Colorado wholesale marijuana prices aren’t dropping

In Colorado, wholesale marijuana prices are not dropping yet. The latest official data shows bud prices nearly flat over time, but trim prices going up. New official “average market rates” (AMR) – wholesale prices – are here:

AMR Prior to December 31, 2014 AMR as of January 1, 2015 AMR as of July 1, 2015 AMR that will be effective on January 1, 2016
Flower Rate ($/lb) $1876 $2007 $1868 $1948
Trim Rate ($/lb) $296 $364 $370 $464
Immature Plant Rate ($/EA) $9 $9 $8 $9

https://www.colorado.gov/pacific/sites/default/files/AverageMarketRateFactSheet.pdf

That’s a big price boost for trim vis-à-vis smokeable bud, so the market seems to value concentrates, which typically use trim, more these days. Or maybe the price-measuring procedures are changing.  Note that price may reflect many factors other than potency.

Colorado periodically calculates AMRs based on actual market conditions, then notionally applies a 15-percent ad valorem tax to those AMRs.  That means that Colorado’s de facto wholesale per-gram marijuana taxes have just gone up, from 61 cents for potent bud, or flowers, and 10 cents for less valuable trim, or leaves, to 64 cents and 15 cents. (Pound-to-gram conversion below).

I have been predicting that marijuana prices will fall, writing, for instance:  “Later, the prohibition premium – the extra amount illegal sellers charge to compensate for risk of getting caught – will disappear. Then, as efficiency, amortization of startup costs, and economies of scale drive pre-tax prices down, price-based taxes will shrink proportionately. A percentage base may turn out to haunt drug policy uniquely. Low prices create availability of intoxicant that drug policy disfavors, at least for youth and for problem users.”

So where are those dropping prices I’ve been writing about? This reminds me of something I wrote about in 2011: “In 1933 hearings leading up to reimposition of taxes on alcohol after Prohibition, one witness said tax advocates who ‘know very little about this Business’ were ‘etherizing, futurizing, generalizing, and theorizing.’’’ I was warning that I had a lot to learn. I still do. But I still think prices will come down. Eventually.

+++

The 15 percent rate applies to the dollar amounts below, converting the ad valorem tax to a weight-based tax.

Here is my conversion of pounds to grams.

Bud Trim
Wholesale pound $1948 $464
454 454
Grams 4.294608371 1.022945731
Rate 0.15 0.15
Tax per gram 0.644191256 0.15344186
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Author: patoglesby

From 1982 to 1990, I worked in tax policy for Committees of the United States Congress. In recent years, I was Adjunct Lecturer at UNC-Chapel Hill's Business School and then Adjunct Professor at its Law School.

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