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.
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.
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.
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.