As Colorado begins selling marijuana over the counter for recreational use, business students can learn a thing or two about that most basic economic rule: the law of supply and demand.
As the first sales got underway this month, observers have noted the price of marijuana has skyrocketed.
Where those who buy marijuana for medical use pay $25 for an eighth of an ounce, recreational users are being charged $45 for the same amount.
“That’s just supply and demand,” Aaron Smith, executive director of the National Cannabis Industry Association, told Bloomberg. “As more businesses open and the businesses get a sense of what the demand is and are able to meet it, the prices will go back down.”
How much those prices will lower and how fast it will happen remains to be seen. Sales of marijuana for recreational use just started on Jan. 1.
Part of the price hike also has to do with the new freedom of buying marijuana in Colorado, according to Andy Williams, CEO of the marijuana-selling business, Medicine Man Denver. People are willing to pay a premium for not having to break the law to enjoy marijuana, he said.
“Having the ability to buy safe, reliable, quality marijuana in an environment that’s fun and exciting sure beats going in a back alley and saying, ‘Hey, buddy, you got a bag?’” Williams told Bloomberg.
Business and government leaders in other parts of the country are expected to keep an eye on how the marijuana-selling business works in Colorado. The Denver government is already reaping the benefits by charging a 21% tax on marijuana sales.
Business has been booming, according to many media reports, which means money in the pocket not only for the businesses doing the selling but also the governments charging taxes at the state and local level.
The ongoing story also should prove to be an interesting study in the effects of the black market. For example, a street dealer told The Pueblo Chieftain that he expects to make more money as well by keeping prices cheap. Where taxes will drive the legal price to about $400 per ounce, the dealer said he will continue to charge just $225 to $300.
There are 37 stores that are permitted to sell marijuana in Colorado. According to a story in the Denver Post, the first person in line to buy marijuana when it went on sale at the Denver store 3D Cannabis Center was a 32-year-old Iraqi war veteran. The man said he uses marijuana to help him with post-traumatic stress syndrome.
Colorado now allows residents to buy an ounce of marijuana and out-of-state residents the chance to buy a quarter ounce. Later in 2014, Washington will also allow legal marijuana sales. Marijuana remains illegal under federal law. But the federal government has agreed not to stop sales in Colorado and Washington as long as both states have strict laws in the place governing marijuana sales.
