The biggest issue causing the high prices will be a lack of supply. There are relatively few licensed growers at this time, and of those who are licensed, few have started to harvest. Although there have been over 2,600 grower applications, less than 80 have been certified to grow so far. Of these, the vast majority have yet to begin harvesting their product.
The marijuana which will be available will have been grown by one of about a dozen growers who have already had an initial harvest. With a limited amount of the product available to the stores, and anticipated demand will be high, prices are expected to be quite expensive. This will continue until the supply chain can catch up with the anticipated demand, and many more growers begin to harvest. Some are predicting available supplies will run out within days, if not hours, after stores begin selling.
Lack of supply won’t be the only issue keeping prices high. There are some fairly hefty taxes which go along with the legal marijuana. There’s a 25% wholesale tax, plus another 25% minimum retail tax. Add in sales tax as well, and the taxes alone put quite a bit of pressure on the price of the product.
After taxes, the retail store also needs to make some money. They have laid out quite a bit in initial expenses to even begin to be able to sell, and they need to start making some of this money back. With most anticipating a lack of supply, there will be an urge to make as much money as possible off of the supply at hand. This is because there’s no guarantee the stores will be able to get more supply once their initial orders run out. It could be weeks or months before the shelves get restocked, so those retailing the marijuana will want to make as much profit as possible.
Lack of Competition
Since there are only going to be about 20 stores which will be able to sell statewide beginning this week, there’s a lack of competition to drive prices down. The stores which have licenses to sell can basically mark the product at any price they desire. In fact, probably the biggest competition won’t be other legal recreational marijuana stores, but the unregulated medical marijuana dispensaries and street dealers.
Since this will be the first time people can legally buy recreational marijuana in Washington, there’s a bit of novelty to the whole idea. This novelty will allow the stores to sell the marijuana at a premium price. There will be many who will be willing to pay almost anything just to say they were one of the first to buy from the stores.
As with many products, your best bet is not to be an early adopter in the new Washington state legal recreational marijuana experiment. If you do choose to participate this week, you’ll have to pay a premium price to be a part of it. You’d be much better off financially to wait until supplies become more stable, and prices begin to fall before becoming a regular customer in this new industry.
(Photo courtesy of Brett Levin)
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