Rick Nolle: Unintended consequences of legalizing cannabis?
February 16, 2018
I am not a user, detractor, supporter, opponent, or hater. I'm just a business guy who thinks the criminal element needs to be eliminated from the marijuana industry.
Early on (with little real analysis) I said, "If you just use the simple business approach of legalizing the sale, add regulations, and tax the stuff, you can get rid of the illegal element." However, after a spirited debate (read "heated") with some friends, I worry the legalization may have resulted in some unintended consequences.
No matter your legal status, you have many of the same product cost concerns before arriving at a selling price. The responsible, legal grower must consider the expense of land, water, environmental regulations, labor, transportation, governmental permits, and marketing costs as factors in pricing their product to the consumer. Almost forgot, there must be a profit margin incentive as well.
Meanwhile, the illegal growers go into the forests around here and "borrow" some land and water. They don't care one diddly for the environment or environmental costs, fair wages for labor, transportation costs, or permits. Oh yes, they do care about the profit margin.
Have we made illegal growing the undisputed profit leader?
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Moving on to the distributor, they must wrestle with local government for permits, provide a safe and responsible outlet, market their business, pay all or part of the transportation costs, and collect sales tax. Sales tax can be a real game changer. A local expert explained that there are many different factors that affect the total sales tax number. That number can range from 4 to 25 percent with 15 percent being the most likely. That 15 percent add-on can provide the illegal seller with some extremely flexible (read "profitable") pricing strategies. Meanwhile, the illegal seller doesn't have to worry about any of the aforementioned. Not even transportation. Come on, how much does it cost to load somebody's trunk, pick-up truck, camper, or RV?
The area that has become the murkiest for Nevada County is the size of the market place. Any seller wants the market to be as big as possible. The more potential buyers, the better. Until recently, I thought that Nevada City's dispensary approach helped level the playing field. Wait a minute! Not so fast.
The local expert (see taxation above) tells me the dispensaries under consideration will only be licensed to sell to medicinal users. What/who serves the recreational users? Yes, that was a rhetorical question.
Of course, the illegal provider is going to leap in there, and everywhere, taking full advantage of their price advantage due to lower cost of goods sold, reduced/no distribution costs, and zero-taxation advantage.
I'm starting to think I got this all wrong.
Back to my original question. By legalizing marijuana have we created a bunch of unintended consequences?
Have we now made the illegal seller the clear low-cost provider? Have we encouraged illegal growing at even greater risk to the environment and public safety? Have we made illegal growing the undisputed profit leader? Have we created even greater danger and problems for the police, sheriff, firefighters, or any first responders?
The original question was, "Have we created unintended consequences by legalizing marijuana?" Well, have we?
Rick Nolle, a Nevada County resident, is a member of The Union Editorial Board. His opinions are his own and do not necessarily reflect those of the board or its members. He can be reached at EditBoard@TheUnion.com.