Vice Squad
Wednesday, October 13, 2004
Amsterdam and the Price of Legal v. Quasi-Legal Pot

Last year, the Dutch made pot available in pharmacies to patients with prescriptions. Why would these patients need to go to a pharmacy, one might wonder, when pot is available openly in coffee shops throughout the country? Well, one argument was that many of the patients were not all that comfortable going to coffee shops, or that, for whatever reason, pharmacy provision would be an improvement.

But it turns out that for most patients, it seems, the pharmacy pot is not making the grade. Today's Chicago Tribune has this (AP) article with the details. In the Dutch case, the speculation is that the problem is not so much low quality -- that's been a concern with government pot in Canada -- as it is high price (even though insurance should cover much of the cost for many patients):
The government sells two varieties ranging from about $10 to $12 a gram--enough for up to four joints. Coffee shops sell it for as little as $5 a gram, with only the highest-quality pot fetching prices comparable to the government's.
Why is the price of legal pot so much higher than that of quasi-legal pot? I don't know, but it does remind me of the work of Boston University economist Jeffrey Miron. Miron tried to estimate how much cocaine and heroin would sell for in the absence of prohibition. He used various methods, including looking at the current legal market for medical cocaine and heroin (heroin is not part of the legal US pharmacopoeia but it is legal elsewhere). Miron came up with numbers for the price of legal cocaine that suggest that the current prohibition raises prices maybe less than you might think: perhaps by a factor of 2 to 4 for cocaine, and a factor of 6 to 18 for heroin. I particularly like the part of Miron's paper where he looks at how expensive the cup of coffee at your local Starbucks is in comparison to the "farmgate" price of the coffee beans that go into it. It's some 30 times more expensive, unless we're talking espresso, which is more like 130 times more expensive.

Incidentally, the black market price of pot in the US is typically lower than the price in the quasi-legal coffee shops in the Netherlands. Of course, much of the manufacturing and wholesale market for cannabis in the Netherlands remains effectively criminalized.

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