One effect of making alcohol illegal was that it became more potent. For a given “kick,” it was more efficient to use, say, vodka or rye, than beer or wine. Bootleggers could ship x amount of “kick” in a tinier space and with lower weight.
Many of us, therefore, were not surprised when weed, being illegal, became increasingly potent. Why increasingly rather than more potent all at once? Because technology takes time. It took time to develop more potent weed. A side effect of increasingly potent weed is an increasing incidence of psychosis. Julie Wernau, in “More Teens Who Use Marijuana Are Suffering From Psychosis,” Wall Street Journal, January 10, 2024, discusses the issue in some detail.
But wouldn’t one of the implications of making weed legal be that it should be less potent? Yes. But that’s in a world where weed is legal the way many other things are legal. We are not in that world. Instead, legalization has been accompanied by extensive regulation and high taxation. As a result, illegal weed still dominates. Economists Robin Goldstein and Daniel Sumner wrote about the issue in Can Legal Weed Win? Their answer, briefly, is no. I laid out their main argument in “Why Regulation Will Likely Keep Illegal Weed Dominant,” Regulation, Fall 2023.
Here is a key passage from my review:
Recreational weed in California was legalized in 2016 with the voter-passed Proposition 64. The good news out of Prop. 64 was that many people who would have been busted for weed would not be. We shouldn’t underestimate that increase in freedom. But the rest of the news was bad. Legal producers faced the usual regulation imposed on any business by Sacramento. On top of that, Prop. 64 singled out weed producers and distributors with additional regulation.
Business owners who wanted to obey the law had to get licenses and pay special taxes on weed. The state government set a “cultivation tax” at $9.65 per ounce and an excise tax of 27 percent of the wholesale price. Goldstein and Sumner estimate that the net effect of those taxes and local-government taxes is a tax rate of 35 to 50 percent of the retail price of legal weed.
There were other regulations. Starting in 2018, it became illegal to sell weed after 10 p.m. Also, write the authors, not just in California but everywhere in North America, weed retailers are prohibited from also selling alcohol and tobacco.
They note that two popular methods of consuming weed are illegal: One is the blunt, a hollowed-out cigar that is filled with weed; the other is the spliff, a hand-rolled joint that combines weed and tobacco. Although the authors don’t say this explicitly, it seems as if the authors of Prop. 64 and regulators in other states asked, what are the most popular ways to use weed so that we can ban those ways?
It shouldn’t be surprising, then, that illegal weed still dominates and that it has retained its high potency.
There’s an interesting “tell” about the importance of illegality in the graphic from the Wall Street Journal, reproduced above. The first graph is titled “Average percentage of THC in cannabis seized by the Drug Enforcement Administration.” Notice that in the 2020s, the DEA is still seizing weed. That’s not a typical event in a truly legal market.
READER COMMENTS
MarkW
Jan 17 2024 at 8:09am
Fortunately, not all states are like California. In Michigan, marijuana was legalized by a ballot initiative that kept the legislature’s grubby hands off. The initiative imposed only a flat 10% excise tax. As a result, dispensaries have popped up everywhere. I’m not a buyer, but my sense is here the legal stuff has pretty much displaced the illegal variety.
David Henderson
Jan 17 2024 at 9:44am
Thanks, Mark. So then a test of my hypothesis is whether potency is somewhat lower in Michigan. I’m assuming that Michigan is a big enough state that it could be a separate market.
Additional question: Were there no other regulations? So, for example, are places that sell weed exempt from the regulations that I mention in the 3rd and 4th paragraphs of my excerpt from my book review?
Dylan
Jan 17 2024 at 10:40am
While the mechanism seems logical, I’m skeptical of the relationship for a few reasons.
My friends that smoke have often commented that the strains in legal shops are noticeably more potent than what they would get from their dealer.
Friends visiting from overseas where places where cannabis is still highly illegal, note that the weed here is much stronger than what they get back home
There has been a similar phenomenon with beer over the same period, where craft beer became more popular and ABV went up considerably (although that seems to have moderated significantly over the last few years). I don’t smoke, but I’ve seen that same “craft” mentality among folks that do, talking about different strains of sativa and whatnot. Again, I get the idea that the people that care about quality are going to the legal places and experimenting with new varietals much more than the ones going to a local dealer that is less likely to have lots of choices.
Volume just seems to be a bigger deal in alcohol than in weed? Like, a shot is about 8% of the volume of a beer for roughly the same amount of alcohol. For your chart, it is more like 25% comparing the 1995 strains to today?
Dylan
Jan 17 2024 at 10:42am
Note to the folks making improvements to the website: It would be nice if either the number functionality in the comment box was fixed, or that it was removed entirely so that you don’t get the unformatted mess like my post above.
David Henderson
Jan 17 2024 at 11:11am
I’m not defending or denouncing the website issues, but simply trying to understand. Your comment seems well formatted. What do you see as a “mess?”
Dylan
Jan 17 2024 at 11:56am
Thanks for the reply, David. When I composed the post I used a numbered bullet list, which gets automatically formatted as soon as you type “1. ” on a new paragraph. This indents the paragraphs and numbers them, making it easier to read. When I submit the comment the numbers are stripped along with the indent and the paragraphs kind of run together, so it makes it harder to read. At least this is what I see in my browser (using Firefox, but appears to be the same in other browsers I’ve used).
It has been this way for awhile, but thought I’d mention it since I always forget and post anyway, and I know that some work has been done this week on the website.
steve
Jan 17 2024 at 11:33am
The Tax Foundation has a list of marijuana taxes by state. A number of sites track the cost of illegal marijuana by state. California tends to be one of the cheaper states. So taxes are high, compared with other agricultural products, but legal marijuana and illegal marijuana both remain pretty costly for a plant that’s not especially hard to grow. If you read the people who grow and sell the stuff what they seem to emphasize is not so much the taxes but rather the fact that even in states where it is legal by state law it is still illegal by federal law.*That makes it a high risk business. They arent eligible for loans, insurance costs are high if they can get it and security costs are high if you grow in bulk. So rather than have large farms that would bring down costs we continue to have a lot of boutique efforts so that production costs run high.
IIRC , pipe tobacco costs about $10 per ounce. Pot does need to be processed and cured/dried, and though I am no expert other than having grown up on farms, I find it hard to believe that it would cost much more if it was allowed to be treated like tobacco. A $9/ounce tax and 20% excise tax doesnt really seem like the reason pot costs over $200/ounce.
https://taxfoundation.org/data/all/state/state-recreational-marijuana-taxes-2023/
* Illegal marijuana costs about $250-$350 per ounce depending upon your state per Oxford. Of note, the cost of legal and illegal pot in Colorado is listed at $240/ounce.
Steve
David Henderson
Jan 17 2024 at 12:30pm
But remember, Steve, that the tax is based on the wholesale price and the wholesale price is made higher by the various restrictions that you refer to.
steve
Jan 17 2024 at 2:15pm
Yes, but that 15% tax, per Tax Foundation, just drives up the price from $200 to $230. Add that $9 tax and you are hitting $240. I think we need to concentrate a lot more on why the price is $200 before the state taxes.
Steve
Dylan
Jan 17 2024 at 2:36pm
It’s funny, just today in a group chat a friend mentioned how weed in Ecuador is $15 an ounce. You do have to wonder what goes on to take that to $200 in the U.S.
David Henderson
Jan 17 2024 at 4:44pm
You wrote:
Exactly. As I wrote in the very brief comment that you responded to, “the wholesale price is made higher by the various restrictions that you refer to.”
Peter
Jan 17 2024 at 2:13pm
Just a minor comment but don’t forget much of this is simply driven by male ego as a way to express sexual prowess given weed is generally a social drug. I.e. bigger trucks, hotter peppers, louder motorcycles, drinking each other under the table, etc. ergo you are inferior to me and your girlfriend will sleep with me if you can’t even do as much THC as me as evidenced by my purchase and consumption of a marketed stronger strain of weed than you.
I proffer that explains most of it TBH.
Comments are closed.