Low-cost highs: Price of legal marijuana plunges in Washington state

A view of the screen of a ZaZZZ vending machine that contains cannabis flower, hemp-oil energy drinks, and other merchandise at Seattle Caregivers, a medical marijuana dispensary. © David Ryder
Recreational marijuana use has been legal in Washington State for two years, and while sales of the drug have been filling public coffers with tax revenues, the prices for pot have also been shrinking considerably.

As of March 2016, the price of legal marijuana in Washington was $9.32 per gram, the Washington Post reported, citing data from the state’s Liquor and Cannabis board. The wholesale price of the drug was $2.99 per gram.

In September 2014, pot was selling for about $25 per gram, according to a report from KUOW News. By August 2015, marijuana prices had plunged more than 50 percent to $11 per gram.

Although prices initially went up after the drug was legalized, that surge was linked to increased demand and limited supply, according to Steve Davenport of the Pardee RAND Graduate School, who helps aggregate data from the Washington’s cannabis board. Since then, prices have been coming down at a rate of 2 percent per month, he told the Post, and they could potentially shrink 25 percent every year.

“It’s just a plant,” Professor Jonathan Caulkins, of Carnegie Mellon University, who works with Davenport, told the newspaper. He said the drug could become so inexpensive that certain types are essentially given away for free.

“There will always be the marijuana equivalent of organically grown specialty crops sold at premium prices to yuppies,” he said, “but at the same time, no-frills generic forms could become cheap enough to give away as a loss leader – the way bars give patrons beer nuts and hotels leave chocolates on your pillow.”

The news out of Washington State has also been echoed in Colorado, another state where marijuana has been legalized. In June 2015, an eighth of an ounce of cannabis (about 3.6 grams) cost between $30 and $45 – notably less than the $50-$70 it was going for the year prior.

As pot prices trend downward, there could be positive and negative consequences for states. Since pot is taxed by sale, falling prices mean each sale results in fewer dollars for the state government. However, cheap marijuana could end up pushing more people to abandon the black market and stick with purchasing legal pot. Fewer drugs being moved on the black market could also mean fewer costs for law enforcement.

Even with pot prices clearly dipping last year, though, new businesses continued to crop up, KUOW reported.

"The fact that prices are falling, and people are still entering the business – it’s confusing to me," Tracey Seslen, an economics lecturer at the University of Washington's Foster School of Business, told KUOW. "Standard theories of economics would only suggest entry into an industry when people see that it’s profitable."

Perhaps one reason that people keep trying to enter the marijuana business is that, novelty aside, it’s simply becoming easier to do so. Over the last two years, the number of banks and credit unions willing to do business with pot shops has increased substantially – from 51 in March 2014 to more than 300 now.

Although federal law still prohibits banks from handling cash derived from the marijuana trade, the Treasury Department has stated it will not go after banks if they are certain that businesses are complying with state pot regulations.