Above: Legal marijuana products in Colorado
Colorado’s experience suggests starting a legal cannabis industry is one of the most efficient ways to generate new economic activity.
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 (MPG)shows.
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. 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 cannabusinesses.
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 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 era.)
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 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 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.
Alan Pyke is Deputy Economic Policy Editor, ThinkProgress.