Colorado: Marijuana Tax Revenue Lower Than Predicted
- Aug 19, 2014 | Gail Cole
Update, 9.12.2014: Recreational marijuana sales are improving in Colorado, according to monthly reports published by the Colorado Department of Revenue. Sales of medical marijuana have dropped a bit since the start of the year.
There is no shortage of demand for marijuana in Colorado, at least according to Market Size and Demand for Marijuana in Colorado, a report issued by the Marijuana Policy Group (MPG). An estimated 121.4 metric tons of marijuana will be consumed by adult residents of Colorado in 2014, and another 8.9 metric tons (+/-) will be consumed by visitors to the state. All told, the report predicts “the potential range for total adult marijuana demand, including visitor demand, is between 104.2 and 157.9 metric tons.”
How is that supply being met? The report lists the following supply channels:
- Medical marijuana dispensaries
- Licensed retail marijuana vendors
- Medical marijuana caregivers (informal producers and vendors)
- Home production
- Unlicensed vendors
- The black market
It turns out that demand is “much larger than previously estimated.” Why, then, is sales and use tax revenue for marijuana lower than predicted?
What’s going on?
Last week, The Denver Post revealed that “Colorado’s tax collections from recreational marijuana sales in the past fiscal year came in more than 60 percent below early predictions….” State Representative Dan Pabon, leader of a special legislative committee on marijuana revenue, suggests that one reason revenue from recreational sales is down is the medical marijuana market.
The MPG study supports that stance. It cites the fact that 5,051 people held medical marijuana ID cards in Colorado in January 2009 and 111,031 now hold them. That’s roughly 22.8% of estimated marijuana users over 21 and very likely a good portion of the “heavy users” who “drive almost 70 percent of total marijuana demand.”
Medical v recreational
Medical marijuana is subject to state and local sales tax but not the additional 15% excise tax or higher state rate (10%) imposed on retail marijuana. The differences add up. In Denver, for example:
- A holder of a medical marijuana ID card pays a rate of 7.62% for medical marijuana.
- A retail marijuana purchaser pays a rate of 21.12%.
Gray and black markets
Alternative means of procuring marijuana also factor in to the numbers. There's the gray market: home cultivators and caregivers who informally cultivate and sell. And there's the black market, unauthorized, illegal vendors. Together, the gray and black markets accounts for approximately 53 metric tons of marijuana. A recent Huffington Post article teases out the impact of these markets and underscores how much there is yet to learn.
Time to adjust forecasts
Whatever the precise cause, state economists are now adjusting their forecasts. Instead of the roughly $100 million in special recreational marijuana tax revenue predicted by Governor Hickenlooper’s office for the current fiscal year, state economists are now predicting a much more modest $30.6 million. A new forecast will be released in September.
Many in the government are eager to make changes; but The Denver Post Editorial Board suggests taking a wait and see approach: “[S]ince no one predicted how retail sales would play out in their first six months, no one knows where they’ll be a year or 18 months from now, either.” With revenue down 60% from forecasts, energy should be directed toward determining “how tax revenues are distributed and whether key programs are getting enough money.”
Colorado was the first state to enact legalization of recreational marijuana, with shops opening in January 2014. Washington State is on Colorado’s heels, with the first shops opening last month. Given that the hope of an influx of tax revenue was one reason behind legalization in both states, all eyes are on Colorado right now. Will legalization produce the windfall predicted?