So, something interesting happens to weed after it’s legal

Although some observers will be surprised by these sharp price declines – perhaps particularly some investors in the emerging legal marijuana industry – seasoned drug policy analysts have long predicted this effect. As noted by Caulkins and his colleagues in the book “Marijuana Legalization: What Everyone Needs to Know,” prohibition imposes many costs on drug producers. They must operate covertly, forgo advertising, pay higher wages to compensate for the risk of arrest, and lack recourse to civil courts for resolving contract disputes. Legal companies in contrast endure none of these costs and also can benefit from economies of scale that push production costs down.

Falling pot prices create winners and losers. Because state taxes are based on a percentage of the sales price, declining prices mean each sale puts less money in the public purse. On the other hand, bargain-basement prices undercut the black market, bringing the public reduced law enforcement costs, both in terms of tax dollars spent on jail and the damage done to individuals who are arrested.

For consumers who enjoy pot occasionally while suffering no adverse effects from it, low prices will be a welcome but minor benefit; precisely because they consume modest amounts, the price declines are only a modest win. On the downside, young people tend to be price-sensitive consumers, and their use of inexpensive pot may rise over time, as might that of problematic marijuana users.