Price Fixing and Collusion in the New Market for Legal Marijuana

Photo by: Frederic J. Brown/Getty Images

Photo by: Frederic J. Brown/Getty Images

2014 may have been the biggest year yet for marijuana in the United States. Two states, which had previously voted for legalization back in 2012, officially allowed retail stores to open for business, and two more states (excluding Washington D.C.) voted to legalize as well, paving the way for two more legal markets to spring up. For the first time, it seems that the marijuana legalization movement finally has some wind in its sails and that the future is bright for the budding industry.

With the whole industry still in a state of incubation — fragile incubation, at that — it may come as a surprise that some of the players on the inside are already rocking the boat. With lawmakers and many in the voting public still wary and undecided as to whether or not legalization was the right path, you’d think that those within the industry would tread lightly. Well, that’s not the case in Washington state, anyway, where reports have surfaced regarding collusion and price-fixing between the state’s licensed growers.

Though both Washington and Colorado saw their legal markets open for business over the past year, Colorado — which has taken a more hands-off approach in terms of regulation — has been more successful to some degree. Washington, on the other hand, has tried to a much more overbearing method of implementing legalization, by only allowing a certain number of lottery winners to open retail shops, become growers, or become processors. This, naturally, has led to product shortages and, you guessed it, astronomical prices. Add on to that a high level of taxation, and the price for pot in the evergreen state is far and away higher than what most consumers could probably find on the black market.

Source: Chris Hondros/Getty Images

Source: Chris Hondros/Getty Images

According to Portland’s KOIN 6, a lawsuit is already in the works with Washington’s growers in the cross-hairs, claiming that they have been working together to make sure prices remain high, and therefore more profitable.

“There’s a reason that the prices are so high here, and it is not the free market at all,” said Liz Hallock, the attorney behind the lawsuit. “The charges are unfair competition, anti-trust, and the per se violations are collusion and intent to price fix.”

Hallock also says that there are some reports that growers actually had sit-down meetings to concoct plans to slow or stymie marijuana production, which would lead to an artificial shortage, and inflate prices. This, of course, would violate anti-trust and monopoly laws, particularly Washington’s Consumer Protection Act. “When producers here in Washington are asking for $12 to $13 a gram, they’re marking up the prices 1,300%, which does not benefit the consumer at all,” said Hallock. While it’s yet to be seen whether the lawsuit will make it through the court system, or at least put a scare into Washington’s marijuana producers, there are other interesting things happening on the legalization front as well.

Washington is in a unique position as it will soon be faced with another interesting predicament in the near future, when legal sales in Oregon kick into gear. Oregon’s law calls for less-stringent state controls, and less taxation on marijuana at the retail level, which will ultimately make product cheaper on the Oregon side of the state line. With that in mind, many cost-conscious consumers will likely just jump the border to buy product, putting the hurt on Washington’s retail locations — especially along the busy I-5 corridor in the Portland and Vancouver, Wash., areas.

“We’d just like it to be more that we were on a level playing field with them,” Loren Carlson, a marijuana retail shop owner, told The Seattle Times. “This will probably irritate a lot of people, but I don’t really see a way to lower prices at the retail level until something’s done on the taxation.”

Washington legislators will likely need to adjust the law and taxation rate at some point, especially as other states incorporate legal markets, and a bigger view of what regulation methods are most successful comes into play.

While those within the industry seem apt to threaten the industry from within, there are also significant external threats that are emerging as well. On the legal front, Colorado is being sued by neighboring states Nebraska and Oklahoma, and may soon be joined by Wyoming and Kansas. Those states filed a lawsuit with the Supreme Court hoping to find Colorado in violation of the Constitution, and put an end to the legalization movement as we know it.

The rationale behind the lawsuit is that these neighboring states have been forced to bear undue costs in terms of extra law enforcement to police marijuana coming over the border and into their jurisdiction. While that logic may be sound on some level, it’s still pretty surprising to see states like Kansas, Oklahoma, and Nebraska — all of which are traditionally very conservative, and support state’s rights — to go after another state for a law that its own voters passed at the ballots. The fact is, these states are, in a way, calling for an entire industry to be snuffed out — along with the 10,000 jobs it supports.

While it’s only been one year since Colorado’s legal market has actually been open, pulling the plug on it now would cause significant economic damage. There are, after all, people working in many different phases of the industry, not just production and retail sales. There are tourism companies, legal and financial professionals, specialty processors, and many more, all who would face unemployment because a few neighboring states feel that they’re being victimized in the form of extra police costs.

Of course, if legalization is stamped out by the federal government, that would only lead to a huge swelling of law enforcement costs to step in and reinforce prohibition laws, and send people back to the black market.

One positive from the lawsuit is that it will actually probably force the feds to finally address the situation, which they have thus far been reluctant to do. Of course, they could end up burying the entire industry, causing a lot of damage in both Colorado and Washington as a result. However, there really isn’t much reason for the federal government to do so, as legalization has not led to any widespread health or crime problems to speak of. It’s also going to be hard to deny the will of the people, as all of the legalization initiatives passed so far have been put into place by the voters.

Marijuana definitely had a successful 2014, but still faces a slew of challenges — both internal and external. As with any type of business, a lot of those internal issues will sort themselves out with time. The question is whether or not those external threats end up nipping the whole marijuana industry in the bud.

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