexistence of a licit and illicit market.

UPDATE II: I also forgot to include in my post that, adding insult to injury, the relaxation of drug laws has also had the effect of driving street prices down relative to the dispensaries. The risks associated with selling marijuana on the street in California and Colorado are not as high as they are in states like Indiana or Oklahoma. This means that pot dealers can bring their prices down even further relative to the dispensaries, which still have all of the above to pay for, while street dealers have almost no overhead to worry about.

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Oakland considers sanctioning large-scale grows

The City of Oakland, one of the most marijuana-friendly in the country, is tired of indoor growers starting fires, so the City Council is planning introduce legislation to sanction a few large-scale commercial grow operations. At this point,they are envisioning three to four commercial grows, located in an industrial section of the city.

While I applaud the ongoing efforts of Oakland city authorities to legitimize marijuana and bring it into the mainstream, I have many problems with this proposal.

First, it won’t work. Small growers don’t grow because the cops let them, they grow because it is profitable. All this proposal would do is flood the market, making it marginally less profitable to grow at home, but not likely to drive out small indoor growers altogether.  Mostly, it will reduce the growers’ profits, making them less likely to spend money on, say, properly hooking up their electricity.

Second, this would establish a “big business” model, in which the entire medical marijuana industry would be dominated by a few well-connected megagrowers. These few growers would reap huge profits (as Harborside, Oakland’s biggest dispensary and one of the most likely recipients of a grow permit, is already doing), while the small-time growers would be forced to either accept lower prices or be forced into an already bleak job market.

The concentration of power over the supply of medicine in the hands of a few big businesses flies directly in the face of California Attorney General Jerry Brown’s Guidelines for the Security and Non-Diversion of Marijuana for Medical Use, which mandate that all dispensaries operate as non-profit collectives or co-operatives, and that primary caregivers may only have multiple patients “in the same city or county.”

My recommendation would be to empower a local organization to certify, anonymously, the safety of a grow. Dispensaries could demand proof of inspection from each vendor. This would address the fire hazard problem while keeping the supply side populated with actively-employed collective members.

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