Massive inflation could be side effect of marijuana legalization

Sam Walsh, left, a budtender, and facility manager David Martinez set up marijuana products as the 3-D Denver Discrete Dispensary prepares to open for retail sales on January 1, 2014 in Denver, Colorado.
Sam Walsh, left, a budtender, and facility manager David Martinez set up marijuana products as the 3-D Denver Discrete Dispensary prepares to open for retail sales on Jan. 1 in Denver.
Credit: Getty Images

There has been a party atmosphere around Colorado’s marijuana dispensaries since recreational sales became legal at the turn of the year.

“People have been queuing for four-five hours,” says Ryan West, an employee at a Denver dispensary. “Everyone is so excited and proud to be in the first state to legalize, and there is so much room to grow.”

West is a product of that growth, hired on Jan. 1 to cope with a boom that saw sales of more than $5 million inside the first week. Fewer than 200 dispensaries are licensed to sell the drug for recreational use and that number is set to rise, while related industries such as “weed tourism” are also growing rapidly.

But there have been unintended consequences, with prices more than doubling in some cases to more than $400 an ounce (28g). This is far higher than the rates of illegal dealers, allowing them to compete, despite the claims of marijuana advocates that a legal industry would replace the black market.

Illegal dealers are also benefiting from police confusion over new laws that have seen an 80 percent drop in prosecutions since 2012, including for distribution.

“Law enforcement feels like they don’t know which way to turn,” Tom Raynes, executive director of the Colorado District Attorneys Council, told the Denver Post.

Campaigners supporting legalization believe these issues are temporary glitches in an adjustment period.

“There has been historic demand at a historic moment, but as the number of licenses grow the demand and price will settle,” Taylor West, deputy director of the National Cannabis Industry Association, told Metro. “At that point the underground market will become obsolete.”

But the industry faces structural difficulties. Banks are currently forbidden from holding money generated through drug sales, forcing businesses to operate in cash, which demands more labor and risk. They are also denied the tax advantages of other businesses through a gap in state and federal law.

“Banking and tax are the big areas we are working on now in Washington,” said West. “We hope as other states see the example of Colorado, the growth of the industry and its advantage over the criminal market, we will see more progress.”

Further states are expected to legalize recreational sales, with Oregon likely to be next. But Colorado has shown the complications as well as the potential.


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