Wholesale marijuana costs in Colorado have fallen by a third in simply the previous 12 months, persevering with a worth crash that started quickly after the drug was legalized. Although this suggests that some marijuana entrepreneurs are going to go bankrupt, the larger monetary hit shall be felt by states that tax marijuana based mostly on its worth.
Marijuana costs are collapsing in Colorado and in different legalization states (e.g., Oregon, the place the worth can go as low as $100 per pound) as a result of a authorized enterprise is dramatically cheaper to function than an unlawful one. Because states usually set their marijuana tax charges as a proportion of worth, their income per sale sinks in direct proportion to the autumn in marijuana costs. Ironically, in a bid for extra tax income per marijuana sale, Colorado elevated its marijuana tax fee from 10 % to 15 % final yr, solely to see the anticipated added tax income worn out by falling costs in a yr’s time.
States may have did not anticipate this drawback due to deceptive predictions concerning the results of legalization. Pro-legalization economist Jeffrey Miron projected in 2010 that marijuana costs would solely fall 50 % when prohibition was repealed, leaving the drug at a worth that may yield excessive tax income. That was clearly a rosy state of affairs.
A starker prediction made by drug coverage analyst Jonathan Caulkins appears extra prescient every single day: He forecast that legalized marijuana will ultimately fall in worth to the extent of different simply grown, authorized crops like wheat and barley, such that a joint may promote for a nickel and even grow to be a complimentary merchandise akin to beer nuts on the bar. If that involves move, taxes based mostly on a proportion of worth won’t even cowl the prices of the federal government’s regulatory system for authorized marijuana.