Legalizing marijuana has many consequences. Arrest rates drop. Fewer non-violent offenders rot in prison. Mexican drug cartels take a hit. But what about the cost of the drug? Does weed get cheaper when it’s legal?

Cash and MarijuanaAs a matter of fact, yes, it does – and by quite a lot. Prices for retail cannabis have dropped precipitously in the Pacific Northwest and Colorado, places where the drug is now legally sold on the commercial market. The drug is also legal in Alaska, but the first recreational pot shops have yet to open there.

Between July 2014 and March, the average gram of marijuana sold in Washington dropped from nearly $25 to less than $10, a decline of 60 percent. Similar changes have been seen in Oregon and Colorado. Washington and Colorado voted to legalize cannabis in 2012, while Alaska, Oregon, and the District of Columbia followed suit in 2014.

Several states are slated to vote on the question in November, including California – which, if a legalization initiative passes, would become the biggest legal marijuana market in the world. Prices were already cheap in most of these places before legalization took effect, at least relative to other parts of the country.

Oregon has the lowest prices

Oregon, for example, has long offered the cheapest cannabis in the country. That remains true, with the average ounce selling for just above $200, according to priceofweed.com. But even there, prices are dropping.

Why? The answer to that question isn’t as obvious as it might seem.

On the one hand, legal pot shops must pay taxes, and that should increase prices. At the same time, with fewer barriers to adult use, more people are likely to buy more marijuana, and increased demand likewise drives up cost to consumers.

Marijuana Cheaper in Colorado

But even as demand rises, so does supply. Legalization makes it cheaper and easier for farmers to grow the drug in bulk, and the readier supply of it should keep prices relatively low. So shouldn’t demand and supply cancel each other out, leaving prices where they are?

That’s not what’s happening, and the reason is pretty simple: Running a drug cartel, or even cultivating a few dozen illegal marijuana plants, carries a lot more risk than cultivating and selling pot on a legal market – and risk means money.

Competition is essential

The key to low prices on any market is competition. Legal or illicit, there is plenty of this in the marijuana industry. The streets are full of drug dealers of all stripes, and even higher up along the distribution chain, there are numerous drug trafficking operations battling against each other. The same is true on the legal market, where countless retail shops and their owners keep each other on their toes each day.

Competition is an essential component of low prices.
Competition is an essential component of low prices.

The difference is that pot shops win customers by slashing prices; drug cartels do it by shooting each other. Even a fractured illegal drug industry is structured as a collection of regional monopolies with no local competition of any kind. And that means stiff prices everywhere.

As Jonathan Caulkins, a professor at Carnegie Mellon University, told The Washington Post in March, those prices will likely remain high even as the cost of legal weed continues to drop. And it can drop very, very low, Caulkins said.

β€œIt’s just a plant,” he said. “There will always be the marijuana equivalent of organically grown specialty crops sold at premium prices to yuppies, 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.”

Leave a comment: How expensive is weed in your part of the country? How long do you think it will be before prices drop?

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