October 24, 2013 10:56AM

Trading Marijuana

I was struck by the following from a recent news article about legalized marijuana in Uruguay:

[Uruguay's] Marijuana sales should start in the second half of 2014 at a price of about $1 per gram, drug chief Julio Calzada told a local newspaper, El Pais


In the U.S., the states of Washington and Colorado have legalized marijuana and adopted rules governing its sale.

Unlike Uruguay, they will tax pot, seeing it as a revenue source, when it goes on legal sale next year.

In Washington, the state marijuana consultant has projected legal pot might cost between $13 to $17 per gram, though some people suggest that's high.

Marijuana in the medical dispensaries typically ranges from $8 to $14 per gram in Washington depending on quality.

As with many products, it seems, marijuana will be much cheaper in developing countries than in the United States. This offers up opportunities for trade, as U.S. consumers would benefit from lower priced imports.

But I doubt that this trade will happen soon. I haven't looked at the proposed Washington and Colorado rules, but I'm guessing that import is prohibited. And the article notes that Uruguay is only selling domestically: "Sales would be restricted to locals, who would be able to buy up to 40 grams per month."

I can imagine that in the future, if the product becomes more widely accepted, trade between different jurisdictions that allow marijuana will be permitted and U.S. prices will come down. It may be a while, though.

But wait, there is one other problem: Is the price in Uruguay a market price? It may not be:

the idea is not to make money, but to fight petty crime and wrench the market away from illegal dealers.

"The illegal market is very risky and of poor quality," he said. The State "is going to offer a safe place to buy a quality product and on top of that, it's going to sell it at the same price."

In August, he had estimated that the price would be around $2.50 per gram.

It may be that Uruguay is offering not just legal marijuana sales, but subsidized marijuana sales. So, if there is trade at some point, we will have issues about whether below market marijuana is being traded "fairly." And I can imagine anti-dumping and countervailing duty complaints being filed against marijuana imports to drive those prices back up. This will be annoying if it happens, but at least it will make the cases more interesting than if it's just another boring steel product.