Marijuana is getting cheaper. For some states, that's a problem.

[Eugene]

Source: Washington Post

Marijuana is getting cheaper. For some states, that’s a problem.

By Keith Humphreys
November 16 at 12:40 PM

Wholesale marijuana prices in Colorado have fallen by a third in just the past 12 months, continuing a price crash that began soon after the drug was legalized. Although this implies that some marijuana entrepreneurs are going to go bankrupt, the bigger financial hit will be felt by states that tax marijuana based on its price.

Marijuana prices are collapsing in Colorado and in other legalization states (e.g., Oregon, where the price can go as low as $100/pound) because a legal business is dramatically cheaper to operate than an illegal one. Because states generally set their marijuana tax rates as a percentage of price, their revenue per sale sinks in direct proportion to the fall in marijuana prices. Ironically, in a bid for more tax revenue per marijuana sale, Colorado increased its marijuana tax rate from 10 percent to 15 percent last year, only to see the anticipated added tax revenue wiped out by falling prices in a year’s time.

States may have failed to anticipate this problem because of misleading predictions about the effects of legalization. Pro-legalization economist Jeffrey Miron projected in 2010 that marijuana prices would only fall 50 percent when prohibition was repealed, leaving the drug at a price that would yield high tax revenue. That was clearly a rosy scenario.

A starker prediction made by drug policy analyst Jonathan Caulkins looks more prescient every day: He forecast that legalized marijuana will eventually fall in price to the level of other easily grown, legal plants such as wheat and barley, such that a joint might sell for a nickel or even become a complimentary item akin to beer nuts at the bar. If that comes to pass, taxes based on a percentage of price might not even cover the costs of the government’s regulatory system for legal marijuana, meaning that rather than helping states’ bottom line the industry would be an outright drain on the public purse.

-snip-

Read more: https://www.washingtonpost.com/business/2018/11/16/marijuana-is-getting-cheaper-some-states-thats-problem/

[msongs]

1. govt as the new cartel model is not going to work. great for users! nt

[workinclasszero]

2. It's bound to get cheaper

[Hoyt]

3. If the price to consumer declines, consumption will increase, offsetting

some of any decline in tax per gram. That will increase demand, increasing prices in shortrun. And, if suppliers cut back, or go bankrupt, price and resultant tax receipts will increase. Then, according to the Cobweb Theory of agricultural products, the cycle begins again. At least that what I remember after decades of smoking weed.

[BigmanPigman]

5. That makes sense to me.

[pscot]

6. I'm not so sure

I find it tends to be self limiting. If it were cheaper i might smoke better weed but probably no more than now.

[Bradshaw3]

4. As cheap as beer nuts? Woohoooo

More money for me to spend on chocolate.

[samnsara]

7. wash state is the only state in legal land where any home grow is still illegal unless..

..you have a MMJ card. I can see this as the reason and I bet other states will start reeling in the home grown. I mean if the states are legalizing it to make $$ how can they do that if no one has to buy it?

[mopinko]

8. anyone who didnt see this coming is a fool.

and prolly shouldnt be trusted w the keys to anything.

[samnsara]

9. today my son in law got an oz of Blue Dream for 28$ in Seattle...