marijuana | Geographical Perspectives

Marijuana Usage in Washington State

In a recent posts I reviewed a research report estimating the size of the Colorado marijuana market and reported results from a survey attempting to determine the marijuana usage rate in Colorado. In this post I report results from an identical survey I ran in the State of Washington.

The Washington survey results are fairly similar to the Colorado survey.

Survey respondents believe, on average, the marijuana usage rate in Washington is 39% (versus 41% in Colorado).

Here are some additional findings for comparison.

In Colorado, females report +4% usage over males. In Washington, females report -2% usage vs males.

Both States show a negative relationship between age and usage rate.

And, both States show a negative relationship between income and usage rate.

There doesn’t seem to be a significant gap between Urban, Suburban and Rural in either State. I expected Urban survey respondents to report higher usage rates in both States.

Will Colorado’s True Marijuana Usage Rate Please Stand Up

In my most recent post I looked at a study conducted by the Denver-based Marijuana Policy Group (MPG). They produced an estimate of the number of users in Colorado and an estimate of the total metric tons consumed in Colorado. I used their metric tons estimate to take a stab at the size of the marijuana market in Colorado. My estimate based on 130.3 metric tons consumed is $1.125 Billion for 2014.

As part of the MPG report, which you can download here, an estimate of the total number of marijuana users in Colorado is produced. MPG’s estimate includes an under-reporting bias adjustment (22% for infrequent users and 11% for heavy users) based on a similar study conducted by the RAND Corporation. MPG’s final Colorado user estimate is 485k monthly users and 686k yearly users (rounded to nearest thousand). The population of Colorado residents 21 years of age or older is 3.7 million (rounded and based on Census figure of 3,677,243,243 for 2013). This translates into a Colorado marijuana usage rate of approximately 13.1% for monthly users and 18.5% for yearly users.

These figures and the under reporting adjustment have a basis in the research literature but in reading both reports I began to wonder if there might be a better way.

It occurs to me that one possibility for determining the Colorado marijuana user population is to survey residents asking them what portion of the population they believe uses marijuana. This allows respondents to make an estimate without concern about how the information might be used against them in the future. So I decided to run a Google Survey asking respondents to estimate % use of marijuana in their community.

You can look into the details by following this link to my survey results.

I posed only one question:

“What percentage of people in your community use marijuana? Select an estimate between 0% and 100%.”

Here’s a link to view the question as a respondent.

Obviously the survey question has drawbacks. The most obvious is the word “community”. What does that mean? I like it because it allows the respondent to define the word on their own terms. Hopefully respondents were thinking about people they know well enough to have a pretty good idea whether they use marijuana or not. I doubt this would fly in the academic peer-review world. But that’s the beauty of blogging.

Drawbacks aside, my survey respondents believe, on average, the Colorado marijuana usage rate is 41%. Quite a bit higher than the RAND and MPG estimates.

Here are some other findings:

Women estimate higher usage than men.

Younger people estimate higher usage than older people. Duh.

Lower income people estimate higher usage than higher income people. Note there were only 24 respondents with inferred incomes greater than $100,000, not a sufficient number to produce a reliable estimate.

City dwellers estimate higher usage than suburban and rural residents. I expected a larger gap.

Interesting results. If true, this would mean:

There are approximately 1.5 million marijuana users in Colorado.
The marijuana market in Colorado is approximately $2.5 Billion.
Legal sales represent only ~28% of the total market.
The black market is huge with ~$1.8 Billion in annual tax free sales.
Colorado is losing around $400-500 Million in annual tax revenue.
If all potential marijuana tax revenue was collected the amount would be in the same ballpark as total Corporate net income taxes collected in Colorado in 2013.

Wow.

What do you think?

[yop_poll id=”5″]

Colorado’s Missing Marijuana Tax Revenue

I was talking with some real estate investors from Santa Fe, New Mexico recently. They are thinking about moving to and investing in Colorado. The topic of recreational marijuana came up along with the question: “How much tax revenue is being left on the table?”

Good question.

And it’s a difficult question to answer accurately. To answer we first need to know the size of the marijuana market. Not just the legal market but the entire market.

Thankfully, one group of researchers made such an estimate for the State of Colorado and published their results about a year ago.

The Marijuana Policy Group (MPG) was formed in 2014 as a collaborative effort between the University of Colorado Boulder Business Research Division (www.leeds.colorado.edu/brd) and BBC Research & Consulting (www.bbcresearch.com) in Denver. Both entities have offered custom economic, market, financial and policy research and consulting services for over 40 years. The MPG mission is to apply research methods rooted in economic theory and statistical applications to inform regulatory policy decisions in the rapidly growing legal medical and recreational marijuana markets.

I was pleasantly surprised by the MPG publication’s readability and thorough methodology. My only complaint would be why not put forth an estimate in total dollars? Their final estimate for the size of the Colorado marijuana market is 130.3 metric tons in 2014. Note this estimate is for the adult, 21 years of age and older, market. It does not include any estimate of juvenile consumption.

Okay, how do we estimate the size of the Colorado market in terms of US Dollars?

Let’s start by converting metric tons to ounces. 1 metric ton = 35,273.9619 ounces. So, 130.3 metric tons = 4,596,197.23557 ounces. Let’s keep it simple and conservative and we’ll say 4.5 million ounces.

The MPG study also estimates pricing per ounce to be in the $200-320 per ounce range. Medical marijuana sales are at the lower end of the scale. Retail sales in mountain communities are at the higher end of the scale. I’m guessing most retail purchases are far less than an ounce involving a higher per-ounce rate. Average prices for 1/8 of an ounce are about $40 according to coloradopotguide.com. Again, to keep it simple, let’s take an average of the low/high figures and round down to be conservative. So we’ll say the average price paid is approximately $250 per ounce.

Multiplying we get a total market size estimate of approximately $1.125 Billion (2014).

Righteous bucks, dude.

I think the estimate will prove to be low. In any case, that puts marijuana in the same general ballpark as Colorado’s Aerospace industry.

In 2014 we also know that Colorado reported regulated sales of retail and medical marijuana just shy of $700 million. This means Colorado is capturing approximately 62% of the total estimated marijuana market. Seems pretty good for the first year of legalization.

It also means Colorado is missing out on approximately 38% of the potential revenue from taxes and fees. If we look only at the 10% State tax we’re talking about $70 million collected and $41 million left on the table. And that’s just one piece of the complicated tax puzzle. Millions more in local, excise and other taxes/fees are currently left uncollected with organized crime enjoying a nice slice of the unregulated action.

Colorado needs to find a strategy to completely kill off the black market. Sooner the better.

A 3-Point Plan for Marijuana Distribution in the City of Pueblo

An Open Letter to the Pueblo City Council,

This is a unique moment in American history and Pueblo has a once-in-a-lifetime opportunity to make a huge difference in the lives of ordinary citizens. The question is will Pueblo City Council see this as a unique economic opportunity and behave like entrepreneurs? Or will City Council allow the “Chicken Little” voices in our community to carry the day and do nothing?

More than 80 years after the prohibition of alcohol was repealed in 1933 we now have an opportunity to invent a market for marijuana. City Council has begun debating how a legal market might operate within the City of Pueblo. So far, City Council has been reluctant to allow retail distribution of recreational marijuana within city limits. I agree that a cautious approach has been prudent but I’m now convinced that further delay will cost Pueblo an opportunity to control local distribution and participate in the market opportunity. I worry that business interests from Denver and elsewhere are likely to dominate the business landscape in this new market unless City Council proactively implements a system designed to maximize benefits for the local economy.

Before I layout some ideas let’s address those who continue paranoid hand-wringing over perceptions of marijuana as a poison that will infect and destroy society. It’s time to read the writing on the wall. First, marijuana is already here and it’s here to stay. Do you prefer that it remain a black market with criminals controlling distribution and the resulting cash cow generated by undeniably persistent demand? If you think marijuana prohibition is or was a good idea you’re clearly operating with your head buried in deep sand. Billions of US tax dollars spent over decades and marijuana use is no less prevalent. Only Mexican Cartels seem to be benefiting from prohibition. Second, marijuana is far less harmful than alcohol. Have you ever heard of a young person dying because they choked on their own vomit after smoking too much weed? No, because it doesn’t happen – but that’s what alcohol can do if consumed in excess. The CDC estimates that excessive alcohol use kills 88,000 people per year in the U.S. So stop being a hypocrite who enjoys a regular 3 martini pre-dinner routine but won’t allow neighbors to smoke a joint on their front porch. Third, marijuana prohibition is over. There may be a few speed bumps along the way but pot prohibition is ending. Not just in Pueblo, not just in Colorado, but all over North America. Get used to it. Your opposition is akin to the 1999 anarchist-led globalization protests in Seattle. You’re too late. That ship has sailed.

What we should focus on now is how to optimize marijuana distribution in Pueblo. The legal marijuana market in Pueblo should, first and foremost, benefit the citizens of Pueblo. Rather than ceding control of the market to “ganga-preneurs” from Denver or other big money corporate interests from outside our community, we should take this opportunity to build a distribution system that generates both tax revenue and opportunities for Puebloans to cash in on demand for cannabis. I’ve heard local politicians pay a lot of lip service to creating jobs and improving the economy. Well, here is a perfect job creation opportunity, served up on a platter. All you have to do is allow Puebloans to participate.

There are 3 key links in the marijuana (or any other material) supply chain: production, wholesale distribution and retail sales. There’s no good reason why Pueblo can’t control all three links within the local market and keep the lion’s share of pot profits within our own community.

Here are my suggestions for making that happen:

Production. Pueblo County licensing of grow operations has thus far focused on licensing larger scale production with a variety of interested parties (most from out of town as I understand it) applying to grow on rural acreage in the County. The licensing fees are ridiculously high. Add to that the costs to acquire appropriately zoned land and facilities, indoor growing equipment, seeds, soil, etc and 99.9% of would-be entrepreneurs in Pueblo are priced out of the market. Why must we limit production to a scale that requires so much up-front capital? I propose establishing an individual grower license program. Allow individuals to grow cannabis on their own property. Make the application simple and the license fee affordable – maybe $100 per year. This is happening anyway – lots of people growing illegally to supplement their income. Why not legitimize these small grow operations and collect taxes? Why not give citizens with a green thumb (yes, pun intended) an opportunity to produce and prosper? City Council, do you favor job creation? Boom. You just created 1000+ jobs.

Wholesale. Local growers need a centralized market where they can readily sell their crop. The best model for wholesale marketing is the agricultural cooperative structure like grain coops that exist throughout the American Midwest. If you drive through the corn belt in Iowa or Illinois or Indiana you’ll see large grain elevators in every community. These aren’t simply storage facilities, they also serve as the central market place where local farmers are able to sell their harvest at prevailing market prices. I propose creating a cannabis growers cooperative in Pueblo tasked with the responsibility of purchasing marijuana from properly licensed growers located in Pueblo County. The coop could also test, package and label marijuana for wholesale and retail distribution in Pueblo and throughout Colorado. There’s another 20+ jobs created to staff the coop.

Retail. To properly distribute marijuana we need a network of appropriately located stores within the city. Politicians who think that Pueblo West locations are satisfying demand are living in a fantasy world. No one wants to drive out to PW to pay a premium for low grade ganja so they are continuing to buy from their existing, illegal source. To successfully legalize you must also kill the black market. Store locations should be conveniently located but scrutinized to minimize exposure to young people. They should be owned by local residents and they should be closely monitored by a local control board to be sure they aren’t selling illegally to minors. Wait…we already have such a network already in place. These locations are licensed to sell products that only adults, age 21 and over, are allowed to purchase. I’m talking of course about liquor stores. I propose allowing retail liquor stores to sell packaged marijuana products.

Now, if you read my blog regularly you’ll know that I’m biased because I happen to own a liquor store in Pueblo. And, even though the store is currently for sale I recognize this as a clear conflict of interest as it would most likely increase the value of the business. But, I still think the arrangement makes sense. Many people don’t want to live next door to a liquor store or a pot shop. That’s why liquor stores aren’t located next door to parks, schools or single family homes. But, the distribution of substances that should not be in the hands of young people is exactly what liquor stores are set up to provide. Another benefit is that local liquor stores are not controlled by large companies. They are all small locally-owned businesses. Shouldn’t local small businesses and local small business owners be higher on the priority list than companies from outside of Pueblo? Wouldn’t it be better to trust marijuana distribution to people who are well known in the community? I think this makes more sense than having a long series of volatile public meetings where City Council approves zoning rules that lead to new pot shops opening in controversial locations. Do we really need to invite such dramatic conflict? Liquor license holders and their store locations have already been vetted. Why reinvent the wheel?

So there you have it. My 3-point plan for marijuana distribution in Pueblo.

City Council members: Puebloans have voted to legalize marijuana and they voted you into office to work for them. Please don’t pass up this economic opportunity just because you calculate that vocal opposition might score points with the Chicken Little wing of your political constituency. A local grower’s cooperative could really help a lot of people in Pueblo and it won’t hurt you or your constituents one bit.

Please give Pueblo permission to produce and prosper.

Invasion of the Homeless Pot Heads

I read with horror in the Pueblo Chieftain today that recent legalization of recreational marijuana has brought a wave of homeless migration to Pueblo.

Rose Mertz, envoy in charge of the local Salvation Army shelter, was interviewed and brought forth nearly unassailable evidence that this is indeed occurring here in Pueblo. In the Jan 7th Chieftain’s article by Peter Roper she states, “My instincts tell me that’s what’s going on”. As no stranger to the use of anecdote in place of actual research, the Pueblo Chieftain’s Editorial Board quickly pounced on this new perceived threat to Pueblo stating that “marijuana migration could have a negative impact on the health, safety and welfare of taxpaying residents of Pueblo.”

Clearly, the homeless will stop at nothing to get their marijuana fix through legal channels.

Never mind the ubiquitous availability of marijuana via black market dealers across the country. Never mind that purchasing marijuana legally at a licensed retail outlet adds a hefty price premium. Never mind that Pueblo does not offer convenient public transportation options from the Salvation Army’s homeless shelter on 13th Street to the handful of locations where legal marijuana is available within Pueblo County. Never mind that the homeless don’t have any money to purchase marijuana, let alone shelter, clothing, food or transportation. These facts are easily dismissed by the Chieftain when the morally indignant instincts of like-minded deep thinkers are taken into consideration.

Just how are these homeless marijuana junkies traveling to Colorado? Perhaps they emptied their burgeoning 401(k) accounts to secure first class one-way flights to America’s new Ganja Mecca. Perhaps the liberal elites in Hollywood and San Francisco conspired to charter a fleet of limousines to transport the homeless from California where illegal possession is punished as severely as driving over the speed limit. How the homeless are able to afford to travel to Colorado is irrelevant because the evidence that they are arriving in droves, as proven beyond all reasonable doubt in recent news coverage by the Chieftain, is too overwhelming to ignore.

In fact this avalanche of empirical evidence might lead one to believe that the Chieftain’s editorial board is the lone voice of reason on this matter and we should all join them in preventing a marijuana-infused Pot Head Zombie Apocalypse from destroying the quality of life in Pueblo before it’s too late.

Then again, perhaps some members of the Chieftain’s editorial board have taken too many bong hits since the beginning of 2014 and have succumbed to one of marijuana’s well known side effects: paranoia.