When Colorado first legalized marijuana, one of the first arguments supporters used was about the immense tax benefit the state would receive. But the state has only collected $2.3 billion in revenue since 2014, a tiny fraction of the state’s budget.

Since then, almost half of all states have legalized recreational marijuana, bringing in an estimated $15 billion in national tax revenue. Now, the market faces a serious downturn, and there is not enough demand to keep prices up.

At the height of the COVID-19 pandemic, cannabis sales were incredibly high. In 2020, the total market soared to $2.2 billion, but now, the market is only at $1.5 billion. The market downturn has brought trouble for state finances, too: Colorado took in just $282 million in cannabis tax revenues in the last fiscal year, down more than 30% from two years earlier. Monies the state grew to plan on using are no longer coming in.

Politico attributes the market downturn to various factors, such as that “the spread of cheap, largely unregulated intoxicating hemp-derived products further heightened competitive pressures. And marijuana remains federally illegal, subjecting operators to sky-high taxes and costly regulations.” The industry must respond to market demands and cut the market. One cannot assume that because there was once market viability, there will be forever. When the supply is oversaturated, the price has to fall to accommodate. Not recognizing this as a fact is a fundamental misunderstanding of economics. 

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The cannabis market in Colorado had a solid, 10-year run and had $12 billion in revenues. However, sales have now plunged $700 million. This does not mean the market is completely gone. In fact, it could make a recovery, but failing to acknowledge the status quo in the market and describing it as something other than a classical supply-and-demand problem is misleading. This problem is not just about marijuana. It is about the market having too many options.

This begs the question of what other states that have legalized marijuana should do so that they do not experience the same problems Colorado is facing. The answer is that the state governments should do nothing. Basically, any government intervention will make the industry worse off, deeply burden state governments with subsidies, or do both. They should tax at the initial agreed amount, or they could lower the taxes to spur demand. Then, they should allow capitalism to solve the problem instead of inserting themselves into something they should not be in.