I am one of those lucky people that lives in a legal cannabis jurisdiction, and in my opinion, I live in the best legal market for cannabis consumers on earth. The State of Oregon in the U.S., where I reside, passed an adult-use legalization measure in 2014, with regulated sales beginning in 2015. Since the start of regulated sales, Oregon’s unregulated market as it pertains to domestic consumers has progressively shrunk, so much so that it’s virtually non-existent these days. That has resulted in me often being asked by cannabis observers around the world how Oregon did it?
Oregon is obviously not the only place to allow regulated sales, and yet, most other legal markets struggle with competing with the unregulated market. To be sure, unregulated cannabis is still cultivated in Oregon, however, none of it stays within the state’s borders from what I can tell, which is not a coincidence in my opinion given that Oregon has the lowest prices for legal cannabis products in the nation. Presumably, unregulated Oregon cannabis goes to other jurisdictions that have yet to legalize sales, and in some cases, some of it likely even goes to other legal markets where the price of legal cannabis is exponentially greater.
I have read my fair share of theories and expert analysis pertaining to ‘what needs to be done to combat the unregulated cannabis market’ and while much of it provides some level of insight, at the end of the day it’s an extremely straightforward ‘riddle’ to solve. As with anything, price matters, which is what yet another recent study determined, this time out of Canada.
“Higher prices and inconvenience of legal sources were common barriers to purchasing legal cannabis,” researchers concluded. “Future research should examine how perceived barriers to legal purchasing change as legal markets mature.”
A previous study from 2018 determined that cannabis consumers are willing to pay a bit more for regulated cannabis from licensed outlets compared to the regulated market, however, there’s a limit to how much more they are willing to pay. Every dollar that gets added to the price of legal cannabis results in some percentage of customers choosing to go the unregulated route, and thus, lawmakers and industry regulators should strive to do what they can to keep prices low.
Reasonable Taxes And Regulations
When people think of the government’s involvement in the cannabis industry, they often seem to oversimply it. After all, there’s more to operating in the industry than just initial licenses and taxes. Every regulation that is added to the cannabis industry contributes to a higher final price at the point of purchase. Evolving packaging requirements, security requirements, and many other regulatory components make operating a cannabis business expensive.
Current tax provisions for cannabis businesses are such that those business have to pay considerably higher taxes compared to other legal businesses, and for those that have banking access issues, additional security expenses may also be involved, such as armored transport services. Then there’s also, of course, the taxes on purchases themselves, which also adds to the final price for legal cannabis. Collectively, all of the costs and taxes can add up.
Meanwhile, nearly all of those aspects of the legal cannabis industry that drive up prices for legal products do not exist in the unregulated market, and as such, prices for regulated products will never be equal to prices for unregulated products. The goal is to get legal prices as low as reasonably possible so that the other benefits of regulated cannabis (testing, convenience, wider selection, etc.) are worth the extra cost. If lawmakers tax legal cannabis to death and regulators fearfully implement regulations that are obviously overkill, the unregulated market will always thrive, and it doesn’t have to be that way.