Marijuana sales, distribution major part of local economy

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On Nov. 7, Colorado voters will decide whether to legalize the possession of up to an ounce of marijuana by any person over 21.

Initiative 44, which is modeled after an ordinance that Denver voters approved in 2004, is seen by both supporters and opponents as a first step toward comprehensive legalization and regulation of marijuana.

Eliminate the legal, social and moral arguments, and one thing becomes very clear: even without Initiative 44, the marijuana trade in El Paso County is a major contributor to the local economy.

According to the National Survey of Drug Use and Health, 13.3 percent of Colorado residents use marijuana. Use spikes between the ages of 18 and 25, a demographic in which fully a third of all Coloradoans are users.

In Colorado Springs, where age demographics trend younger than statewide figures, as many as 15 percent of residents might be marijuana users. Given a metropolitan population of 550,000, that translates to 80,000 people.

Law enforcement officials, users and dealers estimated that the average marijuana user in Colorado Springs purchases/consumes about three ounces annually at a cost of about $1,000.

That translates into a yearly retail market of $80 million, derived from the distribution of 1,250 pounds of marijuana every month, or 41 pounds a day.

A typical Wal-Mart superstore, such as the one currently under construction on Baptist Road south of Monument, generates $45 million in annual retail sales. Is the impact of the marijuana trade, then, roughly equivalent to a pair of big-box superstores?

Difficult to compare

Sue Piatt of the Colorado Office of Economic Development is cautious about making any such comparisons. She points out that such stores not only pay sales taxes, but, unlike the marijuana trade, also rely upon a complex infrastructure of buildings, suppliers, transporters and administrators.

A better measure of the magnitude of the marijuana trade, she suggested, might be to compare it to the gross annual sales of selected jurisdictions — information that’s available from the state Department of Revenue.

Manitou Springs, for example, has gross annual retail sales of about $65 million. Buena Vista is a little higher, at $90 million, while Crested Butte, at $79.5 million, nearly matches the estimated annual volume of the local marijuana trade.

At the Business Journal’s request, Fred Crowley, a research economist at the University of Colorado at Colorado Springs, created an input/output model of the marijuana business (see sidebar). In an e-mail, Crowley commented briefly on the model.

“[My] analysis is based on the assumption the money from the sale of marijuana is spent in the local community. It was assumed $80,000,000 income is made from the sale of marijuana.

“It was assumed the income is earned by a cross section of households selling the drug from lower to higher income levels.

“Needless to say, the analysis is not an endorsement of the activity. Rather, it is an effort to identify the economic effects of the money being spent in El Paso County as a result of the sale of the marijuana. Social costs have not been included since I do not have the data on these items.”

This is what the input/output analysis determined:

  • Job creation: 1,100
  • Income creation: $29.83 million annually
  • Sales tax collections (state, county and city): $1.76 million

Tough to quantify

Underground economies are notoriously difficult to quantify, since the usual metrics simply don’t apply. You can’t track store receipts, or sales tax collections, or wholesale inventories or bank deposits.

But you can track people — people who are supplementing their incomes by selling or growing marijuana. Their ranks include not only bartenders and musicians but also middle-aged businessmen and spirited grandmothers.

“Dave,” a slender, cheerful man in his early 20s, is seated at a rickety wooden table in the kitchen of his modest downtown apartment.

“You won’t see anything better than this,” he says, passing over a plastic bag of high-grade marijuana. “This is B.C. bud. You want an ounce — it’s $400.”

B.C. bud is a generic term for high-potency marijuana, much of which is thought to originate in British Columbia.

Dave is a small-time marijuana dealer — the last link in the supply chain. He’s been selling to a small circle of friends and acquaintances since he was in high school.

“I used to ride my bike around Rockrimmon to make deliveries,” he said. “Now I just e-mail my list, and they come by.”

For Dave, selling marijuana is a simple, painless and, he thinks, relatively risk-free way to make extra money.

“I don’t make much, maybe a thousand a month,” he said. “But I can work part-time doing construction, and have plenty of time for my music. Next year, I’m going to finish up at UCCS. I’d like to go to law school after that. I don’t want to be doing construction all my life.”

Projecting the size

Law enforcement officials have long sought to estimate the size of drug markets by applying a multiplier to the quantity of drugs seized in transit. Typically, authorities have estimated that no more than 5 percent of marijuana shipments are successfully interdicted.

As a point of reference, last year, 2,391 pounds of “processed marijuana” were seized in Colorado, as well as 7,383 cultivated plants. Of the plants, 3,919 came from indoor “grows,” and 3,464 from outdoor plots.

According to local dealers, native-grown marijuana is almost exclusively cultivated indoors, under the lights. If undetected, it’s a profitable business.

“Jim,” a popular Springs bartender, described one such grow. “It’s almost as big as the bar,” he said, indicating, with a sweep of his hand, an area about 30 feet by 50 feet. “And the plants are like six feet tall.”

As a retail business, the marijuana trade appears to have several unique characteristics:

  • It requires none of the infrastructure associated with similarly-sized retail businesses. There are no fleets of delivery trucks, no warehouses, no inventory control systems, no point-of-sale systems, no licensing and no direct tax payments.
  • Retail distribution is entirely in the hands of small individual entrepreneurs, with little access to capital.
  • There is little incentive for most of those individuals to increase their sales activity beyond a certain point. Every additional customer heightens the risk of detection and arrest.
  • It seems likely that most small-time dealers net $1,000 or less per month, and expend the money as it is received.

Might be more

Sitting in her light-filled North End home, “Lilith,” a 50-something professional who has lived in Colorado Springs for more than 20 years, reflects on her years as a marijuana dealer. Told that NSDUS estimates suggest that there are more than 80,000 marijuana users in the Pikes Peak region, she smiles gently.

“I think that’s low,” she said. “You wouldn’t believe who my customers are — they’re very straight, very respectable. I’ve never had more than half a dozen. The problem has always been finding suppliers. I need to find a grower.”

If marijuana were to be legalized and regulated, what would be the economic impact of such a change?

Present channels of sales and distribution would likely disappear. Prices also would likely plummet, even if the product was, like tobacco, heavily taxed.

Thousands of individuals would lose a substantial portion of their income.

If, as Crowley’s model suggests, the marijuana trade is responsible for more than a thousand jobs in the Pikes Peak Region, the economic impact of legalization would be comparable to the closure of a manufacturing business employing a thousand people.

“We’d be out of business — just like the bookies and numbers runners went broke when Lotto came in,” said “Gary,” a former hippie and now a successful Springs businessman. “Back then, there weren’t so many gamblers, the odds were better, and it was a nice, quiet little business — so there’d be a lot more stoners, bad dope and nobody would make any money.

“But”, he added, brightening, “I guess the cops would be out of work, too.”

John.Hazlehurst@csbj.com

Input/Output model of the economic impact
of the Colorado Springs marijuana trade

Employment

   
Rank Sector Direct Induced Indirect Total % of Total
1 Food services and drinking places 90.6 5.7 33.0 129.4 11.66%
2 Offices of physicians, dentists and other health 45.4 0.0 14.1 59.5 5.36%
3 State & Local Education 0.0 0.0 40.7 40.7 3.66%
4 Real estate 15.8 12.2 9.9 37.9 3.41%
5 State & Local Non-Education 0.0 0.0 36.4 36.4 3.28%
6 General merchandise stores 23.1 1.2 8.9 33.1 2.99%
7 Nonstore retailers 22.7 0.9 8.5 32.0 2.88%
8 Food and beverage stores 20.0 0.8 7.4 28.1 2.53%
9 Wholesale trade 15.7 3.6 8.5 27.8 2.50%
10 Nursing and residential care facilities 18.9 0.0 8.0 26.9 2.42%
11 Automotive repair and maintenance 17.3 0.5 7.9 25.8 2.32%
12 Motor vehicle and parts dealers 15.9 0.7 6.0 22.6 2.03%
13 Monetary authorities and depository credit intermediaries 14.1 2.2 5.2 21.5 1.94%
14 Social assistance- except child day care services 14.7 0.0 6.1 20.7 1.87%
15 Hospitals 15.1 0.0 5.5 20.6 1.85%
16 Private households 13.6 0.0 6.1 19.8 1.78%
17 Miscellaneous store retailers 12.6 0.9 5.1 18.6 1.68%
18 Employment services 0.4 10.0 7.6 17.9 1.62%
19 Securities, commodity contracts, investments 6.7 5.1 4.0 15.9 1.43%
20 Clothing and clothing accessories stores 10.9 0.4 4.0 15.3 1.38%
21 Child day care services 10.5 0.0 4.5 15.0 1.35%
22 Building material and garden supply stores 10.1 0.4 3.8 14.3 1.29%
23 Services to buildings and dwellings 1.1 5.9 6.1 13.1 1.18%
24 Religious organizations 9.2 0.0 3.7 12.9 1.17%
25 Health and personal care stores 8.8 0.5 3.4 12.7 1.14%
Total of all sectors 566.8 120.1 423.1 1,110.0  
             

Employee Income

Rank Sector Direct Induced Indirect Total % of Total
1 Offices of physicians, dentists and other health 2,627,888 21 818,675 3,446,584 11.55%
2 Food services and drinking places 1,215,634 77,065 442,993 1,735,693 5.82%
3 State & Local Education 0 0 1,528,891 1,528,891 5.13%
4 State & Local Non-Education 0 0 1,502,462 1,502,462 5.04%
5 Wholesale trade 725,414 168,332 393,513 1,287,260 4.32%
6 Motor vehicle and parts dealers 832,285 35,690 312,885 1,180,860 3.96%
7 Food and beverage stores 625,577 24,504 230,382 880,463 2.95%
8 Hospitals 593,391 0 216,945 810,336 2.72%
9 Real estate 333,645 257,738 209,899 801,281 2.69%
10 Monetary authorities and depository credit intermediaries 502,463 78,655 186,928 768,046 2.57%
11 General merchandise stores 528,667 27,077 203,064 758,809 2.54%
12 Custom computer programming services 2,671 13,302 734,823 750,796 2.52%
13 Nursing and residential care facilities 525,069 0 221,785 746,854 2.50%
14 Automotive repair and maintenance 482,562 13,653 221,295 717,510 2.41%
15 Securities, commodity contracts, investments 261,544 198,796 155,896 616,237 2.07%
16 Architectural and engineering services 1,480 104,732 444,766 550,978 1.85%
17 Insurance carriers 285,965 109,554 154,995 550,515 1.85%
18 Computer systems design services 6,993 51,724 484,710 543,428 1.82%
19 Nondepository credit intermediation 155,381 197,749 145,141 498,271 1.67%
20 Telecommunications 220,313 94,046 166,584 480,943 1.61%
21 Building material and garden supply stores 339,420 14,255 127,147 480,822 1.61%
22 Religious organizations 310,716 0 124,949 435,665 1.46%
23 Social assistance, except day care services 296,622 27 122,805 419,454 1.41%
24 Employment services 8,193 230,542 175,574 414,309 1.39%
25 New residential 1-unit structures, nonfarm 0 0 404,174 404,174 1.35%
Total of all sectors 15,594,161 4,004,543 10,232,281 29,830,984