"The Economic Effects of the Marijuana Industry in Colorado"

The title of this post is the title of this thorough and effective review of myriad economic impacts of the marijuana industry in the first state to have a functioning recreational marijuana market. This piece was authored by the Federal Reserve Back of Kansas City, and I recommend the piece in full to anyone and everyone interested in certain economic realities flowing from legalization and commercialization of recreational marijuana. Here are some snippets from the start and heart of the piece:

In 2012, Colorado voters passed Amendment 64, making Colorado one of the first states to legalize recreational marijuana. Since then, the legalization trend has continued, and today, medical marijuana is legal in 29 states and Washington, D.C., and recreational marijuana is legal in eight states and Washington, D.C. So far in 2018, Vermont’s lawmakers have legalized marijuana starting July 1, and at least 11 other states are considering recreational or medical marijuana legalization.  The marijuana industry has had many effects on the state of Colorado since it was legalized. This issue of the Rocky Mountain Economist focuses on the economic impacts of the marijuana industry in Colorado, the first state to open recreational marijuana stores....

Marijuana Sales in Colorado

To put the magnitude of marijuana sales in perspective, personal consumption expenditures on all goods and services totaled $236.3 billion in 2016 in Colorado. Marijuana sales were $1.3 billion in 2016, or 0.55 percent of all personal consumer expenditures. By comparison, spending on food and beverages purchased for off-site consumption made up 7.2 percent of personal consumption expenditures in Colorado....

To get a sense of the magnitude of the marijuana industry, we can compare the total number of marijuana-related business licenses in the state to the number of new entity business filings for all industries in the state.  Between the first quarter of 2014 and the fourth quarter of 2017, there were about 431,997 new entity business filings in Colorado.  By comparison, slightly more than 3,000 marijuana-related business licenses were active at the end of 2017.  If all of these marijuana-related businesses started during the first quarter of 2014 through the end of 2017, then they would represent about 0.7 percent of total new business filings in the state since 2014.  The actual percentage likely is lower than 0.7 percent because some marijuana-related businesses existed in Colorado prior to 2014, particularly those serving the medical side of the industry....

Employment in the Marijuana Industry

As of March 2018, there were more than 38,000 issued individual licenses in the marijuana industry, including 1,637 business owners.  Of course, not everyone with a license is working in the industry, and the Marijuana Policy Group estimates that one active license equates to 0.467 full-time equivalent positions.  Using this estimate, the marijuana industry currently employs about 17,821 full-time equivalent staff, a 17.7 percent increase in employment over the previous year....

Taxation of the Marijuana Industry

In 2017, the state of Colorado collected more than $247 million from the marijuana industry, including state sales taxes on recreational and medical, special sales taxes on recreational, excise taxes on recreational and application and licenses fees.  Tax collections since 2014 have increased significantly, though at a slower pace over the past year.  Between 2014 and 2015, total collections increased 93 percent. By contrast, collections increased about 28 percent between 2016 and 2017. To put the magnitude of marijuana tax collections in perspective, they equate to about 2.3 percent of Colorado’s 2017 general fund revenue. Although this calculation is useful for perspective, most marijuana revenue does not go into the state general fund....

Potential Costs of Marijuana Legalization

The data on legalization’s impact on public safety is limited, and therefore, the full effects of legalization on public safety are uncertain. Between 2012 and 2014, the number of marijuana arrests fell 46 percent, primarily due to a decline in marijuana possession arrests.  In Denver, the number of crimes reported to the Denver Police Department that were determined to have a clear connection to marijuana increased from 234 in 2013 to 276 in 2014, but then fell to 183 in 2017.  Of the crimes reported with a connection to marijuana in 2017, 54 percent were burglaries and 74 percent were industry-related.xxviii Fifteen percent of DUI summons issued by the Colorado State Patrol in 2015 were for marijuana or marijuana in combination with alcohol or other drugs although the number of these types of DUIs fell 1 percent between 2014 and 2015.  Traffic fatalities with THC-only or THC-in-combination positive drivers rose from 55 in 2013 to 79 in 2014....

Conclusion

As the first state to open recreational marijuana retail stores, Colorado provides a case study to examine the potential economic effects from legalization.  Direct employment in the marijuana sector has risen robustly since the passage of Amendment 64, contributing about 5.4 percent of all employment growth in Colorado since January 2014.  Despite these solid gains, employment in the sector makes up just 0.7 percent of total employment in the state.  Similar to employment, tax collections from marijuana have also increased sharply in recent years, and are equal to about 2 percent of general fund revenues in the state.  Although legalization has contributed to employment growth and tax revenues in the state, it is important to weigh those benefits against the potential costs to public safety and health outcomes.