Tuesday, 4 November 2014

The Problem With Legalization

If you read around Colorado,and the states preparing to approve marijuana usage....there's a new problem.  Everyone for twenty-odd years kept talking about how wonderful it'd be if you could finally have legalized marijuana sales.  Then they'd always hype up how you could tax marijuana and the public would benefit from the tax revenue collected.

Well....they've come to admit in the last couple of months that the tax rate that state governments envisioned.....is going to EAT UP most profits on the sales.  In some cases, people are talking up the possibility that legalized marijuana sales will require so much taxation.....that there is marginal profit, and you 'd do just as well to sell it on the illegal market, thus avoiding the taxes and enjoying the profits.

Yeah, the government would screw up the whole thing enough....that you'd be better off illegally selling your weed.

The same thing would occur with alcohol, if it weren't for the fact that there aren't that many people making their own booze and selling it on the side.  If the weed industry had gone the way of booze.....there wouldn't be an underground market and no fall-back position.

An eighth of an ounce on the illegal market typically runs $25.  The same amount in a legal shop....runs anywhere between $35 to $80, depending on profit margin and state taxation.

The illegal $25 gimmick?  You can figure that some grower guy in the region....probably out of a house or old storefront, is making fifty to seventy percent of the $25.  The distribution guy?  Somewhere between twenty-five and fifty percent.  It all depends on the local situation, competition, and how much cop pressure is applied in some region on growers.

So, you sit and compare the legal sales gimmick.  You have a real store, with heat and electricity needed.  You have to hire at least three or four people, although they may be part-time help.  If full-time, you worry about health care and benefits.  Then you have the state tax that gets dumped onto the final line.  Your profit is questionable, unless you were also the guy growing the stuff....but you have to figure all the growing costs will also take a chunk of money.

Will legal weed sales fail?  My humble opinion is that three years into the great expansion.....around a quarter of all weed shops will close down because they just weren't going to make enough to cover their lifestyle and expectations.  Another quarter of the shops will undergo a dramatic change, with lesser hours open and fewer employees.  Somewhere in this mess....some shops will just be sold out to people who got hyped up and think there's some money in Colorado for weed sales, when there isn't any profits.

It's an odd thing.....making something legal and thinking that it'd survive in a free-market economy.  The truth is.....while sold illegally....it was a profitable thing in a capitalist market.  In the contrived market that exists today with various gimmicks?  It can't truly survive, as is.

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