Marijuana: Economic stimulant, or just a can of worms

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Grows almost as large as this might be feasible inside individual homes if the state’s voters approve Amendment 64.

By John Hazlehurst and Amy Gillentine

 

Amendment 64 could transform the business, legal and economic environment in Colorado — changing marijuana into a cash crop worth millions.

Or it could create a regulatory and legal nightmare for state and local governments, while bringing the wrath of the federal government to bear on the state.

On Tuesday, Colorado could become one of the first states to legalize marijuana. If Amendment 64 passes, then the right of all adult Coloradans to fire up a joint will be granted by the state constitution.

“If there’s demand for a product, people will invest in it,” said Allan Roth, an investment adviser and owner of Wealth Logic. “Certainly, if it’s sold like alcohol, regulated like alcohol, it will be good for business, for state and local government. There’s investment potential there.”

Proponents of the measure say it would end thousands of arrests for possession of marijuana, raise millions in state and local taxes, and create hundreds of new jobs.

“There’s money to be made in manufacturing and selling liquor,” Roth said. “So it stands to reason, there’s money to be made in marijuana as well — as long as the federal government stays out of it.”

Opponents point to federal prohibition of marijuana, and claim the feds could withhold money for transportation and education to punish the state if the amendment passes. The state also could struggle to meet the regulatory compliance required under the law.

But that stance ignores the growing chorus in favor of legalization in Colorado and across the nation. Polls have shown that the majority of Coloradans favor legalization, though recent surveys indicate the Amendment 64 vote will be close.

“Legalize it!”

That chorus isn’t new. Grainy videos from the mid-1960s show today’s paunchy retirees as young rebels decked out in bell-bottoms and flowery hippie skirts, demanding that marijuana be decriminalized.

It hasn’t happened yet. But despite the legal strictures, millions of Americans became users as marijuana lost its stigma. A vast underground economy sprang up to supply a nationwide market with increasingly potent strains. Estimates are that marijuana is the nation’s largest cash crop, estimated at $35 billion annual revenue. It’s more profitable than both corn and wheat.

The social, political and legal effects of passage are debatable, but the potential effects of legalization on the local economy might be easier to quantify.

“Right now, there’s an inefficient supply chain,” Roth said. “The drug lord sells it to the wholesaler who then sells it to retailers who sell it to individuals in parking lots, apartments, homes. If it’s distributed more efficiently, through stores like dispensaries, it will make the price go down — and profits go up. You can buy alcohol on the Internet in Colorado, so if you can buy marijuana there as well, that makes it even more profitable.”

Six years ago, before the development of state-sanctioned medical marijuana, the Business Journal analyzed the economic effects of the local marijuana business, then completely in the shadows.

After interviews with anonymous growers, dealers, and users, as well as adjusting national drug use statistics to fit local demographics, we estimated the local economic impact of the marijuana trade at more than $70 million annually — in 2006.

Amendment 20, passed in 2000, legalized marijuana for medicinal purposes and brought the local marijuana business out of the shadows — and then some. Once-clandestine marijuana growers came into compliance with state regulations. Of 743 licensed “commercial marijuana cultivations,” 104 are in El Paso County.

Seventeen states have passed laws permitting medical marijuana. And although the industry’s growth has been either pleasingly spectacular or deeply dismaying, depending upon your view, the Colorado Center on Law and Policy, a nonprofit advocacy group for legal and health care issues in the state, suggests that the past is but prologue.

In other words, you ain’t seen nothin’ yet.

CCLP estimates that approximately 575,000 adult Coloradans are regular or occasional marijuana users. Average per capita annual use is estimated at 3.53 ounces, leading to total consumption of more than 2 million ounces annually.

Most of that consumption presumably would be captured by legal sales, creating windfall tax income for state and local governments.

Amendment 64 would create a harsh tax environment for purveyors of legal marijuana. An excise tax of 15 percent would be collected on all retail sales, in addition to applicable state and local sales taxes. Marijuana “grows” could be of any size, but would be carefully regulated by the state’s Division of Revenue.

CCLP estimates that Amendment 64 will create $60 million in total combined savings and additional revenue for the Colorado state budget.

How much of this revenue would flow to local governments in the Pikes Peak region?

According to the Colorado Department of Health and Environment, 14,117 residents of El Paso County possess “valid Registry ID cards.” That’s 14 percent of the state total and perfectly corresponds with the percentage of licensed grows in the county.

The city and county could theoretically expect another $2.02 million in tax revenue, not to mention a proportionate share of new state spending for school construction.

Opposition

But local governments aren’t interested in legal pot or the financial boon that might come with it. Both the Colorado Springs City Council and the El Paso County Board of Commissioners passed resolutions opposing the amendment.

Jol McGuire, director of compliance and corporate training for Conspire, a drug-testing company, is working to have the amendment voted down.

“Yes, Conspire will see the business grow exponentially,” she said. “Companies will have to have employees drug-tested, and tested more frequently. But we don’t want that. We believe legalizing it will mean that more teens are using it and we believe it will have negative impacts on the business environment.”

Employment attorneys stand to gain more business if Amendment 64 passes. McGuire, the El Paso County volunteer to the “Say No to 64” campaign, says companies will have to state their drug policy clearly, and make sure that employees read it.

Compliance with federal law would include more frequent, regular, random drug tests for employees. At $50 to $75 a test, that could get expensive — but it will be necessary for federal defense contractors who must obey the Drug Free and Safe Workplaces law.

“They’re going to have to prove that they have a zero-tolerance policy in place,” McGuire said. “And they’re going to have to enforce it to keep federal contracts.”

But even though those new tests mean money in the bank for Conspire, McGuire is more concerned about negative effects for the entire region.

“The federal government won’t be able to afford to put boots on the ground, agents to arrest growers, store owners and users,” she said. “But they can easily take education funding away from the state; they can take transportation funding. And they might do that if the state passes this amendment.”

The federal government isn’t talking.

“We’re not going to speculate on the outcome of the ballot initiative,” said Jeff Dorschner, spokesman for the U.S. Attorney’s office in the district of Colorado. “Other than to say, regardless of the outcome, it will not change our enforcement approach.”

Enforcing regulations built into the law could cause state budgetary problems given that funding cuts have forced the Division of Revenue to delay licensing of medical marijuana grows until March 2013. The division doesn’t have the staff to handle background checks, polygraphs and process necessary paperwork.

Where to grow?

Roth says if the amendment passes and the federal government doesn’t intervene, it could be both safer and more profitable.

But that investment might not occur in Colorado Springs. Just as competition and regulations led many dispensaries to close, legalization might favor large-scale, capital-intensive growing facilities.

In Newsweek, Tony Doukoupil describes touring the several warehouses housing marijuana grows on Denver’s outskirts. His hosts, whom he dubbed “America’s new pot barons,” boasted that they occupied 1 million square feet of industrial space — a far cry from the mom-and-pop operators who largely supply our local market.

Should Amendment 64 pass, would growers statewide consolidate their operations in Denver?

Veteran commercial real estate broker and Colorado Springs City Councilor Tim Leigh thinks it might make sense.

“That’s part of the natural business cycle,” he said. “More competition, more scaling — but remember, Colorado Springs has a very robust entrepreneurial culture. Why not scale up right here?”

Colorado Springs Utilities says the large grows could be eligible for reduced electrical, water and gas rates, depending on how much they use.

Where, Leigh was asked, could you find a half-million square feet of secure, climate- controlled space with all utilities in place, including a dedicated electrical substation?

“I’d go to whoever owns the Citadel Mall, and buy it,” Leigh said. “Re-purposing that mall would give that area a real economic boost … You could have retail outlets for your product, plenty of parking, storage, delivery, grows — you’d own the market.”

John Hazlehurst contributed to this story.

6 Responses to Marijuana: Economic stimulant, or just a can of worms

  1. A study released Wednesday by a respected Mexican think tank asserts that proposals to legalize the recreational use of marijuana in Colorado, Oregon and Washington could cut Mexican drug cartels’ earnings from traffic to the U.S. by as much as 30 percent.
    The Huffington Post

    freethought
    November 2, 2012 at 8:54 am

  2. tonight! can you get WNYT Albany New York on your television? 5:28 PM Cris Ericson talks about legalizing and taxing marijuana, the streaming video is broken because of Hurricane Sandy, so if you can get this, please record it and share it with everyone who is not in their listening area, thanks!

    U.S. Marijuana Party on Vermont ballot!!!
    Please tell your friends in Vermont
    to Vote for Cris Ericson,
    United States Marijuana Party
    http://usmjp.com
    USMJP.com
    Thank you!

    Remember, incumbent U.S. Senator
    Bernie Sanders is OPPOSED
    to marijuana legalization,
    while Cris Ericson is 100%
    in favor of making marijuana legal!

    USMJP
    November 2, 2012 at 9:16 am

  3. This is the first step towards ending federal prohibition. New York repealed alcohol prohibition ten years before the feds did and the feds did not invade New York with “wrath”.

    Assert your 10th amendment rights, Colorado. Vote YES on Amendment 64.

    kevin hunt
    November 2, 2012 at 9:31 am

  4. What makes that clock tick?

    http://www.drugsense.org/cms/wodclock

    * In 2010, 52.1% of the 1,638,846 total arrests for prohibition violations were for marijuana — making a calculated total of 853,839.

    * Of those, an estimated 750,591 people (45.8%) were arrested for marijuana possession alone.

    * By contrast, in 2000, a total of 734,497 Americans were arrested for marijuana “violations”, of which 646,042 (40.9%) were for possession alone.

    * From 1996-2010, there were 10.1 million arrests for marijuana possession and 1.4 million arrests for the sales and distribution of marijuana, equaling a total of 11.5 million marijuana arrests during that fifteen year time frame.

    http://www.drugwarfacts.org/cms/Marijuana#Total

    * Marijuana “violation” arrests were 39.9% of total prohibition arrests in 1995 increasing to 52.1% of such arrests in 2010.

    * During this same period, arrests for marijuana sales and distribution fluctuated between 5-6% of total prohibition arrests, while those for simple possession increased from 34.1% in 1995 to 45.8% in 2010.

    * Arrests for marijuana possession have risen from about a third to about a half of all prohibition violation arrests over the fifteen year 1995-2010 period.

    http://www.drugwarfacts.org/cms/Marijuana#Share

    “Drug Policy and the incarceration of low-level drug offenders is the primary cause of mass incarceration in the United States. 40% of drug arrests are for simple possession of marijuana. There is also evidence that drug enforcement has diverted resources from law enforcement of violent crimes and other threats to public safety” – page 2

    “Criminalization has resulted in increased use of harsh punitive sanctions imposed on drug offenders and dramatic increases in rates of incarceration. These policies have had limited impact on eliminating or reducing illegal drug use and may have resulted in adverse consequences for social and community health” – page 2

    “Criminalization of possession and illegal use of drugs compounded by mandatory sentencing and lengthy prison sanctions for low-level drug use has become the primary cause of mass incarceration. The global prison population has skyrocketed in the last three decades with ten million people worldwide now in jails and prisons. The extraordinary increase in the number of people now incarcerated has had tremendous implications for state and national governments dealing with global recession and a range of economic, social and political challenges. Research indicates that resources that would otherwise be spent on development, infrastructure, education and health care have been redirected over the last two decades to incarcerating drug offenders, many of whom are low-level users.” – page 3

    “Sociologists have also recently observed that the widespread incarceration of men in low-income communities has had a profound negative impact on social and cultural norms relating to family and opportunity. Increases in the imprisonment of poor and minority women with children have now been linked with rising numbers of displaced children and dependents. Drug policy and the over-reliance on incarceration is seen by many experts as contributing to increased rates of chronic unemployment, destabilization of families and increased risk of reincarceration for the formerly incarcerated.” – page 3

    “In the United States, drug arrests have tripled in the last 25 years, however most of these arrests have been for simple possession of low-level drugs. In 2005, nearly 43% of all drug arrests were for marijuana offenses. Marijuana possession arrests accounted for 79% of the growth in drug arrests in the 1990s. Nearly a half million people are in state or federal prisons or a local jail for a drug offense, compared to 41,000 in 1980. Most of these people have no history of violence or high-level drug selling activity” – page 4

    “With over 5 million people on probation or parole in the United States, drug use on parole or probation has become the primary basis by which thousands of people are returned to prison. These technical violations of parole or probation account for as many as 40% of new prison admissions in some jurisdictions.” – page 6

    PROHIBITION IS A DIRECT THREAT TO PUBLIC SAFETY:

    “The “war on drugs” has also generated indirect costs that many researchers contend have undermined public safety. The federal government has prioritized spending and grants for drug task forces and widespread drug interdiction efforts that often target low-level drug dealing. These highly organized and coordinated efforts have been very labor intensive for local law enforcement agencies with some unanticipated consequences for investigation of other crimes. The focus on drugs is believed to have redirected law enforcement resources that have resulted in more drunk driving, and decreased investigation and enforcement of violent crime laws. In Illinois, a 47% increase in drug arrests corresponded with a 22% decrease in arrests for drunk driving. Florida researchers have similarly linked the focus on low level drug arrests with an increase in the serious crime index.”

    —Drug Policy, Criminal Justice and Mass Imprisonment, by Bryan Stevenson

    http://www.globalcommissionondrugs.org/Arquivos/Global_Com_Bryan_Stevenson.pdf

    Malcolm Kyle
    November 2, 2012 at 11:03 am

  5. ……… ya gotta love Tim Leigh !
    …. the man is endlessly imaginative yet ruthlessly pragmatic.
    ….. who else would think of taking a failing mall & converting it to a centralized production, distribution & retail site for a newly legal industry ?

    richard black
    November 2, 2012 at 11:05 am

  6. I don’t see anywhere a discussion about the medical and social costs of marijuana. This information is ignored or supressed by proponents of legalizing marijuana. And for some reason, oponents seem to not discuss it much either. By far, the largest number of people in drug abuse clinics are current or former marijuana users. The damage this drug causes to people, in my opinion, far outweighs the economic taxation value. And why do people want marijuana? So you can experience a false sense of contentment, happiness, relaxation…or something like this? This is a mind altering drug that degrades your ability to operate machinery, degrades your productivity, reduces your ability to think, and basically makes you “check out” while under its influence….not to mention its addictive qualities, physical medical implications, and cost to purchase.

    Legalizing marijuana is a huge mistake. This won’t stop the drug cartels, legal challenges will still abound, medical costs will increase, and people’s lives will be degraded or ruined. If you need a high, go go for a hike, take a friend or family to a movie, start a bridge club! There is no social or personal value to pot use.

    And to pretend legalization will provide an economic boom of some type is simply ignoring the costs associated with legalization.

    Stan VanderWerf
    November 3, 2012 at 11:02 am