The arrival of 2017 will bring many changes to the country, including falling marijuana prices in states that have legalized a recreational market. Cannabis users may cheer this news, but it heralds the start of an enduring budgetary headache for states that tax legal marijuana sales based solely on price.

New data from one legalization state illustrate the point. Colorado’s Department of Revenue assesses the going price for marijuana every six months and uses this information to calculate the value of the state’s 15 percent tax on pot production. The progression of marijuana prices over time in Colorado perfectly parallels the pattern in Washington after that state legalized: Prices briefly spiked due to initial supply shortages, but then began dropping as the marijuana industry matured and expanded. Wholesale prices in Colorado tumbled 24.5 percent over the past year to $1,471 per pound.

The marked descent of post-legalization prices was predicted by most marijuana policy experts. Nothing raises the price of a commodity like making its production, use and sale illegal, and that’s why an easy-to-grow plant like marijuana was able to command wholesale prices of $5,000/pound or more under prohibition. But as a walk down the aisle of your local grocery store will convince you, legal plant products – be they corn, almonds, red roses or allspice – don’t sell for anything near that amount, and legalized marijuana won’t either. Indeed 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.

Colorado, like Oregon, Washington, Nevada, Massachusetts and Maine, taxes marijuana as a percentage of the drug’s price. For these six states, sinking prices translate automatically into sinking tax revenue per sale. In Colorado’s case, the 24.5 percent drop in marijuana’s price brings the amount of tax per unit of marijuana down by exactly the same proportion. The state will start 2017 assessing a tax of only 15 cents per average-sized joint. Even if wholesale prices drop far less than what most analysts project in the coming years, the state’s tax revenue per unit of marijuana sold is going to be even lower in 2018 and lower still after that.


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