Marijuana dispensaries battle black market
September 30, 2013
Given the cost of taxes and overhead, how can a marijuana business lure a person away from a familiar drug dealer?
It's a question Jesse Miller has been asked frequently ever since he opened his medical marijuana retail store, Leaf Aspen. If he is approved, he will begin selling recreationally in January, but he said that if Colorado taxes marijuana too heavily, buyers will be pushed to the black market.
On Colorado's November ballot, there is a proposed 15 percent excise tax on wholesale pot as well as a 10 percent special state sales tax. If approved, that 25 percent will be passed on to recreational customers. Miller estimates that those buying recreational will have to pay about 40 percent more than medical patients if the taxes are approved.
A 28-year-old Aspen resident, who asked not be identified, said he uses his medical card rather than buying off the street. Pot shops have found a way to undercut the black market, he said, and though sales taxes make it slightly more expensive, the legal route provides much more variety as well as edibles and oils.
Like all businesses in Aspen, Miller said, pot shops will have to rely on tourists. In a city like New York, an ounce of marijuana could cost between $400 and $500. But in Colorado, even with heavy taxing, the same amount might cost $300, give or take. Out-of-state buyers, however, are limited to buying a quarter-ounce at a time.
Miller said winter tourists are particularly good for business: Unlike the music-school crowd in the summer, skiers and snowboarders visit frequently.
But there are only so many tourists to go around, and with one more dispenser on the way in Aspen and two more awaiting approval, Miller's competition could double. He expressed disappointment with the city for allowing the influx of applications.
"The whole year leading up to recreational, we've been told that we would have a head start," he said, adding that ultimately, he's OK with the competition. "It's going to come down to product and pricing."
Miller has seen the market work itself out before. In 2010, he ran a medical dispensary in Carbondale. He estimates that there were about 45 dispensers in the Roaring Fork Valley. When Colorado House Bill 10-1284 — which implemented video-camera surveillance and tracking of all sales — kicked in, that number dropped to 25.
Up to that point, many businesses were surviving with the occasional dip into the underground market.
"Most people had no problem shipping 10 pounds out the back door to pay the bills," Miller said.
Miller anticipates more severe penalties for the underground when recreational sales begin. For one, dealers will be subject to tax-evasion charges. He said organizations like the Two Rivers Drug Enforcement Team (TRIDENT), which he described as "civilian DEA agents whose paychecks are based on busts," will deter illegal sales.