The critical question of pricing in legalizing Cannabis
Call it Weed, Pot, Mary Jane, Ganja or any other street name – we all have our own name for it - marijuana is one of the most talked about drugs in the world right now – and for good reason too. Cannabis is a single substance which can act as a narcotic, a depressant and as a hallucinogen – depending on which strain you consume and what the quantity you imbibe.
One question faced by the countries which are legalizing Weed, concerns the ‘right price’ for the government to set for the drug. There are a number of variables to consider, not least potential tax revenues for the territories involved. Below, we consider: What is the ‘right’ price of cannabis?
Worldwide Price of Marijuana
To show the subject some serious thought, we need to look beyond a single production location and price. Marijuana, being one of the most available and widely available and used drugs on the planet, has a price in each market which sells it.
- A gram of weed, for example, can be found for as little as $0.08 in India.
- At the other extreme, in regions such as the United Arab Emirates, you would find dealers shipping the same product, at prices in the region of $110 per pound. That’s more than a thousand times the price in India.
- Japan is another country where marijuana sells for prices almost as high as the UAE.
So, if it is the same product all around the globe, why are there such large differences in price?
To establish the ‘right’ price, you have to view the marijuana industry through the lens of a business and apply the principles of Economics. That involves considering factors such as:
- Supply and demand
- The legal status of the plant in the territory being considered – illegal, decriminalized, legal for medical use or available for recreational use by all adults.
- The quality of the pot in the eyes of potential purchasers and whether that quality is known by the purchaser
- The use to which the Cannabis is being put – as a substitute for other drugs (which might make those using it prepared to pay more)
- Packaging and distribution costs
……………………………..among other things.
In a place such as the UAE, for example, where there are very strict laws regarding the illegality of weed (and high prices to be paid in terms of penalties applied by law enforcement in the region for those found to be transgressing them,) dealers can charge a premium, to cover all the risks they face in making it available at all.
Price Point of Illegal vs Legal Weed
As you may know, weed has been made legal in some areas of the US, and is about to be fully legalized (for those over 21 years old,) in Canada. Confusingly, marijuana is not considered legal at the federal level, in the US, although some (currently 9) different US states have departed from the Federal position and allowed its use.
Perhaps surprisingly, despite the fact that government regulated weed does not have the same legal issues associated with it, as illicit counterparts, it manages to be more expensive than illegal options. On the surface, there appears to be an inversion to the economics of demand and supply in these circumstances.
When test subjects in a recent study by the Journal ‘addiction’ – see charts above were presented with a typical scenario – the same quantity of weed, from two sources : One legal and one illegal, the answer becomes clear.
In circumstances under which legal weed was more expensive and illegal weed relatively inexpensive, they opted for the legal marijuana. Behavioral economists say this is as we would expect. People are prepared to pay to avoid the risks of being arrested and / or of getting a product with guaranteed quality and known THC content. (All legal weed sales have to mark these things clearly for potential purchasers at the point of sale – street corner dealers tend not to care too much about that sort of thing)
Interestingly, however, particularly for regulators in each market charged with the task of identifying the ‘right price’, that finding was not consistent across all prices.
Interest in the hypothetical legal marijuana example, began to fade, it appears, as the price started going up in comparison to its illegal option. In short, when the government makes Cannabis ‘too expensive’, people are prepared to opt for the illegal alternative and take their chances.
The Right Price for legal Cannabis
Considering the facts and arguments above, there’s really no single answer to what the right price of weed should be across the global market.
Canada has set a price of approximately $10 per gram, as a result of similar consideration. That’s a great deal more than the cost of growing the plant (which, effectively, if you think about it should cost approximately, what a teabag costs – because tea and Cannabis are grown in very similar ways.)
The major influencer on price, in reality, is not supply and demand, but the effect of the Black Market alternatives in each place, the governments desire to see them ended, and the threshold price at which people will break away from ‘doing what’s right’ and turning to illicit sources for the Cannabis they want.