Contrary to what many claim, prohibition raises drug prices enormously. Conversely, legalization causes a price collapse, which in addition to increasing drug use also means that ad valorem taxes bring in less money per sale month by month. States that set cannabis taxes as a percent of price are thus not going to get the revenue they expected and indeed could end up subsidizing the marijuana industry out of the public purse.
Details at my latest Washington Post Wonkblog.
[…] Reality-Based Community: A warning to states on marijuana tax revenue. […]