Study estimates potential tax revenue on pot sales in Bayfield

Thursday, May 31, 2018 5:41 PM
Students from a Fort Lewis College class on local economic development have completed a fiscal impact study on retail marijuana sales in Bayfield. The students presented their findings at a meeting Thursday at Bayfield Town Hall.

Fort Lewis College students who conducted a study for the town of Bayfield found that sales of retail marijuana could bring in between $100,000 and $200,000 in extra tax revenue, with about $24,000 to $100,000 in increased costs for the town.

“We are in no way recommending anything,” said professor Deborah Walker, who advised the students in conducting the financial impact study. Rather, the study provides information to the town to make decisions about the issue.

The study defined the market area for retail marijuana sold in Bayfield, estimated the number of potential customers, provided a market analysis, estimated demand and sales along with taxes and revenues, then tracked potential costs and the net fiscal impact.

Bayfield town trustees may consider three options for retail marijuana stores:

Maintain the current ban on marijuana in Bayfield.Have trustees vote on an ordinance to lift the ban.Place a referendum on the ballot for Bayfield voters to decide.<PARAGRAPH style="Body text">

Bayfield marijuana study
If you're unable to view the PDF document above, click here to view it in a new tab

Here is a look at some of the study’s findings:

Population demographicsThe total population of the potential customer market area in the 81122 and 81137 ZIP codes is 14,130 residents, with 10,375 of them 21 and older.

About 16 percent of the state’s adults use marijuana, which equates to 792 monthly local customers, with another 175 who drive through on U.S. Highway 160 stopping to purchase the drug.

Of the potential customers, the study factored out residents who commute to Durango or Pagosa because it was assumed they could buy pot in those towns.

Market analysisThe study assumed Bayfield could support one retail store and one cultivation center.

In 2016, Durango’s 12 pot shops paid $988,000 in sales tax revenue from marijuana sales and another $51,250 in licensing revenue.

In Cortez, three shops paid $65,125 in sales tax and $7,500 in licensing revenue.

Estimated salesFor retail sales, the students estimated $232,000 in annual sales on the low end, $754,000 in the middle range and $3.5 million on the high end – a number they said isn’t likely feasible.

In cultivation sales, the low estimate came in at $198,000, the middle estimate was $595,000 and the high estimate was $793,000.

Revenue to town from retail salesThe students presented three possibilities for taxing retail sales: an excise tax, a fee for each transaction and no extra tax or fee.

With an excise tax, the range of tax revenues was $17,400 on the low end, $57,000 in the middle range and $261,000 on the high end.

With a transaction fee on each sales, those figures came in at $45,000, $69,000 and $261,000.

With no extra fees, Bayfield could raise $10,000 in town sales tax on the low end, $34,000 in the middle range and $157,000 on the high end.

Revenue from a cultivation centerThese numbers also had three ranges, based on an extra sales tax, a transaction fee and no special fees.

Estimates ranged from $9,000 to $63,000 in extra revenue for the town. Property taxes could bring in another $2,000 to $4,000, the study estimated.

Annual fees could bring in about $1,105 for a retail store and $1,075 for a cultivation center.

Potential costAdministrative, enforcement and infrastructure cost estimates also were presented on the low and high end.

The low cost estimate was $24,000, and the high cost estimate was $106,000, if a new deputy was hired for the marshal’s office.

Net fiscal impactIf sales were low and enforcement and administrative costs were high, the town could lose money on marijuana sales, the study found, estimating a deficit of up to $16,000.

If costs were low and the town charged an excise tax, it could make as much as $162,000 in tax revenues.

With no extra taxes or fees, the town could make $67,000 to $90,000 in sales tax revenue, after accounting for increased administrative and law enforcement expenses.

The students said one of the challenges of such a study is that there is little research into marijuana sales because they have been legal under state law for only four years, and they are still illegal under federal law.

Residents have questionsAt a forum last week to review the study, some Bayfield residents had questions.

One attendee asked how many employees a retail store would have. The average is 12 per dispensary, the students said, but they assumed Bayfield’s would be on the small side, so eight employees might be a more realistic number.

Most cities in Colorado require buffer zones, banning sales within 500 to 1,000 feet of schools, libraries or parks. A 1,000-foot buffer zone in Bayfield would leave no properties available for retail sales. A 500-foot zone would provide some areas for sales or cultivation.

When asked about law enforcement costs, students said they found that Mancos hired an extra police officer when it allowed retail sales in town limits. Statewide studies have not found an increase in crime in towns that sell retail marijuana.

There are non-quantifiable costs to retail marijuana, such as public health concerns, increased usage, crime and traffic, according to the study. Economic savings would include a reduction of black-market sales and the funding of the state’s grants for building schools, which are funded in part by taxes on marijuana.