DENVER – Wholesale marijuana prices in Colorado have fallen by a third in just the past 12 months, continuing a price crash that began soon after the drug was legalized.

Although this implies that some marijuana entrepreneurs are going to go bankrupt, the bigger financial hit will be felt by states that tax marijuana based on its price.

Marijuana prices are collapsing in Colorado and in other legalization states (e.g., Oregon, where the price can go as low as $100 per pound) because a legal business is dramatically cheaper to operate than an illegal one.

Because states generally set their marijuana tax rates as a percentage of price, their revenue per sale falls as marijuana prices fall.

Ironically, in a bid for more tax revenue per marijuana sale, Colorado increased its marijuana tax rate from 10 percent to 15 percent last year, only to see the anticipated tax revenue wiped out by falling prices in a year’s time.

States may have failed to anticipate this problem because of misleading predictions about the effects of legalization. Pro-legalization economist Jeffrey Miron projected in 2010 that marijuana prices would fall 50 percent when prohibition was repealed, and still yield high tax revenue. That was a rosy scenario.

A starker prediction made by policy analyst Jonathan Caulkins looks more prescient every day: He forecast that legalized marijuana will fall in price to the level of other easily grown, legal plants like wheat and barley, such that a joint might sell for a nickel or even become a complimentary item akin to beer nuts at the bar.

If that comes to pass, taxes based on a percentage of price might not even cover the costs of the government’s regulatory system for legal marijuana, meaning that rather than helping states’ bottom line, the industry would be a drain on the public purse.

The simplest way for states to retain revenue from marijuana sales is to tax the drug by weight, as California has always done and Maine has started to do. The main risk is that producers will sharply increase product potency to create more “bang per ounce.”

However, this shortcoming can be surmounted by capping the allowed potency of marijuana products, a policy for which there is a good case to be made on public health grounds.