Study claims costs of legal marijuana exceed the benefits
Legal marijuana may not bring in enough money to cover the societal costs of legalization, a new study from a Colorado State University think tank concludes.
The analysis was conducted by the university’s Colorado Futures Center in response to Colorado passing an amendment back in November . The study argues that revenue from marijuana taxes won’t do much to help Colorado’s budget and that money generated for new school construction won’t reach the $40 million annual target that supporters of marijuana legalization set when campaigning for legalization.
“These questions are of even more concern in light of our expectation that the most productive marijuana tax years will be the years just after legalization,” the center wrote in its report.
The study is one of several seeking to predict the unpredictable: What will the state look like with legal marijuana.
“[T]he future holds more unknowns than knowns,” four national marijuana-policy experts wrote in a recent editorial examining the implications of legalization votes in Colorado and Washington.
The predictions largely hinge on how much legal marijuana people will buy and smoke in Colorado. The Colorado Futures Center, citing federal studies on drug use and other references, estimates that demand for pot in Colorado will hit 2,268,985 ounces a year — more than 70 tons.
Using a retail price of $157 per ounce before taxes — and assuming that proposals for a 15 percent excise tax and a 15 percent special marijuana sales tax pass with both lawmakers and voters — the center estimates annual tax revenues starting in 2014 at about $130 million.
That is well above what the state’s nonpartisan Legislative Council found in its voter-guide analysis of Amendment 64, although its $5 million to $22 million annual estimate didn’t include an excise or a special sales tax. The center’s estimate also is above the $60 million annually in savings and extra revenue that the Colorado Center on Law and Policy predicted initially for Amendment 64 — although it, too, didn’t consider revenue from a special sales tax.
The Colorado Futures Center concludes in its report that the costs of regulating recreational marijuana — plus possible extra costs for law enforcement, public health and human services — may exceed the tax revenue from the recreational marijuana industry. The center also estimates that tax revenue from the industry will level off or fall, “as the ‘wow’ factor erodes over time and any marijuana tourism begins to decline, particularly if other states follow Colorado and Washington and legalize marijuana.”
Smart Colorado, a group opposed to all but the most limited implementation of legal marijuana, jumped on the analysis as proof that Amendment 64 was a bad deal.
“The latest research just confirms that marijuana proponents’ promises to Colorado voters that Amendment 64 would be a financial gain to the state were empty,” Diane Carlson, one of the group’s leaders, said in a statement. “Even if voters approve the recreational-marijuana tax, the new pot market could be a net drain on the state’s budget, the study indicates. That means funds for education, roads and other top priorities could be diverted to marijuana regulation.”
Department of Revenue officials, who would regulate recreational marijuana businesses under a proposal before the legislature, have pushed for the special sales and excise taxes — arguing the regulations must be funded if they are to be effective. Still, they told lawmakers Wednesday during a hearing for a bill on proposed regulations that they still don’t have a handle on how much money they will need.
“The challenge that we have,” said Ron Kammerzell, the Revenue Department’s enforcement director, “is that it is very difficult to predict demand.”
This article by John Ingold was originally published on the Denver Post in April 2013.