The Legal Weed Industry: A Tale of High Prices and Heavy Taxes
In the aftermath of New York’s legalization of recreational marijuana, the cannabis industry has seen a seismic shift. However, this new freedom has come with a hefty price tag. A 3.5-gram jar of flower, such as the popular 91 Octane strain, can cost as much as $60 at licensed dispensaries, compared to around $40 to $50 from unlicensed shops.
The high prices are largely due to the hefty taxes imposed on legal cannabis businesses. According to Jeremy Rivera, co-owner of Terp Bros, a licensed dispensary in Queens, the store pays around 52% of its income in federal, state, and local taxes. This is significantly higher than the 36% tax rate that traditional businesses face.
The taxes are a result of the federal government’s classification of cannabis as an illegal substance, despite its legalization in many states. This classification means that legal cannabis businesses are unable to take advantage of many deductions and credits that other businesses can claim, resulting in a higher tax burden.
In addition to taxes, legal cannabis businesses also face higher costs due to the need for strict security measures. Terp Bros, for example, has spent $67,700 on a security system that includes cameras and backup footage, as well as steel mesh reinforcement in the stockroom.
Despite the challenges, many customers are willing to pay the higher prices for the security and quality that comes with buying from a licensed dispensary. Mike Flefleh, a recent customer, said that he prefers the security of knowing where his cannabis comes from and what’s in it.
To stay competitive, legal cannabis businesses must be lean and efficient. Terp Bros, for example, sells every product for about twice the wholesale price, a common industry markup to defray the costs of running a legal business. The store also offers discounts and loyalty programs to attract customers and stay ahead of the competition.
As the market continues to evolve, it remains to be seen whether the high prices and heavy taxes will drive customers back to the unregulated market. However, for now, many customers are willing to pay the premium for the security and quality that comes with buying from a licensed dispensary.
