How Will Marijuana Impact Colorado’s Pocketbook?

The Colorado legislature made history last week by becoming the first in the nation to approve laws taxing and regulating recreational marijuana. While Mary Jane will bring the state new revenue, she cannot cure the budget gap.Marijuana

Voters in the Centennial State passed Amendment 64 last November, making it the first state to end marijuana prohibition. After a six-month process, lawmakers finally sent Governor John Hickenlooper House Bill 1318, sponsored by Rep. Jonathan Singer, D-Longmont, and Sen. Cheri Jahn, D-Wheat Ridge. It will ask voters this November to approve a 15 percent excise tax and a separate 10 percent special sales tax. In addition, cannabis will be subject to a 2.9 percent general sales tax and any local taxes.

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Advocates for a legalized marijuana industry are closer than ever to accomplishing their goal, and it holds the potential to unlock new demand and funds for the state. The Colorado Futures Center, a nonpartisan research organization at Colorado State University, recently issued a report on the fiscal impact of Amendment 64. It estimates that with marijuana being legal for people 21 and older, 642,772 Coloradans will use marijuana in 2014.

The organization calculates this number by using the latest marijuana usage rates from the National Survey on Drug Use and Health (2010-2011). The usage rate in Colorado is 41.3 percent for ages 18 to 25, and 11.5 percent for those 26 and older. The Colorado Futures Center then added another 20 percent to the total number due to the social stigma surrounding marijuana at the time of the drug survey.

The organization excluded non-Coloradans using marijuana in the state, so the estimate of 642,772 is likely to be conservative. In comparison, 108,951 Coloradans held medical marijuana cards as of February 2013.

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Using historical data, the Colorado Futures Center estimates a per person per year usage rate of 3.53 ounces. This translates to an annual demand of 2,268,985 ounces. After applying taxes and various average costs, the organization believes Colorado will bring in an additional $130.1 million in state tax revenue in fiscal year 2014-15. This is a significant amount, but it will not close the state’s structural budget gap.

Furthermore, the 15 percent excise tax is not estimated to reach the goal of $40 million for school construction, as stipulated in the ballot language approved by voters. However, lawmakers are walking a fine line. They cannot get too greedy with tax rates, because it could drive legitimate buyers to the black market and away from paying any taxes, defeating one of the primary purposes of Amendment 64.

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