If you suffer from a medical condition for which medical cannabis is appropriate, there is good and bad news. The good news is that 38 states now allow medical cannabis. The bad news is that medical cannabis is awfully expensive in most of them. It is expensive enough in some states to actually be prohibitive.
Utah implemented its medical cannabis program back in 2020. According to the owners of Pure Utah in Payson, prices remain pretty high nearly two years into it. Unfortunately, Utah patients are not alone. Even in California, which has some of the most liberal cannabis laws in the nation, legal products are a lot more expensive than illicit cannabis.
If you are curious as to why that is, here are five reasons to consider:
1. State Taxes
Every state with legal cannabis taxes the industry to some degree. Many states tax cannabis at every level of the supply chain. That means growers pay taxes, followed by processors, distributors, and retailers. Even patients pay taxes on their purchases. Every layer of taxation adds to the final cost.
2. Federal Taxation
Federal taxation is another problem, but not in the same way as state taxation. Cannabis itself is not taxed at the federal level because it is considered an illicit substance. Cannabis businesses must pay income tax just like any other businesses. But they have an added financial burden by way of write-offs.
Businesses in other industries can write off their expenses. What they pay to run their businesses is deducted from total revenues so that they only pay income tax on their profits. Cannabis businesses cannot do that. Because what they do is considered illegal, Washington does not recognize their expenses as legitimate. They must pay income taxes on their total revenues – not just the profits.
3. Licensing Costs
In addition to taxes, cannabis businesses need to be licensed. Annual license fees can range anywhere from a few hundred dollars to upwards of $10,000. It depends on the state and the type of license a business needs.
Licensing is theoretically implemented to prevent the cannabis industry from becoming a free-for-all. As for why license fees need to be so high, no one can say for sure. Maybe fees are just another revenue generator for state governments.
4. Operating Costs
Operating costs in the legal market are pretty high. Legal businesses are ultimately concerned about two main things: product quality and not running afoul of state regulators. They need to put a ton of money into their operations to guarantee both.
The operating expenses for an indoor grow include everything from specialized heat lamps to actual floor space. A processing business invests in expensive extracting and refining equipment. Their labor costs are also pretty high.
In the retail setting, the biggest costs are labor and overhead. Both add to the final retail price consumers pay. And along the entire supply chain, every business’s costs are ultimately passed on down the chain.
5. State and Local Regulations
Finally, legal cannabis is a highly regulated industry at both the state and local level. Wherever there are regulations, there are also added costs incurred as a result of compliance. Regulation just makes doing business more expensive. This is true in every industry, not just cannabis.
All these things add up to high retail prices. On the other hand, illicit operators do not pay attention to any of it. They do their thing on their own terms. The net effect is lower costs for them, which makes it possible to sell equal or better products at lower prices. It is basic economics.