How is cannabis legalization affecting legal weed prices? According to the Washington Post, the herb is getting cheaper to purchase, and prices may continue to fall in the coming years.

“It’s just a plant. 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,” said Jonathan Caulkins, a professor at Carnegie Mellon University.

Riding the Downward Trend

Archived price data from Washington’s Liquor and Cannabis Board (aggregated by Steve Davenport of the Pardee RAND Graduate School and Professor Caulkins) showed that prices initially went up after legalization. Analysts blamed supply shortages for the sudden increase in prices, coupled with consumer impulse. Growers and dispensaries also failed to gauge the new market, and most were hesitant in accumulating reserves without confirmed buyers.

After a few months, the developing trend shifted. With businesses and consumers gaining confidence in the industry, retail and wholesale prices started to decrease slowly. Davenport confirmed that legal marijuana prices are falling at a rate of two percent per month. The expected forecasted rate (assuming the trend continues to develop consistently) is a staggering decrease of 25 percent per year.

Winners and Losers

The obvious winners in the price shift includes patients, consumers and registered dispensaries. Lower price points allow people to purchase more cannabis products, which translates to more money going into businesses that provide those goods and services. The effects of cheaper legal weed also resonates to black markets. For the police, this is a huge plus. Individuals are less prone to buying cannabis through a shady dealer. The proliferation of this trend can be seen in the way legalization is negatively affecting Mexican drug cartels.

Unlike legal dispensaries, such groups must hide their activities from the public. Advertising opportunities are very limited, making competition with transparent marijuana businesses incredibly difficult. Declining cannabis prices are also affecting state taxes. The amount of state tax per transaction is based on a percentage of sales prices. This means that lower prices could bring in less money for the state. However, with decriminalization laws in place, less taxes are being used to fund cannabis-related arrests, maintain local jails and manage law enforcement efforts. Instead, more funds are going back to local communities in the form of school construction projects, police training programs and youth mentoring services.

“There are some things governments can do to keep the price of pot from dropping too much, such as taxes and even price controls. But if taxes in legal outlets are too high, people will just resort to selling under the table, as we see with tobacco in New York,” said German Lopez from Vox.