Legal Pot in Colorado Is Booming, but Early Estimates of Tax Profits Were Way Off

The recreational marijuana industry may not immediately become the cash cow it was expected to be for the state.

(Photo: Rick Wilking/Reuters)

Jun 26, 2014· 2 MIN READ
Solvej Schou writes regularly for TakePart, and has also contributed to the Associated Press, Los Angeles Times, BBC.com, and Entertainment Weekly.

The first half of this year has passed in, well, a haze of smoke for Colorado.

July 1 will mark six months since it became the first U.S. state to legalize the cultivation, possession, and sale of recreational marijuana for adults 21 and older. State officials initially predicted that Colorado would rake in $184 million in pot-related tax revenue by June 30, 2015, and $150 million in the first year.

Though tax revenue is steadily rising, numbers released by Denver-based pro–drug reform organization the Drug Policy Alliance now show the state’s profits are lagging behind early projections.

“We now expect $40 million in tax revenue for the first year. We do expect as the industry gets larger that in 2015 and 2016 revenue will be higher than 2014,” said Art Way, senior drug policy manager at the alliance.

Colorado’s Democratic governor, John Hickenlooper, called the recreational pot industry, still in its infancy, the “great social experiment of the 21st century.”

According to the report, which culled data from sources including the Colorado Department of Revenue and Colorado Center on Law & Policy, the first four months of legal marijuana sales resulted in $10.8 million in taxes. That means about $1.9 million of the projected $40 million in pot tax money that was expected to go to Colorado’s schools has actually been raised, according to the report. Recreational pot is subject to a 12.9 percent state sales tax; medical pot is taxed at 2.9 percent.

Still, sales in all marijuana stores are estimated to approach $1 billion for the 2014 fiscal year, according to the report, and that has meant employment for close to 10,000 people. Twenty pot retail shops opened on Jan. 1, noted Way, and now there are 100 statewide.

A limitation within the law that if you own your retail shop you have to grow your own pot and sell 70 percent of your own grow ends in October, Way said, allowing for both stand-alone stores and wholesale growers. Also starting in October, opening a retail pot shop won’t be limited to those already licensed to run a medical marijuana business.

That will lead to more sales.

“The industry will be more open after October. People will just start growing wholesale, which will increase the excise wholesale tax revenue,” Way said. “There is a fiscal and human benefit taking place in Colorado now that we’ve taxed marijuana for adult use, and there’s a learning curve.”

That learning curve also includes regulating the use of potent edibles and concentrates that can land a novel user in the emergency room. The governor signed legislation in May requiring state regulators to come up with rules making edible pot products identifiable even out of their packaging, and to establish a standard amount of retail pot product and pot concentrate equivalent to one ounce of retail marijuana. Given a 2013 Gallup poll showing for the first time that a clear majority of Americans—58 percent—support legalizing marijuana, all eyes are definitely on Colorado.

“There are things that require a delicate regulatory touch,” agreed Way. “Edibles are more in line with the medical marijuana community. It’s more a body high, and it lasts a little longer than with smoking. You can have the best regulations in the world, but you still need to depend on personal responsibility.”

One huge impact of legal pot in Colorado, according to the report, has been a big drop in pot-related arrests.

Since decriminalization of the drug went into effect in December 2012, thousands of people stopped facing criminal sanctions because of certain minor marijuana possession offenses. In the past decade, Colorado averaged about 10,000 arrests and citations every year for minor marijuana possession. Related arrests so far this year have averaged 900, Way said. The state could save $12 million to $40 million in one year by reducing penalties.

“Law enforcement now needs to shift from criminalizing minor possessors of all ages to the intent to distribute out of state,” he said.