Legalization of marijuana is a natural experiment in how a newly-legal market responds to heavy regulation. First results are in on tax revenue harvested by Colorado. (lousy pun intended)
2/11 – AP at ABCNews – Colorado’s Pot Tax Tally Has Lessons for Other States – Report is in on how much tax revenue was realized from recreational marijuana.
Results?
$44M from recreational and $32M from medical.
Articles says revenue in first month (1/14) was $1.6M which grew to $5.4M in December. Annualized, the December revenue would be $64.8M a year.
How does that compare to forecasts? Here’s what I mentioned previously:
1/10 – Wall Street Journal – In Colorado, Legal Pot Fails to Meet Predictions of Supporters, Critics / Forecasts of Tax Windfall, Dire Consequences Don’t Prove Entirely True – Estimates of state’s FY 15 revenue from recreational marijuana:
- $100M – from the Governor’s office in 2/14
- $ 67.0M – previous estimate from state’s economists
- $ 58.7M – current estimate from state’s economists
So the result is below all estimates.
Actual results would be an absolute surprise to all government officials. Also, zero surprise to me.
Most entertaining comments in the AP article are state officials wondering how to push people to buy highly tax recreational marijuana instead of lower taxed medicinal marijuana.
Hmmm. Imagine the conversation:
How do we force people to pay higher prices that they have to. Those silly people choose the lower priced of two functionally equivalent products. Sure wish we could make them to pay for the higher taxed stuff. We want, um, need more money.
Article also suggests that as more states legalize marijuana, the amount of pot tourism will drop, which will drop tax collections. I’ve read elsewhere (and won’t bother to look for a link), that perhaps half of the sales are to out-of-state residents. That means the tax collections in December ’14 could be the best it gets.
Jim,
I just saw an interview on TV today with a Marijuana grower from Washington state. He said that Washington state has been flooded with Marijuana and that it has caused the wholesale price to drop from $2200 a pound to $700 a pound and that many growers were going bankrupt.
I chuckled to myself when thinking about farmers that can’t make money growing a plant that sells wholesale for $700 a pound!
Now I suppose they will get a lobby going so they can lobby the feds for farm subsidies to help them out! j/k
Anyway, the only way this legal Marijuana thing will work in the long run is if it becomes cheap enough in the marketplace so everyone can easily afford it (like alcohol, cigarettes, etc.), and so the illegal sources like Mexico, Columbia, etc., can’t compete…and also, so people don’t grow their own. If alcohol was $200 a bottle then the black market would be huge and also, many would make their own.
Hi Mark:
THanks for sharing that story.
$700 a pound? How can you not make a fortune at $700 a pound.
You make my point quite well. With competition from the illegal market, medical dispensaries, and grow-your-own, how can a politician think to make money with a 25% tax and burdensome regulations? I think federal subsidies are the answer.
Thanks for following and taking the time to comment.
Jim
Jim,
I think the pot business needs to really focus on ways to cut production costs by using technology and being more efficient. It seems the business has only been concerned with raising the potency for the last 40 years, which they have raised to insane levels from what I have heard. Increasing and streamlining productivity like the way standard farming has done over the last 100 years I think could bring the price per pound down to affordable levels. If prices are brought down to affordable levels, then taxing authorities can levy high tax rates like they do for other vices.
Here is a link to an article that I found interesting, on the taxing and costs-of-production subject. It has lots of numbers, so I think you will like it.
http://www.theweedblog.com/how-much-will-legal-marijuana-really-cost-in-seattle/
Hi Mark:
Thanks for the link. Lots of speculation around. I have a few posts discussing more of the guesses (click the tag ‘regulation experiment’.
I’m completely uninformed of the industry, other than what I’ve read in the last year. With time I’m sure the industry will rationalize and get far more efficient. As a wild guess, players at the production (raising plants) and refining (producing consumables) will need to grow in scope to gain economies of scale. From what I know of regulations, consolidation of retailers will not be allowed. In general, regulations will likely slow down the adjustments that would otherwise take place in a brand new industry.
Fascinating to watch.
Thanks for taking the time to share what you’ve heard of the industry.
Jim