[Vision2020] Marijuana’s $2.4 Billion Impact in Colorado Is a lesson for 5 States Considering Legalization

Nicholas Gier ngier006 at gmail.com
Sat Oct 29 15:28:27 PDT 2016

Marijuana’s $2.4 Billion Impact in Colorado Is a lesson for 5 States
Considering Legalization

Nation of Change, 10/29/31

It turns out pot is a stronger economic driver than 90 percent of the
industries active in Colorado.

Legal weed created 18,005 full-time jobs and added about $2.4 billion to
the state’s economy last year, an analysis from the Marijuana Policy Group

Between the dollars that customers spend and the money businesspeople
invest in their crops and shops, pot is generating more wealth and activity
than almost anything else on a pound-for-pound basis. Every dollar spent in
the industry generates between $2.13 and $2.40 in economic activity. Only
federal government spending has a higher multiplier.

The numbers land just weeks before voters in five other states must decide
whether or not to follow Colorado, Washington, Oregon, and Alaska into the
legal, recreational marijuana future. Three further states are weighing new
medical marijuana systems, and Montana voters face a referendum on changes
to a dozen-year-old medicinal cannabis program there that’s all but locked
up thanks to years of legislative sabotage in Bismarck.

Medical systems in Arkansas, Florida, and North Dakota would bring their
own economic dividends. But tax-and-regulate legalization for adult
recreational use is where the real money is.

The Colorado economics modeling can’t give precise, reliable projections
for how adult-use pot legalization would play out in California, Nevada,
Massachusetts, Maine, and Arizona. Sales volumes are particularly volatile
to project as the green frontier opens wider, potentially redistributing
pot tourism spending between states.

But while it wouldn’t be fair to simply apply the Colorado economics
modeling to projected sales in the five states that may legalize next
month, combining the MPG model with tax revenue forecasts by legislative
bean-counters does offer some back-of-envelope guesstimates.

The 15 percent special excise tax on marijuana sales in Arizona’s
legalization proposal would likely generate over $114 million in new tax
revenue in 2019 and 2020, according to state fiscal analysts
<http://www.azleg.gov/jlbc/16novprop205fn.pdf>. That implies sales volume
of over $760 million in two years, less than half the total revenue volume
in Colorado’s first two years.

Even that comparatively slack rate of sales, though, could generate about
$1.8 billion in new economic activity in Arizona, if the multipliers from
Colorado’s economic experience prove typical of the industry elsewhere.
State and local governments would see roughly $200 million in new tax
revenue from pot taxes, standard sales taxes, and licensing fees for new

Arizona’s measure mandates that the bulk of the new money would go to
schools, a provision copied from Colorado’s referendum. Aside from the new
job creation and economic activity, the state’s K-12 system would get an
$86 million cash infusion over two years from legalization, according to
the state fiscal analysis.

The legalization measure in Maine would set a 10 percent tax on marijuana,
though it’s unclear if the state’s 5.5 percent sales tax is included in
that or tacked on atop it. Fiscal analysis accompanying the measure
suggests the state anticipates sales volume between $69 and $107 million
annually once the system envisioned by this year’s ballot question is fully
online. Behind every one of those sales dollars, there’s spending on
payroll, construction, fertilizer, and other industry inputs. Legalization
would generate hundreds of millions of dollars in new economic activity in
a state that ranks near the bottom of the nation in total economic output.

But in the other three states weighing legalization, conjecture about
economic impacts is much tougher to come by.

The numbers are fuzzier in California, in part because of the sheer size of
the state. A dense fiscal analysis
<http://www.lao.ca.gov/ballot/2016/Prop64-110816.pdf> of that state’s
ballot proposal for legalization found that combined excise, sales tax, and
licensing revenues would range “from the high hundreds of millions of
dollars to over $1 billion annually.”

Atop that vagueness, California already has a large, established cannabis
industry thanks to both its longstanding medical marijuana program and its
decades-old role as a primary source of American-grown cannabis in the
black market. (The California measure also sets aside a share of new state
tax revenues for environmental projects to mitigate the negative impacts of
illegal grow operations in the wilderness
which have been damaging the state’s ecosystems throughout the prohibition

Whatever its other impacts, legalization would represent at least a modest
shakeup to the status quo there — making it almost impossible to venture a
credible estimate of economic growth or job creation there based on the
Colorado modeling.

In Massachusetts and Nevada, meanwhile, state fiscal analysts are
essentially refusing to offer estimates ahead of November’s referenda.

Nevada’s Secretary of State has detailed the costs that various state
agencies would face to set up new computer systems and oversight staffs for
the cannabis economy, should voters approve Question 2 there. But the same
document argues that state fiscal analysts “cannot determine
<http://nvsos.gov/sos/home/showdocument?id=4421> the amount of revenue that
will be generated” because they can’t gauge demand for marijuana products
and cannabusiness licenses.

With the official taxpayer-employed analysts abstaining, voters are left
with estimates from MPG itself. The group’s study of potential legalization
in Nevada, released in July
estimated that people would spend about $394 million a year on legal
marijuana if Question 2 passes. Over the first seven years, the report
found, Nevada would see a $7.5 billion bump to its total economic output
and gain about 41,000 jobs.

The Massachusetts measure would set pot taxes far lower than in other
legalization states, at just 3.75 percent statewide. Local governments
could tack another 2 percentage points onto that, and cannabis sales would
be subject to the state’s 6.25 percent sales tax. Lawmakers would probably
move to impose Colorado- and Washington-style excise taxes in the low
double digits.

But there is no official state estimate of tax collections stemming from
legalization. One Senate committee report, which is largely negative on the
idea, estimated annual sales of about $500 million
<http://www.telegram.com/assets/pdf/WT1817038.PDF> once the smoke clears.
If that’s right, Colorado’s experience suggests Massachusetts could expect
well over a billion dollars in new economic activity from legalization.

Looming over all these billions of dollars in economic activity and
thousands of jobs: federal prohibition
It’s harder than it should be for states to realize the full economic
benefits of all this new activity because cannabusinesses still can’t
access traditional financial services.

Normally a business boom redounds immense benefits to people far outside of
its immediate influence, as the money generated in one set of activities
gets recirculated into others through consumer spending and business
investment. But federal prohibition puts undue friction on that cycle,
preventing it from reaching its full potential to create jobs and generate
new opportunities.

A society grows great when old men plant trees whose shade they know they
shall never sit in.

-Greek proverb

“Enlightenment is man’s emergence from his self-imposed immaturity.
Immaturity is the inability to use one’s understanding without guidance
from another. This immaturity is self- imposed when its cause lies not in
lack of understanding, but in lack of resolve and courage to use it without
guidance from another. Sapere Aude! ‘Have courage to use your own
understand-ing!—that is the motto of enlightenment.

--Immanuel Kant
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