Oregon's Cheap Legal Weed Could Starve Washington's Market

Oregon's Cheap Legal Weed Could Starve Washington's Market

Could Oregon’s legal marijuana market starve Washington’s?

Voters in Oregon decide on Tuesday whether or not to legalize recreational marijuana. If the measure passes, Oregon and Washington will boast the first shared border in the world of legal retail pot.

Yet the two states will have very different legal frameworks, with prices in Oregon expected to be far lower than prices in Washington, where a combination of supply shortages and taxes have kept pot prices sky high. The potential discrepancy is causing some to speculate that Oregon’s cheap dispensaries could end up stealing business from those in Washington.

The predicament underscores the growing pains legalization advocates and policymakers face in figuring out the best ways to tax and regulate the drug from state to state.

Ever since legal pot went on sale in Washington in July, consumers have been shocked at how expensive it is. At Cannabis City in Seattle, a gram of weed costs about $20: That works out to be over $500 per ounce. Meanwhile, on the black market in Washington, an ounce of pot costs about half that, according to the website Price Of Weed, which crowdsources the cost of marijuana in each state.

The state’s pot prices are high for a number of reasons. First of all, the state taxes pot at every step of the way -- from the farm to the consumer -- meaning that customers end up paying a tax burden of 30-40 percent when they go to buy a dime bag. Second, there was (and still is) a supply shortage. This is partly because the state put a cap on the number of shops allowed to open, and then handed out licenses randomly to entrepreneurs who either weren't prepared to open a business or who had trouble finding a location because of the state's strict zoning laws. Washington's supply shortages are also due to the fact that growers who were given licenses needed time to cultivate the plants (a process that takes about three months.)

In an especially ludicrous illustration of Washington’s inability to snuff out the black market for weed -- which was one of the primary reasons the state decriminalized the marijuana in the first place -- dispensary owners in Washington have reported having to chase drug dealers off their doorsteps.

Now compare that to Oregon, where recreational marijuana, if it becomes legal, would cost just $145 an ounce, according to a report from the consulting firm ECONorthwest. Even if dispensaries divided that ounce into smaller units and marked up the price, that’s still significantly cheaper than what legal retail weed costs in many Washington dispensaries. As a result, experts say it’s inevitable that Washington residents will motor over the border to get their herb in Oregon.

“There will definitely be lots of people coming from Washington to Oregon [to buy cannabis],” said Robert Whelan, an ECONorthwest economist who co-authored the report. Whelan said Oregon -- which is one of the few states in the nation with no sales tax -- already does billions of dollars in business selling other commodities to out-of-state residents from Washington and California.

“No one in their right mind buys a TV set or a computer in Washington if they live anywhere near Oregon,” Whelan said. “Because if you come here, you save $100.” The same will be true for marijuana, he said.

Brian Budz, who co-owns a retail marijuana store called New Vansterdam in Vancouver, Washington, said he’s worried that if Oregon passes a law permitting recreational pot stores to open, he could go out of business.

“It’s absolutely a concern, yes,” Budz told HuffPost. His business is forced to pay a 25 percent excise tax when they buy weed wholesale from a grower and another 25 percent fee when they sell to the customer, Budz said. “And that doesn’t include the federal taxes, or the fact that because we’re selling a Schedule I drug, we can’t write anything off. So we’re getting blasted from all angles.”

In Oregon, the proposed law would “make it easier for retailers to breathe and make a profit,” because the taxes are so much lower, Budz said.

The price discrepancy problem would likely only affect southern Washington, since dispensaries in other parts of the state are far from the border. And in the longer run, the price gap could close, said Brookings Institution’s Phil Wallach.

“Because Oregon’s tax would be by weight and Washington’s is by price,” Wallach said, “if the supply problems in Washington eventually get alleviated and the price comes considerably down, that will also lower the amount of taxes [consumers will pay]. Eventually, there could be an equilibrium.”

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