Buying Cannabis

Pat Beggan

Except in California, Falling Cannabis Prices Mean Falling Tax Revenue

Legal cannabis prices continue to fall and the states that base their taxes on price are seeing similar drops in tax revenue despite rising sales, The Washington Post reports.

Only states that tax cannabis by weight, like California and now Maine, are seeing benefits from increased sales.

Across the board, states with legalization have seen cannabis prices fall. In Oregon, the price per pound can go as low as $100. In Colorado, the cannabis tax rate was increased last year from 10 percent to 15 percent — any additional revenue that might have been generated, however, was eliminated by falling prices.

Though most economists predicted the price would drop, many were far from the mark when guessing the bottom. Economist Jeffrey Miron, who was in favor of legalization, predicted that the price of cannabis wouldn’t fall more than 50 percent once cannabis was legalized, but that milestone has come and gone.

Jonathan Caulkins, a drug policy analyst, may have made the best prediction. He said that cannabis would behave like many other agricultural products and that the price would fall to a level comparable to wheat. If the price continues to decline as more states legalize, existing tax structures based on a percentage of price might not even be able to fund the regulatory body that oversees the market, much less fund things like education.

The simplest way regulators could solve this problem is to switch to a system similar to California’s: tax the plant by weight. The obvious downside to that strategy is that it incentivizes cannabis producers to make their product more potent, a problem lawmakers could potentially solve by establishing potency limits.

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