The Left-leaning Institute for Taxation and Economic Policy warned, in a detailed report, that price-based “ad valorem” taxes on marijuana are a recipe for trouble when prices go down – as they do in every jurisdiction where legalization takes hold. https://itep.org/taxing-cannabis/
Now the Right-leaning Tax Foundation has joined the warning: “states risk losing out on forecasted revenue if prices continue to go down.” https://taxfoundation.org/safe-banking-act-state-marijuana-revenues/
Here’s more from that Tax Foundation article:
“Out of the seven states with operational taxable markets, six have price-based excise structures, and revenues would suffer if prices decline in a more competitive market.
. . .
“Cannabis prices have already dropped substantially since the early days of legalization. In Alaska prices went from about $4,000 a pound to about $2,300 a pound. Currently the average price per pound is around $1,400 nationally. These prices could drop further as a result of federal regulation changes.
“States should be aware of this when designing and maintaining their excise tax structure for cannabis. Only Alaska’s system is safe from the effects of volatile cannabis prices, as it is purely weight-based and guarantees $800 in revenue per pound. Generally, excise taxes are imposed at a specific amount regardless of the price, but seven out of eight states have chosen the ad valorem option for marijuana. The complexity and wide variety of products make an ad valorem tax a simpler approach but these seven states risk losing out on forecasted revenue if prices continue to go down. Colorado and Nevada have hedged their structures by basing part of their price-based taxation on a government-set average cost based on weight.”