The calculations don't take into account the onerous taxes that are going to be imposed on legal marijuana, and probably at some point there are going to be limits on the THC levels that can legally be sold. Illegal weed is going to end up still competitive.
While you may be correct, though this is highly speculative, the reality is the stuff the Mexican cartels push is extremely low grade, and always has been. Thus it seems unlikely they'd be the ones to seize this opportunity... More likely it would continue as it stands today: boutique producers of high-grade, high-manual-cost indoor hydroponics. Legalizing allows everyone to grow in their own homes. It's not like tobacco which requires big fields and lot's of post-processing. One big plant is enough for one consumer for a year...
This is unfortunately quite likely. Witness the involvement of organized crime in cigarette smuggling as cigarette taxes have risen.
If we want to minimize the involvement of organized crime, not only does marijuana have to be legalized, but the taxes have to be low enough for black market alternatives not to be worth the trouble.
black market prices are so far out of whack with market value (apart from the value of getting something your govt. has declared illegal) that taxes would have to be ridiculously high to make prices even come close to street cost of equivalent drugs. Either that or street price collapses to legal price (perhaps minus taxes) and criminals are less incented to participate due to drastically reduced margins. High taxes really are only a concern for someone looking to buy wholesale, an individual user buying say 3.5-7 grams at a time would likely be paying, at most, a few dollars in taxes, which is hardly prohibitive since the same amount illegally costs ~40-80 dollars afaik (note: I don't dabble in illegal drugs but may have used some in high-school, so this cost knowledge is a little out of date, but I suspect not horribly off).
You're talking about current illegal drug prices. When taxes on legal drugs are high enough, criminals selling legal drugs on the black market could still make a tidy profit while undercutting the cost of legal drugs. Granted, those profits won't be nearly as obscene as those garnered now from the sale of illegal drugs, but profitable enough to stay in business.
Legal cigarette prices in the US are nowhere near the price of illegal drugs, but the taxes on them still provide enough incentive for organized crime to get involved in smuggling cigarettes and selling them on the black market, and enough incentive for cigarette users to buy black market cigarettes.
The same is likely to happen with legalized marijuana, unless the price (including taxes) is kept low enough to make buying black market marijuana not worth the trouble -- much like it's usually not worth the trouble to buy moonshine in the US, when there's plenty of relatively cheap, legal and safe alcohol available.
Yes, my primary point was that the current cost on the illegal market (which is what attracts criminal elements) is so ridiculously out of whack with the actual cost of production that taxes would have to be massively high to drive a black market similar to what exists when it is illegal. Will there be some people still getting it 'illegally'? Sure, as you pointed out there is a black market for cigarettes, but it pales in profit comparison to markets that are entirely illegal, and cartels aren't going to be attracted to nickel and dime markets when they have so many other ways to make money.
American organized crime may be involved in black market cigarettes, but that could also be viewed as a sign of them searching for new revenue streams as their old(er) ones get shut down or become less reliable. Organized crime also used to be involved in alcohol, not so much anymore yet it is still heavily taxed in most peoples eyes.
Further, I assume that legal providers would need some sort of approval/licensing from the state. Illegal providers would not pursue that. So while they would save money dodging the licensing/tax issues they likely could not cost compete with legal producers as they are taking a greater risk they would want to be compensated for (i.e. arrest). The illegal producers would then be doing a risky activity (they wouldn't be shielded by the legality if there are rules around production/supply that they aren't following) and incurring costs that legal producers would not incur. Whether those costs offset the licensing/tax issues is unclear, but I suspect they would.
I don't think your claim is preposterous (that taxes need to be kept in check), but I also am not convinced that taxes will be so high as to drive this kind of market. Time will tell since more states have recently introduced marijuana legalization (assuming the DEA doesn't go all gangbusters on said states).
Cigarette taxes? Please, in NY a pack of cigarettes costs $11. Say for argument's sake that's a $10 tax.
2.5g of marijuana on the street costs anywhere from $50 - $60! That would equate to a $50 tax on half a pack of marijuana cigs. That's what people are paying right now. If you add in the safety and convenience of picking up MJ cigs at a bodega on the corner I could see people paying far above the current price with no problem.
I know these are current street prices but I'm just trying to show you the already absurd markup. $11/pack for marijuana cigarettes is a $10 tax that no one would complain about and no cartel could compete with.
First, there are about 22 grams of tobacco in a typical pack of cigarettes. At the $11 per 2.5 grams price you quoted in your message, it would cost nearly $100 for a pack of legal marijuana with as much marijuana in it as a typical pack of cigarettes... with (again using your estimate) about $87 of that amount being tax -- tax that could go towards operational expenses and profit of a black market enterprise that could provide tax-free marijuana.
Second, cigarette smuggling does exist, and organized crime is heavily involved in it.[1]
Third, (as demonstrated in the above) legal marijuana does not have to cost as much as the current price of illegal marijuana to make a black market viable. It just has to cost enough to make the trouble of buying marijuana on the black market seem worthwhile for the consumer and the profit and risk worthwhile to the dealers. We can call this the "black market viability price point".
It's quite likely that this black market viability price point can be significantly below current illegal marijuana prices. But it's not yet clear how much above the cost of production legal marijuana can be taxed before it approaches the black market viability price point.
Alcohol legalization and taxation might be seen as a positive role model for how marijuana legalization and taxation could be carried out. Alcohol is now legal and taxed, but there isn't much (any?) of market for black market alcohol in the US.
