Legal Weed’s Effects on Demand for Illicit Stock

It’s hard to tell how much legal marijuana is being spirited away to neighboring states since Colorado legalized recreational pot in 2014, but according to some authorities in Kansas and neighboring states, it could be quite a bit. Michele Leonhart, the ever-vocal head of the Drug Enforcement Administration, testified in April 2014 before a Senate panel that Kansas authorities have observed a 61% increase in marijuana seizures. Interestingly, though, Kansas Highway Patrol has actually reported a 60% decline in marijuana seizure. According to many economists, one thing is clear: legalization of cannabis will increase demand for the product—in the short term, at least.

Not all of this demand will flood back into Colorado itself. According to Colby, Kansas Police Chief Ron Alexander, arrests for the sale and distribution of marijuana are on the rise. The Colby Police Department has documented 20 cases in May 2014 alone. To put that in perspective: in May of 2012, there were 6 such cases.

According to the US Drug Enforcement Agency, Americans can expect demand for weed—legal or not—to “skyrocket” should the drug be legalized at any level. Says the agency, “[proponents of legalization] claim that many people can use drugs in moderation and that many would choose not to use drugs, just as many abstain from alcohol and tobacco now. Yet how much misery can already be attributed to alcoholism and smoking?” However, many studies have found that marijuana is less addictive than alcohol, tobacco and caffeine. Furthermore, the prevailing belief among researchers is that only around 9% of heavy marijuana users become addicted. In the end, however, the agency is right about one thing: demand has increased. Colorado earned over $3 million in cannabis tax revenue in January 2014 alone.

Whether long-term demand for the drug will increase is more difficult to guess. Some economists point to the “taboo” factor, stating that as marijuana becomes “uncool,” demand for it will go down. Perhaps more importantly, economist Jeffrey A. Miron stated in his paper “The Budgetary Implications of Marijuana Prohibition” that demand for the drug will depend on how closely the price for the legitimate drug mirrors that of its illicit cousin. If legal marijuana becomes much more expensive than the street version, long-term demand will not increase.

Denizens of the “Emerald Triangle,” an area of California well-known for its cannabis production, sees regular business from distributors who then turn over their product to street dealers. These American cannapreneurs are in direct competition with Mexican cartels such as the Sinaloa Cartel and the Gulf Cartel. All three elements are able to produce quick-growing hydroponic strains that are high in THC. These strains rival anything that is sold in Colorado legally, and as their costs decrease due to better technology, so too do their prices.

A pound of high-quality weed would run the average street distributor $3,500 a few years ago. Today, they’re able to secure their product for $2,500 a pound. While not all dealers will pass these savings on to their clientele, it’s safe to say that discerning customers can get their product off of the streets at a lower price than they can at a licensed dispensary.

Furthermore, cannabis purchasers in Denver county pay up to 20% tax. At the end of the day, it’s impossible to predict the long-term effects of weed legalization on demand for illicit stock. One thing is certain: legalization in a handful of states isn’t likely much of a threat to the cartels and enterprising distributors. Nationwide legalization, however, would likely prove a crippling blow. Although the “War on Drugs” failed, nationwide legalization may be one way in which the US government can save face, and perhaps recoup some of its lost funds as well.