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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

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.

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