Rampant overproduction in Oregon’s market for legal, recreational marijuana has produced a 50 percent decline in prices, according to state economists. That widely documented collapse has been hard on farmers and retailers – but a boon for consumers.

A new state analysis finds the price collapse sparked a big uptick in marijuana purchases – and a corresponding increase in associated tax revenue.

“Lower prices are helping to drive the volume of sales higher and induce black and medical market conversions into” the legal, recreational market, according to Josh Lehner of the Oregon Office of Economist Analysis.

Recreational marijuana sales in Oregon will be nearly $543 million this year, according to the latest forecasts, up 29 percent from 2017 and well above economists’ expectations. They’re raising their forecasts even more in future years.

When Oregon legalized marijuana four years ago, expectations were huge for the newly legal market. The state created incentives for producers to leave the black market, leading to overproduction and the ensuing price drop.

A state study found the retail cost of a gram of marijuana plunged from $14 in 2015 to $7 last year.

Recreational marijuana remains a small industry, relative to the size of Oregon’s economy. For comparison, economists note that cigarette sales are 40 percent higher than marijuana sales. But legal marijuana is growing fast – state forecasts suggest it will be a billion-dollar market in 2025.

While Oregon famously has no general sales tax, it does levy a 17 percent sales tax on marijuana. Though the state is collecting less on each sale because of falling prices, the increase in volume is more than compensating.

Marijuana taxes generated nearly $70 million in revenue last year and are forecast to generate nearly $90 million in 2018. Though tiny relative to Oregon’s roughly $37 billion annual budget, it’s much higher than anticipated.

And state forecasters believe marijuana may eventually play a more important role in the state’s economy.

“The real economic impact from recreational marijuana will come not from the growing and retailing, which are low-wage and low value-added market segments,” economists wrote in a revenue forecast issued Wednesday. “It will come from higher value-added products like oils, creams, and edibles, in addition to niche, specialty strains.”

The rise of marijuana in Oregon could evoke the emergence of craft brewing in the state, the economists wrote, with value-added production augmented by a cluster of suppliers and support industries.

“The long-term potential of exporting Oregon products and business know-how to the rest of the country remains large,” the economists wrote, “at least once marijuana is legalized nationwide.”

-- Mike Rogoway | twitter: @rogoway | 503-294-7699