Marijuana advocates maintain that legalization is the right choice, but politicians and government officials in states where the drug is now legal have seen some situations that might make legalization a regrettable decision. Those situations include price drops and the continuation of a black market to detract from the legal market.
Colorado has seen marijuana prices drop significantly in the last year, and that price drop is going to be a serious concern for other states where legalized marijuana is taxed by percentage. The price has fallen by as much as one-third, and a tax rate increase from 10 to 15% meant to combat the price reduction has had almost no impact due to the fall.
The states where taxes are levied based on a percentage of the price only leads to revenue when the consumers are buying from legal vendors. In cases where those vendors drop price in an attempt to sell their inventory, the state’s revenue falls as well.
For California, the decision to tax by weight has been a wise one, one that the state of Maine is following as of recently. However, that solution may become its own problem when marijuana growers alter strains to become more potent per ounce, thereby allowing customers to get more for their money and thereby purchase less marijuana to get comparable highs.
Meanwhile, the black market that was supposed to decline after legalization is still alive and well in some states, bolstered by legalization of marijuana in surrounding states. The black market is still strong and successful in both Colorado and California, despite the fact that recreational use has been legal in these states for a number of years.
In fact, polls conducted in California late in 2018 showed that almost one-fifth of the marijuana consumers polled had purchased from a non-licensed source in the last three months. Moreover, those individuals were highly satisfied with the purchase and had every intention of repeating the transaction again in the future.
In order to fight the black market, legal growers and vendors have to rely on competitive pricing and tax revenue, which may not be a successful business strategy. As a result, marijuana stocks may suffer as well. A viable solution to these struggles is not readily apparent.
The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Grizzle hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.