A Critical Look at the D.C. Cannabis Model
On November 4, 2014, voters in Washington, D.C., approved Initiative 71, a ballot initiative that legalized the recreational use of cannabis for adults 21 and over.
But there was a bit of a catch.
Initiative 71 “allows adults 21 and older to possess up to two ounces of marijuana, grow up to six plants, and gift up to one ounce of pot to other adults 21 and older, but sales remain banned.”
So, in short, it's legal to possess and grow cannabis in D.C. but still illegal to sell it.
But look at the law again. It is legal to give someone a “gift” of up to one ounce.
So if I lived in D.C., I couldn't sell you cannabis, but I could give you a cannabis gift in exchange for another product or service.
For example, I could bake a batch of cookies and sell them to you for $300 (because, hey, they're my cookies and I can charge whatever I want for them, right?). And when you buy my $300 batch of cookies, I'm going to give you a gift of an ounce of weed.
Well, I keep reading that this is what has been openly going on since 2015, after the initiative went into effect.
So I went down to D.C. last weekend to check this out for myself. And that is exactly what's going on.
Getting a cannabis “gift” in D.C. is easy. There are pick-up and delivery services. I've found several of these listed on different websites online. They sell everything from small desserts like cookies to JPEG images. Or you could just walk into one of several brick-and-mortar shops, which offer similar products and services.
The place where I eventually purchased a service was offering “life advice.” I couldn't turn that one down.
So for $60, here's the life advice I got: “Always look both ways twice before crossing the road — because you down want to get hit by a car.”
So, okay, I guess that is good advice. And I guess that's the same level of advice you'd get from an actual life coach for the same price. But you can clearly see the ruse here.
My $60 life advice came with a four-gram cannabis gift.
Initiative 71 does seem better for the consumer. It's ridiculous that cannabis is illegal in the first place. And Initiative 71 does do a great job of decriminalizing cannabis users.
And it does seem better for the sellers... sorry, I mean “gifters.” Again, it's ridiculous that cannabis is illegal in the first place.
But it's not perfect.
First, take a look at that price again: $60 for four grams. The average price for a gram of weed in states with recreational cannabis laws is closer to $10. So it's not exactly ideal for the consumer, as prices are higher.
But we also have to wonder if all this money is being properly reported for taxes.
It's probably not.
Despite cannabis being legal in D.C., there is still an air of it being part of the black market. Brick-and-mortar stores that offer gift exchange aren't initially open about it until you talk with someone — they don't have signs out front saying "gift exchange here."
And pick-up services — they're even a bit shadier. You generally just text a number, and they'll tell you to meet them in a random hotel room.
With completely legal recreational use (no catches with selling), more of that revenue will likely be reported.
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Maybe more importantly, however, the whole model keeps out investors.
I mean, come on — what major investment house really wants to get involved with the D.C. cannabis system as is? It's legal... sort of. No one can technically sell it.
Any cannabis-interested money is going to go to areas where recreational cannabis is already completely legal across the board.
Why take the risk with D.C.'s 99% legal model?
I understand that things like recreational cannabis legalization can't happen overnight and that Initiative 71 was most likely just a way to ease the opposing public into the inevitable. But Initiative 71 was passed five years ago. Today, there are 10 states where recreational cannabis is legal and 33 total with medical cannabis regulation.
If D.C. wants its fair share of the cannabis industry now and doesn't want to fall behind, it really should just go ahead and get rid of the no-selling part of the law.
Granted, I live in Baltimore. So I really don't have a good reason to say what the city of D.C. should do. But the D.C. cannabis model will also help set state policies in the rest of the nation.
If the city were to just go ahead and make selling cannabis for recreational purposes legal, it would set a better tone for the national industry and investors overall.
Getting rid of the no-selling part of the cannabis law will drive confidence in the industry higher. It will mean more investment, jobs, taxes... everything the country overall wants.
So come on, D.C.
You took the ball to the one-yard line and then stopped.
Quit teasing us.
Until next time,
As an editor at Energy and Capital, Luke’s analysis and market research reach hundreds of thousands of investors every day. Luke is also a contributing editor of Angel Publishing’s Bull and Bust Report newsletter. There, he helps investors in leveraging the future supply-demand imbalance that he believes could be key to a cyclical upswing in the hard asset markets. For more on Luke, go to his editor’s page.
P.S. If you happen to live in D.C., please go ahead and forward this to your representative.
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