Since Colorado legalized recreational sales of marijuana in 2014, the industry has been booming, with the state reaping $60 million in tax revenues last year from marijuana sales alone. However, as the market continues to be flooded with more users, more dispensaries and more growing facilities, the price of marijuana in Colorado has been rapidly falling, according to a study released today from a global brokerage company in New York.
Over the past year, the cost of an ounce of recreational marijuana has decreased by an average of about $100, the study from Convergex found, decreasing from about $300 or $400 last June about $250 to $300 now. Similarly, an eighth of an ounce sold for about $50 to $70 last June, compared to $30 to $45 now, according to the study.
“More competition and expansion of grow facilities contributed to this price decline,” wrote Nicholas Colas in the summary for the report, “but it is also a natural result for any maturing industry as dispensaries try to find the market’s equilibrium price.”
Part of the price drop can be contributed to the increase in vertical integration strategies for dispensaries, the study noted. Colas wrote that Convergex’s contacts in the Colorado’s dispensary industry had been buying additional warehouses and expanding grow facilities to cut down on middle-men costs passed on to the consumer.
The shifts in the cannabis market “shouldn’t be too much of a surprise,” Colas said. For example, the fact that the study found that the market’s more saturated areas, such as Denver, tend to have cheaper prices keeps with the time-tested model of supply and demand pricing.
The study also found that recreational cannabis sales grew 98 percent over the last year in Colorado, based on reports from the Colorado Department of Revenue that stated a 98 percent increase in sales tax revenue. Convergex also projected a 50 percent increase in revenues for this year up to $480 million for recreational marijuana sales.
Prices will drop even further for a one-day tax holiday on Sept. 16 in Colorado when a Governor John Hickenlooper will repeal the sales tax on marijuana based on a glitch in their state’s constitution. Then, in 2017, the sales tax will be permanently dropped from 10 percent to 8 percent on marijuana sales in an effort to put pressure on the black market.
“We still have a black market, and we want to moderate our taxes to make sure that the risk of someone selling illegally… We want to eliminate that,” Hickenlooper said in the Denver Post. “And one way is to make sure there is not as large a price differential.”
How much do you pay for cannabis? Let us know in the comments below.