Advocates who push for the legalization of marijuana regularly make the point that legal cannabis will draw users away from the criminals of the black market and put their money into a legitimate industry.
If the current price of marijuana in Colorado is any indication, those advocates appear to be right. A new study shows that costs have dropped substantially since the first cannabis stores opened in January 2014.
Over the last 18 months, the price of a high-quality eighth of marijuana sold for as much as $70, far above the value set by the black market. The prices were initially described as the inevitable result of the novelty of legalization, and that presumption appears to hold up. The same eighth of an ounce now sells for between $30 and $50, down from $50 to $70 in June 2014.
An ounce, meanwhile, now costs between $250 and $300, compared to a cost of $300 to $400 a year ago. These prices are roughly in line with the cost of cannabis on the black market, at least in the American West.
Increasing customer numbers
Still, the number of customers continues to grow in the Centennial State, meaning the industry stands to make more money despite the drop in retail prices. That, in turn, will mean a substantial tax haul for the state.
It’s not especially surprising that marijuana prices are on the decline in states where the drug is legal. The legal cannabis industry has exploded in Colorado since 2014, and new stores continue to open. With each new shop come new customers and increased revenues.
Even so, customers are spending less per person, the survey found. That reflects the fact that the novelty has worn off legal marijuana, at least for Colorado locals. But the number of customers is still growing, and that in turn means more stores – which mean more customers.
On top of that factor, there are more cultivation sites, and increased production leads to lower prices. It’s a finely tuned balance of demand and supply, in other words, and the industry still has a lot of room for growth.
Natural result of maturing industry
Nicholas Coilas, an executive who works in the marijuana industry, called dropping prices “a natural result for any maturing industry as dispensaries try to find the market’s equilibrium price.”
Lawmakers are trying to help cannabis prices reach that sweet spot. Later this year the state will have a one-day holiday on the 10 percent marijuana sales tax, which will subsequently drop to 8 percent. The idea: to make prices low enough that customers have no reason to turn to the black market.
Legal price tags are now close to prices on the black market, so Colorado may not have much further to go. The rapidly equalizing cost of marijuana there suggests illegal dealers may soon be undercut.
Overall, the cannabis industry remains very healthy. It drew in about $44 million in revenue in April, producing $4.4 million in sales tax money. That’s a 98 percent increase from April 2014, and total revenues for 2015 should be 50 percent higher than last year’s haul.