• Colorado’s state stores report over $1.25m in tax revenue. What does that mean for long-term revenue takes?

    by  • February 14, 2014 • Daily Digests • 0 Comments

    According to a self-report by half of Colorado’s 35 state stores, sales in the first month of legalized operation have yielded $1.24 million in tax revenue. Assuming these self-reports are accurate, the true figure may be approximately double that, depending on the sales of the 17 stores who did not self-report. A simple pro-ration of these numbers, multiplying by two to account for un-reported sales and multiplying by 12 to extend through the year, suggest annual revenues of near $30 million. The actual number at year’s end could be significantly higher, given that many stores have had insufficient inventory to meet demand; or it could be significantly higher or lower if the demand for cannabis in this past month is unrepresentative of what will occur throughout the year. So it is too early to say whether revenues will meet the estimated $67million of revenues. Better data will be available next month after the Colorado Department of Revenue receives January tax reports.

    Increasing tax revenue was one of the most widely-touted goals of marijuana legalization, but these claims have remained grounded in estimates until recently. Sometimes these estimates have been noticeably wrong, as with an estimate by the Washington Office of Financial Management while Initiative 502 was on the ballot. That estimate was very rough in its methodology: it assumed that all marijuana consumed would be sold through legal commercial stores, not accounting for any activity through the medical market or the black market. Those unrealistic assumptions helped produce an impressive figure of between $0 and $2billion over 5 years.

    Another issue plaguing marijuana revenue estimates has been uncertainty about demand. Until recently, most marijuana consumption surveys have focused on use prevalence but neglected quantity consumed, making accurate demand estimates near impossible. A recent RAND study broke this trend with a comprehensive survey of Washington marijuana users and existing data, finding that marijuana consumption was double that used by OFM estimates. However, the high-end of the OFM estimate is likely still too high, given that the medical and black markets may continue to constitute the bulk of sales in Washington State over the coming years. That factor is near impossible to predict.

    Increases in demand for marijuana post-legalization could also throw off current estimates about marijuana consumption and revenue. It remains to be seen how legalization affects the use and purchase habits of marijuana users or current non-users. The extent of marijuana tourism remains another question mark.

    Potential dramatic price decreases in coming years could also reduce tax revenues. A RAND study performed while Proposition 19 was on the ballot in California suggested that, in the absence of taxes, the price of legal commercial marijuana may fall to one-fifth of current black market prices. Since marijuana taxes and sales taxes have been linked to value of product sold, rather than product weight or chemical content, such a price drop could decrease revenues by the same amount.

    One trade-off looms over this discussion: increases in marijuana consumption may bring in additional state revenue, but of course also constitute increases in drug use. As such, the best case (but unlikely) scenario for those hoping for high marijuana revenues is the shrinking of medical and black markets, but with little increases in total demand for the drug.

    About

    Steve maintains Marijuana Monitor from Oakland, California. Having grown up in the East Bay and studied at UCLA, he's had ample exposure to contemporary marijuana culture and the policy debate surrounding the issue. He believes that now, more than ever, is the time for clear-headed discussion about pragmatics.

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