Anti-Pot Group Complains That Coloradans Are Not Buying Enough Pot

Numbers
released by the Colorado Department of Revenue this week
indicate that the marijuana industry added $3.5 million to
state coffers in January. That includes about $1.3 million from the
standard 2.9 percent sales tax, $1.4 million from a special 10
percent sales tax, and $200,000 from a 15 percent marijuana excise
tax, plus about $600,000 in license and application fees. Of that
total, about
$2 million comes from the newly legal recreational segment; the
rest comes from medical marijuana, which is subject to the standard
sales tax (and the fees) but not the other levies. Recreational
sales totaled
$14 million in January, the first month in which it was legal
to sell cannabis for general consumption.

That’s not nearly enough, according to the anti-pot group
Project SAM. “It appears that Colorado is falling well short of the
state’s revenue projection from marijuana sales,” say Patrick
Kennedy, the group’s chairman, and Kevin Sabet, its executive
director, in a
press release. A measly $2 million per month, they complain, is
“far below estimates claimed by both the Governor and legalization
advocates.” Last month Gov. John Hickenlooper proposed a
spending plan based on recreational marijuana revenue of $118
million next fiscal year, more than twice as high as projected
before voters approved legalization in 2012. If revenue continues
trickling in at a rate of just $2 million or so a month, it will
fall far short of both projections. But how likely is that?

Before we consider that question, let us pause to savor the
irony of pot prohibitionists complaining that people are not buying
enough pot. If the first month’s tax revenue were a lot higher, of
course, Project SAM would still have complained, citing the number
as evidence that legalization is transforming Colorado into a state
of stoned zombies. Either way, the prohibitionists can’t lose: No
matter what happens in Colorado, it will show legalization is a
disaster. 

But is Project SAM right to suggest that annual tax revenue from
the recreational marijuana business will be more like $24 million
than $118 million next fiscal year? Probably not. Here are a few
reasons to think Hickenlooper’s projection is more accurate than
Project SAM’s:

1. A relative handful of recreational pot stores opened for
business in January.

2. Thanks to various artificial restrictions
on supply,
shortages were common.

3. After the first harvests of marijuana from plants grown
especially for the recreational market, legal cannabis will be more
plentiful.

4. Consumers who were repelled by lines, shortages, and high
prices will start switching from black-market dealers to legal
outlets as the supply expands and prices fall.

5. After the initial adjustment period, new consumers will start
venturing into the state-licensed pot shops.

Let’s try a (very) rough calculation. A RAND Corporation

estimate put total marijuana consumption in Washington at
something like 175 metric tons in 2013. Colorado’s population is
three-quarters the size of Washington’s, so let’s say Colorado’s
2013 consumption was in the neighborhood of 130 metric tons.
Assuming that the price of recreational marijuana drops toward the
price currently charged for medical marijuana as supply exands, it
might go
for $10 per gram. To hit a target of $10 million in revenue per
month, as projected by Hickenlooper, you’d need about $70 million
in sales, or $840 million for the whole year. That’s 84 million
grams, or 84 metric tons, which is 65 percent of 135 metric tons,
the total pre-legalization market. Since the market is apt to
expand as a result of legalization, if state-licensed stores manage
to attract half of it next fiscal year, Hickenlooper’s projection
looks pretty plausible. More plausible, anyway, than $24 million in
annual revenue, which means $168 million in sales—in this scenario,
about 17 metric tons, or 13 percent of the pre-legalization
market.

I’ve never been a big fan of tax revenue as an argument for
marijuana legalization. But it seems to me that prohibitionists
cannot have it both ways. If legalization leads to a huge increase
in consumption, as they predict, it will generate substantial tax
revenue. Whether that counts as a benefit or a cost of legalization
is another question.