Legal Weed Revenues May Not be as High as Expected

While New Jersey has yet to legalize marijuana, if and when we do, the expected tax windfall may not be forthcoming. As noted in the Jaffe Briefing, the Washington Post has documented the falling price of weed in the states that have already legalized it.

Free market forces affect the marijuana business just like they do on other businesses. The Post reports that the price for a pound of marijuana has fallen 70% in four years and by a third in just the last 12 months in Colorado. The state has raised the tax to try to keep revenues flowing, but since the tax is a percentage of the purchase price and that price keeps falling, the state is not collecting its expected money. In Oregon, a pound of pot can be had for as little as $100.

Falling prices may be due to the fact that running a legal business is much cheaper than running an illegal one, and one analyst projects that eventually, marijuana will be as cheap as other “easily grown legal plants like wheat and barley,”

California is not experiencing this problem because they don’t tax as a percentage of purchase price, rather, they tax based on weight, which is not subject to the price variations. The downside of taxing that way is that growers then try to increase the potency so that the user can ingest less to get high; but, the Post says, states could cap the potency to prevent that.