The Economist explains: How does Colorado's marijuana market work?


ON JANUARY 1st, 420 days after the citizens of Colorado voted to legalise marijuana, around 37 pot shops across the state opened their doors to all-comers. Stoners in Denver and other cities braved freezing temperatures and two-hour queues to be part of this historic moment, for Colorado has become the first jurisdiction anywhere in the world to oversee a legal, regulated market for recreational marijuana (20 states plus Washington, DC, allow patients with doctors’ recommendations to buy the stuff). Some customers were turned away, some shops have been forced temporarily to close while they replenish stocks, but “Green Wednesday”, as it was inevitably dubbed, was generally considered a big success. How exactly does Colorado’s marijuana market function?

Amendment 64, the measure approved by 55% of voters in November 2012, set certain parameters for Colorado’s marijuana regime, including maximum tax rates and the rights of cities and counties to exclude pot shops from their jurisdictions. But the details were worked out by officials and legislators over the course of 2013. Unlike many states (including Washington, which has also legalised marijuana but not yet licensed recreational outlets) Colorado’s medical-marijuana system is well regulated; not only did that make full legalisation an easier sell to voters, it provided a foundation for the recreational industry. Until October only licensed medical outlets “in good standing” can serve recreational customers, which is why lots of the shops that opened on January 1st have names like Citi-Med and Medicine Man. Colorado’s system of “vertical integration”, under which retailers must cultivate most of the stuff they sell themselves, will also remain in place until October; this makes monitoring easier for the state, even if one irritated observer likens it to a supermarket owning apple orchards.

One challenge is to set prices at what Mark Kleiman, an analyst, calls the “Goldilocks point”: too low and you encourage excessive consumption and out-of-state exports; too high and you leave room for illicit dealers. The market has not settled in yet, but prices for recreational marijuana, currently around $250-$300 for an ounce of good weed, will be significantly higher than the medical stuff, thanks to hefty taxes: a 15% excise tax levied on “average market rate” and a special 10% sales tax (the state’s general 2.9% sales tax will also apply). Only those aged over 21 may buy, possess and use marijuana in Colorado; they may…

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