Medical Cannabis in Utah: Cost Is Catching Up to the Program
Since launching its medical cannabis program some five years ago, Utah has been an example to other states of how to create a program that is equitable and manageable. Things have been going swimmingly so far. But now it appears the big problem plaguing cannabis programs and other states is finally catching up to Utah: product cost.
A recent Fox 13 news report suggests that the limited number of growers producing medical cannabis in Utah are starting to feel the pinch from their elicit competitors. The report suggests that a fairly large number of Utah medical cannabis patients are not purchasing from state licensed dispensaries, like Cedar City’s Zion Medicinal.
So where are they going? To either black market sellers in Utah or recreational markets in neighboring states. Their reasons for doing so are not complicated. Patients are purchasing from whoever has the cheapest price. And in any regulated market, that tends to be illicit operators.
The Majority of Sales
One industry representative interviewed by Fox 13 estimates that as much as 60% of the medical cannabis found in Utah is coming from the black market. Unfortunately, that amounts to a majority of the total sales. It also means that Utah growers, processors, and medical cannabis pharmacies are only tapping into 40% of the market. That is a lot of potential being lost to the black market.
Utah has two things working against it. First, regulators have tightly controlled the market through licensing. Initially, the licensing scheme kept things in check by preventing market saturation that would ultimately drive cannabis companies out of business. But now the tide has turned.
Just 15 Pharmacies
A perfect illustration of how regulation is harming Utah’s market is found in the state’s medical cannabis pharmacies. Regulators originally licensed 14 pharmacies to serve what they expected to be a patient load of fewer than 10,000. There are now more than 80,000 registered medical cannabis patients. And yet there are still just 15 pharmacies serving the entire state.
The state also has limited grower and processor licenses. This may be good in the sense that it keeps out-of-state competitors from poking their nose into Utah’s business, but whenever commerce is regulated by licensing as a means of controlling who gets to participate, the end result is always higher prices. That is economics 101.
State Justification Doesn’t Matter
The state’s justification for continuing its regulatory scheme is to guarantee product quality and prevent market saturation. But at this point, such justifications do not matter. What matters is that the majority of cannabis circulating in Utah doesn’t come from licensed businesses.
If patients are driving to neighboring states where they can purchase recreational cannabis at a cheaper price, you can bet they are going to do so. That is why the fact that Zion Medicinal is the only pharmacy serving rural patients is so egregious. Patients that don’t live in Salt Lake City or Provo have more motivation to drive to neighboring states if the distance is shorter.
Cost Will Always Be the Primary Factor
As successful as Utah’s medical cannabis program has been, it’s time state regulators face the fact that cost will always be the primary factor that motivates patients. Whoever offers the cheapest price will get the business.
Utah needs to find a way to bring prices down if there is any hope of success for legal operations. Otherwise, the Beehive State is likely to follow in the footsteps of others like Oklahoma, California, and Oregon – states in which the black market thrives while the legal market struggles to get by.
