Legal Marijuana Still Faces Stiff Competition from Gray, Black Markets

A report commissioned by the Colorado Marijuana Enforcement Division earlier this year found that state residents and visitors will consume an estimated 130.3 metric tons of marijuana in 2014, but only about 77 metric tons will come from legal medical or recreational outlets.

The rest, about 53.3 metric tons of cannabis, or nearly 40 percent of the total marijuana demanded, is expected to be produced by unregulated sources. Those sources include “gray market” producers, including home-growers who can legally grow up to six pot plants for personal consumption, or black market producers, including gangs, who operate outside of the Colorado legal system.

The state’s solution, then, is to increase the amount that is produced legally.

“Basically, the state is trying to ensure that the amount that is being grown in Colorado equals what the demand is,” said Mike Elliot, the executive director of Marijuana Industry Group, a trade association representing the interests of the Colorado marijuana industry. “If there is too much, then people want to take it out of state or sell to kids (minors), and if there is too little then the black market will fill in the gaps.”

As of now, the state is facing a shortage of legal marijuana.

“We are pretty significantly under what should be produced,” said Ron Kammerzell, deputy senior director of enforcement for the state Department of Revenue.

“What that does is raises the prices and if the price is too high, then we can’t compete with the black market and that was our ultimate goal with Amendment 64 – we wanted to eliminate the black market,” Kammerzell said.

As the state looks toward altering production controls, marijuana retailers say supply isn’t the issue. The real problem is price.

“After the cost of producing each pound, I still have to pay a 15 percent excise tax, licensing fees, huge rent because landlords overcharge marijuana dispensaries, and when I pay federal income tax I can’t deduct like a regular business,” said Brian Ruden owner of Starbud, Altermeds and Tree of Wellness medical and recreational outlets in Denver, Louisville and Colorado Springs. “It ends up that I am selling an eighth (of an ounce) for $60 when the street price is about $25.”

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