Economic Effects of Colorado’s Legalization of Cannabis 2017

Increase in Colorado Tax Receipts

After nearly three full years of being one of America’s first states to allow open recreational marijuana production and sales, no one can doubt that this “experiment” in state law superseding federal law has been a success in terms of generating sustainable revenue from a product that previously produced no revenue at all for the state.

Between 2014 and year-to-date 2016 total distributions from Colorado’s various fees, sales taxes and excise taxes have risen dramatically—from $17.1 million to $105.8 million (on an annualized basis). This growth far exceeds the level of marijuana-related government receipts all but the most optimistic forecasters foresaw when the necessary legislation was passed in 2012.

It was no surprise that the first year of the new regulations started somewhat slow, partly due to the fact that many of the details of implementation led to uncertainty on the part of customers, retailers, producers and manufacturers. As in any industry, there was a lag between getting authorization via licensing for all the new players on the production and retailing side and those parties hitting their stride in making and selling their products. As consumers saw how easy it was to take advantage of Colorado’s relaxed rules, demand and sales accelerated quickly beginning in the second half of 2014 and has clearly continued into 2015 and 2016.

Across the board, growth in retail marijuana licensing activity was strong in 2015: Store Business Licenses (up 82%), Product Manufacturer Licenses (up 128%), Optional Premises Cultivation Licenses (up 73%) and Testing Facilities Licenses (up 171%).

This strong growth in providers is unlikely to continue indefinitely – there is still something of a Wild West environment in the state’s newest major industry as new and established retailers and producers continue to scramble for market share. As less efficient, poorly-managed players are forced out of the market by market forces (e.g. weak demand, uncompetitive products based on pricing or quality), we can expect the remaining producers and retailers to be more effective at marketing and production and grab a larger portion of total market demand for marijuana in Colorado (estimated at 130 million metric tons in 2014—not including edibles and other non-leaf products).

In an October 2016 report The Denver Post estimated Colorado’s annual demand for marijuana at approximately 130 metric tons (http://www.denverpost.com/2014/07/09/colorado-estimates-state-annual-pot-consumption-at-130-metric-tons/). Considering that total 2015 sales were approximately 70 tons there appears to be a significant portion of total demand for marijuana in the state is increasingly being satisfied by legal sellers. There is plenty of room for growth in the legal sale of marijuana in Colorado.

It is worth noting that only about 30% of Colorado’s municipalities have opted in to the laws that allow marijuana production and retailing. While many of those municipalities will no doubt remain closed to the legal marijuana industry (as many counties throughout the South continue to prohibit alcohol sales, decades after Prohibition ended), it is likely many will also change their minds as they see other municipalities enjoying the extra revenue from tourism, extra fee and tax income and lower costs related to relaxing anti-marijuana laws and regulations. As local sources of legal marijuana expand their reach, demand (and the state’s take through fees and taxes) will naturally continue to increase as well.

 

Effect on Employment Rates in Colorado

As illustrated in the chart below, over the past decade Colorado’s unemployment rate has continually been lower than the US national average.

colorado-unemployment

Colorado has seen many positive results from decriminalization of recreational marijuana, not least of which has been the creation of thousands of new jobs since 2014.

For that year, the first year of the state’s experiment in legalization of the production and retail sale of cannabis, the Drug Policy Alliance estimates approximately 10,000 new jobs were created. And these new jobs generally pay well above the national minimum wage.

As one commentator has pointed out, “…legalization basically created an economy out of thin air.” The industry’s creation of new jobs continued strong through 2015. As of December of that year nearly 27,000 occupational licenses had been issued by the state to Colorado’s workers in the medicinal and recreational marijuana businesses – a 68 percent increase over the December 2014 figure. (The figure for December 2013 was only 7,000 such licenses.) And it is important to note that not all employees of marijuana-related industries are required to get such licenses, so these figures under-estimate total employment in Colorado’s legal cannabis industry.

No doubt, the creation of thousands of new cannabis-related jobs in the state since 2014 has made a significant positive contribution to Colorado’s overall unemployment figures. For example, considering that the state’s total number of unemployed workers was 98,458 at the end of 2015, the marijuana industry’s employment of more than 27,000 workers as of that date was an important factor in the keeping Colorado’s unemployment rate well below the national average.

Considering that the legal cannabis industry is generally considered to be serving only about half of total statewide demand, there is every reason to believe the  industry’s employment figures will continue to grow and contribute to Colorado’s stronger-than-average job market.

https://fred.stlouisfed.org/series/CONGSP

http://www.tradingeconomics.com/united-states/gdp

https://fred.stlouisfed.org/series/COUR

https://fred.stlouisfed.org/series/UNRATE

http://denver.cbslocal.com/2016/08/31/studies-show-results-of-legal-pot-in-colorado/

http://www.cheatsheet.com/money-career/16-jobs-being-created-by-the-marijuana-industry.html/?a=viewall

http://www.cheatsheet.com/business/marijuanas-first-legal-year-thousands-of-jobs-millions-in-revenue.html/

http://naturalsociety.com/colorados-marijuana-legalization-creates-10000-new-jobs/

https://mjbizdaily.com/chart-week-snapshot-cannabis-employment-growth-colorado/

http://data.bls.gov/timeseries/LASST080000000000004?data_tool=XGtable

 

Effect on GDP Growth in Colorado

As outlined in the table below, over the past 10 years Colorado’s GDP has risen from 1.68 percent to 1.76 percent of total US national GDP. This represents a 4.1 percent compound annual growth rate (CAGR) for Colorado’s economy versus a 3.7 percent.

Most observers cite a variety of factors for the relative strength of the Colorado economy over the past decade, including a highly diversified corporate base, a significant level of federal government investment and employment, a strong tourism industry and a diversified and well-educated workforce. In early 2015 Business Insider magazine ranked the state as Number One in overall growth among all 50 states (http://www.businessinsider.com/state-economic-growth-rankings-2014-8#1-colorado-50).

In 2014 and 2015 another factor began to make an important and growing contribution to Colorado’s relatively strong—legal marijuana sales. According to thecannabist.com, a Web site that covers all things mariuana-related (http://www.thecannabist.co/2016/02/09/colorado-marijuana-sales-2015-reach-996-million/47886/), sales of marijuana products (legal recreational and medicinal) were $996 million in 2015. This is after only two full years of decriminalizing marijuana as of January 1, 2014.

Of course, this nearly $1 billion was only a small fraction of the state’s $315 billion in total GDP in 2015. However, as at least one analysis estimates, legalized marijuana in Colorado created a total economic effect of $2.4 billion for the year. (http://mjpolicygroup.com/pubs/Top-Results-Econ-Impact.pdf).

Considering that Colorado’s GDP grew approximately $10 billion dollars between 2014 and 2015, a $2.4 billion increase attributable to the burgeoning marijuana industry in the state accounted for nearly one-quarter of total GDP growth.

Considering that the entire spectrum of marijuana-related production, processing and consumption is environment-friendly, creates new tax revenue resources  and has an important positive knock-on effect for so many businesses and employees in the state (nearly all employment in the marijuana industry is domiciled within the state), it’s apparent that the legal marijuana industry’s contribution to Colorado’s economy still has room to grow.

http://www.deptofnumbers.com/gdp/colorado/

https://www.colorado.gov/pacific/sites/default/files/Market%20Size%20and%20Demand%20Study%2C%20July%209%2C%202014%5B1%5D.pdf

http://www.thecannabist.co/2016/02/09/colorado-marijuana-sales-2015-reach-996-million/47886/

https://www.washingtonpost.com/news/wonk/wp/2015/02/12/colorados-legal-weed-market-700-million-in-sales-last-year-1-billion-by-2016/

http://mjpolicygroup.com/pubs/Top-Results-Econ-Impact.pdf

http://www.huffingtonpost.com/ranjit-dighe/legalize-marijuana-economic-argument_b_4695023.html

 

Effect on Tourism in Colorado

Only a month after Colorado’s legalization of recreational marijuana on January 1, 2014, travel site Hopper.com reported that demand for airline tickets to Denver from many markets had jumped dramatically (including 63% from Nashville, 58% from Minneapolis and 53% from Detroit). Although no direct effect can be confirmed, most observer believe the increase was largely due to these visitors’ interest in purchasing cannabis and related products.

By some estimates, about half of the customers who initially purchased marijuana products after Colorado’s legalization in January 2014 were from out of state. Some dispensaries were estimating that as many as 70% of their customers were out-of-staters (or from outside the US) by the autumn of 2014.

The Colorado ski industry had its biggest-ever season to date during the winter of 2014-2015—up 10% over the previous winter—possibly due to the additional attraction of legal marijuana. A survey carried out for 2015 – 2016 ski season noted that “…4 percent of visitors surveyed said legal marijuana motivated their trip to Colorado, 7 percent said it was in their top three reasons for traveling to Colorado, and 12 percent visited a dispensary while traveling to Colorado.” The survey also found that “Two-thirds of people surveyed were indifferent to legal marijuana and 20 percent surveyed said it was a deterring factor.” Clearly, access to legal marijuana had a net positive effect on many skiers decision to visit Colorado over the past couple of seasons.

In addition to the obvious attraction of visiting the state’s cannabis retailers to purchase marijuana products, “cannabis tourism” has taken on a life of its own in Colorado. “Weed tours” of propagation and production facilities, ancillary cannabis product manufacturers, retail stores, private cannabis clubs—these are only a few examples of the types of specialized facilities that are on the routes tour entrepreneurs have introduced since 2014. Bus tours promoting access to the state’s legal cannabis come from as far away as Dallas, although Denver is, not surprisingly, Ground Zero for all type of organized cannabis tour companies. (At least one tour operator charges $1,000 for a weekend tour that includes airport pickup, hotel and cannabis cooking classes.)

Government officials—including state and local tourism officers, as well as the state’s attorney general’s office—have not yet embraced the idea of actively promoting cannabis tourism, so government bodies do not yet make any significant attempt to track how many or which tourists are visiting Colorado at least in part, if not entirely, to purchase cannabis and related products. But various private parties have noted that increased airline and hotel reservations are clearly in evidence when marijuana-related public events take place in Denver or other marijuana-friendly localities.

http://www.businessinsider.com/denver-flights-marijuana-legalization-2014-1

http://static1.squarespace.com/static/5254a88ae4b0b0663269e2eb/t/538f3818e4b07de501c097ba/1401894936611/Colorado.pdf

http://www.slate.com/articles/news_and_politics/altered_state/2014/01/colorado_marijuana_legalization_how_it_is_remaking_the_state_s_economy_in.html

http://money.cnn.com/2014/08/22/smallbusiness/marijuana-tourism-colorado/index.html

https://www.go-colorado.com/Tourism-Information/

http://www.thecannabist.co/2016/09/29/marijuana-tourism-promoting-legal/64052/

 

Decrease in Colorado Crime and Arrest Rates

Contrary to some critics’ expectations, Colorado’s overall crime rates dropped 2.5 percent in 2014 (the first year of the state’s decriminalization of marijuana). This trend has continued with overall crime rates in the state dropping another 1.0 percent in 2015.

colorado-crime-stats

Not surprisingly, there is no question the decriminalization of marijuana in Colorado has had the most dramatic effect across nearly all categories of marijuana-related arrests among adults (excluding DUI). According to information from the Colorado Court System covering 2015, marijuana possession arrests were down 81 percent (from 10,340 to 1,954) compared to 2012. Felony marijuana filings dropped 45 over the same period; charges of marijuana possession dropped 88 percent.

The economic impact of this dramatic reduction in arrests has had an equally dramatic effect on the costs of processing these cases through the Colorado judicial system. The Drug Policy Alliance estimates that it costs the state of Colorado or local jurisdictions about $300 in court and other costs to adjudicate the average marijuana-related case, meaning these costs dropped from about $3.1 million in 2012 to roughly $586,000 in 2015. Considering the economic costs arrestees also typically incur (e.g. lost wages by attending court, attorney’s fees, potentially lower prospects for future employment), the positive economic effects of legalization are significant across the spectrum of both government and individual citizens.

The only area where overall marijuana-related arrests have not seen a significant decrease since decriminalization has been public consumption of marijuana (typically in city parks or other similar public spaces). In 2012 there were 204 such arrests; in 2015 there were 206. The figures for 2013 and 2014 were significantly higher (at 257 and 288, respectively), but the drop in the 2015 figure probably represents users becoming better educated about this element of the law and law enforcement’s intention to enforce it. It appears likely that such arrests will remain close to 2015’s rate or even drop in future years.

One area of concern is the expanding racial disparity in marijuana-related arrest rates. As outlined in a March 2016 report from Colorado’s Department of Public Safety:

(Between 2012 – 2014) the number of marijuana arrests decreased by 51% for Whites, 33% for Hispanics, and 25% for African‐Americans. The marijuana arrest rate for African‐Americans (348 per 100,000) was almost triple that of Whites (123 per 100,000) in 2014.

http://www.drugpolicy.org/resource/so-far-so-good-what-we-know-about-marijuana-legalization-colorado-washington-alaska-oregon-

http://www.drugpolicy.org/sites/default/files/Marijuana_Legalization_Status_Report_101316.pdf

http://cdpsdocs.state.co.us/ors/docs/reports/2016-SB13-283-Rpt.pdf

http://www.rogersandmoss.com/blog/14-criminal-law-articles/56-two-years-later-has-the-legalization-of-marijuana-affected-crime-in-colorado

http://www.drugpolicy.org/sites/default/files/Colorado_Marijuana_Legalization_One_Year_Status_Report.pdf

http://www.vox.com/2016/5/11/11656582/colorado-marijuana-arrests-race

http://www.thecannabist.co/2015/05/21/colorado-marijuana-crime-stats/29784/

https://www.colorado.gov/pacific/cbi/news/2014-crime-colorado-report-available