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Demand puts premium on recreational marijuana prices in Colorado

People looking to buy marijuana in Colorado are facing steep price hikes, long queues and shuttered stores as demand for recreational sales, which became legal in the state on New Year's day, outstrips supply.

"Prices for adult-use cannabis are both higher than medical (as expected) and going up since opening on January 1 based on limited supply and even larger than expected demand," said Betty Aldworth, deputy director of the National Cannabis Industry Association.

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Medical marijuana grown in Denver, Colorado.
Harriet Taylor | CNBC
Medical marijuana grown in Denver, Colorado.

The trade group does not formally track prices, but estimates that recreational cannabis is selling for an average of $400 an ounce in Colorado – twice the $200 charged on average for an ounce of medical marijuana.

At the Clinic Colorado in Denver, prices for recreational, or adult-use, marijuana ranged from $55 to $77 per eighth-ounce portion – the most commonly sold amount – compared with $37 to $46 for medical patients.

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The supply squeeze is partially due to how Colorado has set up its retail market. For the first nine months of this year, dispensaries must grow 70 percent of what they sell and growers must sell 70 per cent of what they grow through their own retail outlets, forcing vertical integration.

Only existing medical dispensaries are being granted retail licences inthe early phases of Colorado's market, adding to the bottleneck. The state has granted 136 licences to stores, but many did not begin selling immediately on January 1. Sixteen more stores have licences pending.

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Colorado restricts recreational sales to one ounce for state residents and a quarter-ounce for visitors. Still, retailers racked up about $1m in non-medical sales on January 1, which was likely to be the biggest sales day of the year. The state has projected combined retail and wholesale sales for 2014 of about $578m, yielding about $70m in tax revenue.

The 3D Cannabis Center in Denver, which was among the first retailers open last Wednesday, closed on Monday and Tuesday to restock after high demand sapped supplies. A message on the store's phone line directed customers toother dispensaries that were still open.

BotanaCare in the suburb of Northglenn said it had a 15-minute queue on Monday morning for recreational sales, but no wait on its medical side.

Industry watchers said they expected supply and demand to even out as many retailers who were waiting out the initial rush joined the market.

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"Given that several additional stores are opening each day and the novelty of being one of the first purchasers is ending, any statewide shortage (if it happens) is probably a few weeks away," Ms Aldworth said.

Alicia Contreras of Denver's Timberline Herbal Clinic said her dispensary was granted its retail licence late last Friday, earlier than it had expected, and did not have any queues yet. "We are open, but people might not know," she said. "We're sort of under the radar."

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Colorado became the first state to allow sales of the drug for recreational use when voters approved a referendum in 2012. Voters in Washington state passed a similar law but sales will not start till later this year.

Twenty states and the District of Columbia permit medical marijuana, with New York set to become the 21st. The drug remains illegal under federal law.

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