I seem to recall saying on the old blog that the tax revenue estimates people were throwing out prior to Colorado legalizing weed were overly optimistic for reasons just like this.
Voters legalized retail marijuana (pot for everyone, not just medical patients) in 2012. And they were told the state would pull in $33.5 million from two new taxes in the first six months of 2014. It turns out, the projections were way off. Here’s why.
Pot smokers are still buying on the black market: The state thought more people would migrate out of the black market. But only 60% of people who want pot in Colorado this year will buy it through legal channels, according to an estimate from the Marijuana Policy Group.
One big reason: Legal pot costs a lot more than illegal pot — mostly because of taxes and fees.
The sale of marijuana was already widespread in Colorado and supported by a robust black market. Law enforcement was already very lax in enforcing anti-marijuana laws, so the black market was easy to access and relatively inexpensive.
Then Colorado made pot legal. The cost of raw materials and transportation has remained fairly static, so all making it legal did was increase the retail price by adding a layer of taxation. Meanwhile, the marijuana consumer market was already accustomed to, and comfortable with, operating outside the law. Why would they change their behavior just to pay more? They were willing to get a ticket or arrested for buying pot illegally. Why would they not be willing to risk the same for not paying taxes on it?
Legalization has expanded the consumer market for marijuana by making it accessible for those who were not willing to break the law to smoke it, but the pre-legalization consumers are little affected.