Colorado’s Department of Revenue is reporting a steep decline in marijuana prices following legalization. The office, which measures the price for cannabis every six months, says that marijuana prices in the state of Colorado took a dive last year, sinking 24.5 percent to $1,471 a pound. Analysts expect this downward trend to continue in Colorado and in other states with cannabis legalization, according to the Washington Post.
As a banned commodity, marijuana could command as much as $5,000, but the easier it is to grow, the more people will grow it, and the more it floods the market. It’s not unreasonable to expect that as the cannabis industry develops, there will be nothing to stop it from resembling the markets of mass-produced markets such as carrots or apples. According to the Post, “some analysts think that once a fully developed legal market is in place, the natural wholesale place for pot could fall to less than $50 a pound.”
The gist of the Post piece is that this decline in proceeds is bad for states. Most states with legal cannabis (Colorado, Oregon, Washington, Nevada, Massachusetts and Maine) tax a percentage of profits. The less the profits, the less the taxes. Another extreme possibility for the states is that as prices drop and regulation becomes more developed, the costs of cannabis regulation could actually exceed taxes collected from it.
California and Alaska have taken a different tactic toward taxing weed. Alaska imposes a flat tax on marijuana, $50 an ounce. California, in what’s termed a “belt and suspenders” approach to taxation, takes both a percentage of sales and a flat, per ounce tax.
That sounds good for the states, but not so hot for cannabis producers. If they can only sell weed for $50 a pound, but pay a $50 per ounce tax, they’ll be out of business pretty quick (or forced into the black market).
If prices continue to drop (and they probably will), marijuana will need to see an uptick in consumption if cannabis companies want to keep what they have. The Post projects that if Colorado wants to see the same profits it made last year, 2017 would need to see an increase in marijuana use by one-third.
That means that both industry professionals and state treasurers will be praying for more people to smoke, eat, and vaporize as much cannabis product as they can handle.
Photo via Flickr user David Gach