The importance of price to markets in addictive substances explains why New York’s unlicensed market is so big: It’s cheaper. To understand, consider a retailer like Hell’s Kitchen Cannabis Collective, which sells legal marijuana in Midtown. The founders, Bijan Joobeen and Patrick Conlin, have backgrounds in hospitality and wine, and the store, with its mahogany wood and tasteful decorations, is reminiscent of a high-end bottle shop. Conlin described the product as “small-batch”; he couldn’t call it “craft,” he noted, until the state labeled it as such.
Not itself licensed to sell, H.K.C.C. functioned as a sort of marijuana farmers’ market that gave growers somewhere to take their product so it didn’t rot in their warehouses as they waited for legal storefronts to open. As of late last year, an eighth of an ounce at H.K.C.C. cost between $34 and $62. That is, Joobeen says, “more than you would pay at any of the illicit shops around the corner.” But H.K.C.C.’s bet is that the quality difference — and the legality — is worth the cost.
That may be true for casual customers. But it’s probably not true for someone like Joseph, a daily smoker who was window shopping at H.K.C.C. Joseph smokes about an ounce of marijuana a week, meaning that buying from H.K.C.C. could run him upward of $14,000 per year. Instead, Joseph buys at the bodega around the corner, where he can get an eighth for $12.50 to $15. Shopping illegally probably saves Joseph nearly $9,000 annually. But it also renders H.K.C.C.’s business model nonviable. “It’s extremely likely that we will be the first licensed retailer to fail in the state,” Joobeen says. “It’s impossible for us to compete with the 24 illegal dispensaries in a three-block radius that present themselves as legal shops.” (H.K.C.C.’s showcase license has lapsed, and the store remains closed as Joobeen and Conlin struggle to reopen under a full license.)
Why is legal weed more expensive? Because its sellers comply with the rules. Regulating a commodity imposes costs on producers, which are then passed on to consumers as higher prices. New York’s 9 percent tax on marijuana sales means that legal weed costs more. Requirements that marijuana be sourced in-state or restrictions on the number of licenses limit the number of competitors in the market, further raising prices.
New York has made certain choices that exacerbate this dynamic, like initially restricting its dispensary licenses to people who had been convicted of marijuana-related offenses (or their close relatives). But the problem is not unique to the state. In their book “Can Legal Weed Win?” the economists Robin Goldstein and Daniel Sumner argue that licensed and unlicensed marijuana are basically the same product — the same plant, with the same psychoactive effects. The difference is that licensed weed is heavily regulated, which results in higher prices. That’s true outside New York: In their 2019 study of the prices of over 200,000 marijuana products in California, Goldstein and Sumner and their colleague Raffaele Saposhnik estimated that licensed cannabis is 10 to 25 percent more expensive than unlicensed cannabis. The cheapest unlicensed product costs half as much as licensed ones. (California, like New York, has a huge unlicensed market.)
