With legal pot, Colorado and Washington are winning fight against black market, committee hears

Legal pot in Colorado and Washington is successfully competing with the black market, the House of Commons health committee heard Tuesday, though illicit sales still account for a sizable portion of the market.

But don’t expect legal marijuana to reduce use of the drug among young people, one expert warned.

Officials from both states said legal marijuana prices have dropped dramatically since recreational sales began in 2014. Sam Kamin, a professor of marijuana law and policy at the University of Denver in Colorado, said there are now calls for a price floor in his state, as prices are dropping low enough that there are concerns about the drug becoming too accessible to young people.

In Washington, which was initially criticized for charging too much tax and making it difficult for the legal market to compete with illicit sales, the tax system was replaced in 2015 with a single excise tax of 37 per cent. While prices of $25 and $30 a gram were being reported in 2014, they dropped to about $10 a gram a year ago and are now at less than $8, compared to black market prices of $9 to $11 a gram at the time of legalization, said Rick Garza, director of the state’s liquor and cannabis board.

Legal sales picked up as prices dropped, he said, and he estimates they now account for 50 to 65 per cent of the market. “I think the size of the marketplace at about $4 million a day in sales suggests that those prices are about equal to or lower than the black market,” he said.

Michael Hartman, executive director of the Colorado Department of Revenue, said he believes more than 70 per cent of the market in that state is now regulated.

But the Colorado officials were quick to warn the committee that marijuana revenue likely won’t be a major boon for the government. Tax revenue from marijuana sales in Colorado was about $200 million last year, but that’s still only a small fraction of the state’s tax base, Hartman said. “The economic incentives for (legalization) are relatively minimal.”

Kamin said that Canada will need to keep tax rates low initially, if it wants to compete with the black market, and the cost of legalization will be high. There are good reasons to move away from prohibition, he said, but “enriching state coffers is not among them.”

Speaking to reporters Tuesday, Conservative MP Marilyn Gladu suggested Canada should stick to online sales of marijuana, which she said would be more cost-effective than retail stores. “I think that is the best hope of meeting a price that would eliminate the black market.”

The Liberal government has pitched legalizing pot as a way to fight the black market and to keep the drug out of the hands of youth.

But on Monday, an RCMP official told the health committee it would be “naïve” to think that legalization will stamp out the black market entirely.

And in answer to a question from Liberal MP John Oliver on Tuesday about youth use, Kamin urged Canadians not to get their hopes too high.

“I think it would be unexpected… to hope that youth usage rates drop significantly as a result of legalization,” he said.

Earlier on Tuesday, Canadian police leaders testified that it could be “impossible” to get law enforcement trained by the July 2018 deadline the federal government has set for legalizing the drug.

Asked if there were similar concerns in Colorado, Hartman quoted a colleague: “We were flying the plane while we were building it,” he said.

Kamin said the supply of legal marijuana was a problem in the early days, especially as Colorado and Washington were the first states to legalize pot. “There was definitely rationing for the first while,” he said. “We were the first thing in the country. People came from all over. We didn’t probably have enough right away.”

He also said he was “shocked” by the sales of edible products, which he said accounted for about half the demand in the first year, and could be higher now. Canada’s proposed legislation will regulate the sale of fresh and dried cannabis, as well as seeds and oil, but the sale of edibles will come later.

Garza said edible sales in Washington were only about 12 per cent of total sales after legalization.

Asked about possible complications at the Canada-U.S. border once the drug is legalized in Canada, Kamin said he’s heard of individuals being denied entry to the U.S. if they admit to having used the drug, which remains illegal federally south of the border. But he said border guards do use their discretion.

“I know that this is going to be a tension… and enforcement at the border in both directions will be complicated by the endeavour that you’re all undertaking here,” he said.

Speaking to reporters Tuesday, Liberal MP Bill Blair said the government is well aware of the border concerns. “Many of those cross-border jurisdictional issues are already issues that people question and need to be resolved, and so we’re working hard on that.”

The health committee is meeting all week to discuss the new cannabis bill. 

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