Dazed and confused by weed markets

Colorado government economists are struggling with a new problem their university text books didn't cover: how to forecast marijuana revenues.

Colorado government economists are struggling with a new problem their university text books didn’t cover: how to forecast marijuana revenues.

Colorado legalized weed in 2012 and instituted various excise taxes on the drug that add up to around 29 per cent, according to the Tax Foundation, a similar level to its taxes on tobacco cigarettes. State economists predicted weed sales and excise taxes would bring in around US$70 million a year. Then earlier this year Governor Hickenlooper announced a new prediction that boosted revenues by almost half to around US$100 million.

Now it looks like revenues might undershoot that mark, but no one really knows since the weed market is growing so quickly as new pot stores open around the state. Monthly revenues in August were almost US$8 million, more than double January’s figure.

If the governor ends up being right, his figure would work out to about $20 in tax revenue per Coloradan.

Legal marijuana has sparked a frenzy of interest in tax policy circles. Some analysts estimate that if marijuana were legalized nationally it might bring in up to $3 billion for cash-strapped governments.

The industry is in its early days in Colorado. New York Times columnist Maureen Dowd wrote an alarming piece about her fact-finding visit to Denver in June, which included trying a tasty marijuana candy bar from one of the fast-growing edibles shops. Apparently the label didn’t mention that the bar was supposed to be divided into 16 pieces. After downing the whole bar, Dowd spent the next eight hours paranoid and incapacitated on the floor of her hotel room.

A whole new economy is materializing out of the shadows in Colorado. Marijuana is available in a wide range of products, from smokes to candy to tinctures that one website says go very nicely with a hoppy IPA. Marijuana marketing consultants and event organizers have appeared. Even the Colorado Symphony is getting in on the act, recently hosting a “Classically Cannabis” evening where symphony-goers could indulge while listening to Strauss and Debussy. The event runs parallel to the symphony’s “Brew & Beethoven” event.

Government officials are struggling to figure out how to regulate and tax a new industry. What should the labels say? What is a recommended serving? How should edibles be labelled and sold so children (and journalists) don’t think they are candy? After some high-profile incidents involving edibles, some tragic, there are now proposals to restrict sales.

Meanwhile, over in Washington state pot sales are also bringing in big bucks. The state levies a 25 per cent tax on wholesalers, then again on distributors, then again on retailers plus various other fees. The Tax Foundation estimates the total tax rate is about 44 per cent. Washington government economists predict revenues could be US$400 million annually in a few years.

Now that our fellow Cascadians in Oregon and Alaska voted to legalize pot earlier this week, it’s interesting to think what a similar system would look like for the Yukon. If the Yukon Liquor Corporation became the Yukon Liquor and Marijuana Corporation and charged a similar tax to Colorado’s, it would raise around $750,000 for the Yukon government.

That’s assuming the tax rate was the same and that Yukoners smoke as much weed as Coloradans, an assumption on which your guess is as good as mine.

The other issue challenging economists is how to estimate the costs of marijuana legalization. When Governor Hickenlooper announced his US$100 million revenue estimate, he also said the state planned to spend a significant portion of the revenue on prevention campaigns aimed at young people as well as substance abuse programs. What we still don’t know is if legalization significantly increases consumption, or just moves it out of the black market. And we don’t know what increased costs the health and social services system will face.

The Alaskan marijuana campaign was an interesting one. In the run up to the vote, the Washington Post reported that the pro-legalization campaign was outspending the “No” side by 12 to one. While many Alaskan community groups and politicians endorsed the “No” side and it raised all its campaign cash in Alaska, the “Yes” side received big money from national pro-legalization groups. The Alaska Dispatch News editorial board came out against legalization, with a soberly-argued editorial citing Colorado’s experience of what it calls “increased marijuana-related emergency room visits, increased hash oil explosions, increased marijuana-involved auto fatalities, and an increased number of workers testing positive for marijuana.”

I don’t think the Yukon Statistics Bureau even collects statistics on hash oil explosions.

Now that our neighbours are legalizing, the Yukon will have an example close to home to consider as the debate heats up in Canada on whether to follow suit. Not to mention the fact that spending the weekend in Haines may soon have even more going for it than salmon and Alaskan Amber. Assuming you don’t end up pulling a Maureen Dowd in your hotel room at the Captain’s Choice.

Keith Halliday is a Yukon economist and author of the MacBride Museum’s Aurore of the Yukon series of historical children’s adventure novels. You can follow him on Channel 9’s Yukonomist show or Twitter @hallidaykeith