As licensed commercial pot production takes off in Washington State, prices are collapsing.
This was predictable. After all, the idea that a legal product was going to continue to sell at black-market rates never made a whole lot of sense. One grower recently told the Associated Press that what sold for about $21 a gram last year will bring in only four bucks this year. I'm hearing some stores in Spokane now offer bud for $12 per gram retail, which isn't very different from street prices. Washington prices are likely to go even lower over time, and there's no reason to think that Colorado—or Oregon, for that matter—will be any different.
As commercial prices fall, the black market will be squeezed out. Legislation in Washington State is poised to fold the medical market into the commercial one, speeding up the process. At that point—and not before—we can start to ask serious questions about the impact of legalizing cannabis; everything up to now has been mere prologue.
More than anything else, we have to figure out exactly what bottom-of-the-barrel pot prices mean for people—especially teenagers and 20-somethings—who like to get high all the time, to the point where it starts to interfere with the rest of their lives.
The problems caused by too little pot have quickly given way to the difficulties caused by excess. If some growers go broke, that's an issue for them, but not for the public. But if retail prices keep dropping, we can expect to see surging rates of heavy use, especially among young people. If they were to get as low as three or four bucks a gram—which won't be out of reach in a couple of years—Washington retail would be competitive with California's illicit wholesale market, and Washington could develop an "export" market supplying dealers elsewhere. (By the same token, Washington has to worry about competition from Oregon.)
The current tax systems in Washington and Colorado are both price-based (or ad valorem) taxes. That just means that taxes fall along with prices. But if the goal is to squeeze out the black market while minimizing the increase in substance use disorder—defined as continued use of the drug in the face of negative consequences—you really want taxation based on quantity rather than price, or "specific excise" taxes.
Oregon's legalization law has an excise tax, but it's fixed at $35 per ounce, or about $1.25 a gram. That's not going to be enough to keep retail prices there from falling dramatically. And because every ounce is taxed the same, regardless of how potent the bud is, the Oregon law encourages producers to make the strongest product possible. (Imagine if whiskey and beer were taxed at the same rate.) There's reason to worry that very potent cannabis—as measured by the content of THC—creates higher risks of adverse reactions such as panic attacks and patterns of problem use.
Of course, many Americans believe marijuana use rarely becomes problematic, and continued, overblown warnings of pot-induced Armageddon from conservative blowhards make it tempting to think the drug is harmless. But that's simply not supported by the facts. According to calculations done (for a not-yet-published paper) by Professor Jonathan Caulkins of Carnegie Mellon University, based on the National Survey on Drug Use and Health, about 40 percent of those who consume pot at all in the course of a month report using on 25 or more days during that month. About half of those daily or near-daily users—according to their own answers to survey questions—show signs of substance use disorder. That means they use the drug more often than they want to, or they can't stop using, and that it's causing conflicts with other people and making it harder for them to go to school, hold down a job, or deal with other responsibilities. With the number of heavy daily cannabis users up seven-fold over the past 20 years (according to Caulkins), the spread of cannabis overconsumption isn't something that we can safely ignore, and falling prices are likely to make the problem worse.
So how do we find the sweet spot in marijuana pricing? The ideal taxation system would levy a tax per milligram of THC, rather than per ounce of plant material. That tax ought to rise as the market price falls, in order to keep what the consumer pays more or less constant around the current black-market price of $10 or so per gram of roughly 10 percent–THC cannabis. Since producing weed legally is extremely cheap, that tax would eventually settle down at between five and ten cents per milligram of THC. And since ten to 20 milligrams of THC is enough to get a casual user stoned (depending in part on how the stuff is consumed), that hardly seems like an excessive price.
In the end, I still think we're likely to arrive at a legal system that, on balance, outperforms the drug war disaster that was the status quo a few years ago. But there's no guarantee, and a lot of fine-tuning needed to get from here to there.
Mark Kleiman is Professor of Public Policy at the UCLA Luskin School of Public Affairs. Through BOTEC Analysis Corporation, he provided advice to the Washington State Liquor Control Board on the implementation of Washington's legal cannabis market. Follow him on Twitter.