News & Politics

Maryjane Meets the Free Market, Free Market Wins

Among the strongest arguments for the legalization of drugs is that the black market will collapse, criminals will be deprived of a significant source of revenue, state tax coffers will swell, prices will fall and those who choose to get high can do so legally. Well, how about that:

Two years ago, the Washington state began an unprecedented policy experiment by allowing large-scale production and sale of recreational marijuana to the public. The effects on public health and safety and on the relationship of law enforcement to minority communities will take years to manifest fully, but one impact has become abundantly clear: Legalized marijuana is getting very cheap very quickly.

Marijuana price data from Washington’s Liquor and Cannabis Board was aggregated by Steve Davenport of the Pardee RAND Graduate School and Jonathan Caulkins, a professor at Carnegie Mellon University. After a transitory rise in the first few months, which Davenport attributes to supply shortages as the system came on line, both retail prices and wholesale prices have plummeted. Davenport said that prices “are now steadily falling at about 2 percent per month. If that trend holds, prices may fall 25 percent each year going forward.”

This, of course, leaves aside the moral questions of whether one should get high, or to what extent:

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.