Easy answers to complicated problems are hard to come by.
City officials in Urbana this week heard from citizens who hope to see marijuana legalization spark business development and increase tax revenues.
But they’d be well advised not to let the cart get too far ahead of the horse because more people will be trying to make a profit off selling marijuana than just state-sanctioned marijuana dealers.
“Old-school dealers are a threat to pot sector,” states a Wall Street Journal headline.
Old-school dealers? Remember them — they’re the black market entrepreneurs who have broken and continue to break the law by selling marijuana for profit.
Still in business, they are, according to government reports, doing pretty well.
They’re competing the old-fashioned way — on price.
State governments that have legalized marijuana have jacked the prices up through taxation so high that the legal marketplace is having a hard time competing with the illegal market.
California legislators estimated the state would collect $1 billion in state and local taxes within a few years. But revenues for 2019-20, estimated to be $514 million, recently were revised downward to $360 million.
One analyst estimated that marijuana consumers pay 77 percent more to purchase from a legal seller. Marijuana may confuse users’ brain neurons, but not to the point that they can’t figure out that buying illegal weed is a far better deal than buying legal weed.
BDS Analytics estimated that without reductions in taxation, half of California’s marijuana sales — and that’s a lot — will remain in the illegal market by 2024.
State governments, increasingly, are counting on legal marijuana sales as a big driver of tax revenues. But in their rush to cash in, they forget about a little thing known as the marketplace.
Underground sellers simply aren’t going to give up lucrative markets just because states like Colorado, Washington and, most recently, Illinois decided to legalize marijuana and then sit back and watch the dollars roll in.
What’s happened in California also is happening in Canada, where the government estimates just 27 percent of marijuana sales are made in licensed outlets. To put it another way, 77 percent of sales occur in the illegal marketplace operated by the friendly local drug dealer.
State officials, obviously, face a dilemma. If they pile up taxes on marijuana too high, they cede a large part of the marketplace to illegal sellers. If they cut taxes, they still must compete with the illegal sellers while watching their already exaggerated revenue projections go up in smoke.
At the same time, state government is incurring costs — financing the bureaucratic structure to regulate this new business as well as the still-undetermined social costs that go hand in hand with legalization.
Too many naive public officials perceived — for a variety of reasons — legalization as some kind of quick fix. Now they’re finding out that what they thought of as a simple issue is a lot more complicated than they thought.
It is, of course, too early to make sweeping judgments about how this will all work out. But early indications are not good, at least on the tax front, because those public officials who drove the issue overlooked the reality of a competitive marketplace that allows free, even if not legal, choice.
Consumers can be counted on to act in their best financial interests. Buying and using marijuana may not be a good decision. But buying marijuana, even illegally, at a bargain price is a temptation many people can’t resist.