Uruguay Understands You Can’t Tax Legal Weed If You Want to Undercut Black Market

Uruguay is the first nation in the world that’s embarked on the project of legalized and regulated marijuana. In many respects, Uruguay’s legal marijuana market is more tightly controlled than those emerging in Colorado and Washington. The government, for example, will be a primary distributor of the product, and all users will have to register with it.

But Uruguay’s government has had a moment of clarity, at least, on the counterproductivity of taxes. Via Reuters:

Uruguay will exempt marijuana production and sales from taxes in a bid to ensure prices remain low enough to undercut competition from black market pot smuggled in from Paraguay, according to consultants advising the government on a legalization plan…

“The principal objective is not tax collection. Everything has to be geared toward undercutting the black market,” said Felix Abadi, a contractor who is developing Uruguay’s marijuana tax structure. “So we have to make sure the price is low.”

Uruguay’s government is run by a pretty leftist president, but it seems to grasp this market basic: a black market will persist so long as it can offer prices lower than those in regulated markets.  Colorado and Washington’s governments doesn’t appear to be there yet.

In both places, legal marijuana continues to be more expensive than the stuff you can get on the street, and it shouldn’t be a surprise, while Washington is plowing ahead with a legal marijuana system that imposes command economics on the drug, limiting the supply available by statute rather than allowing it to be determined by demand. Small wonder then that drug dealers don’t seem too worried about the “legal” competition.