In 2015, the legal marijuana industry in Colorado created more than 18,000 full-time jobs and generated $2.4 billion in economic activity, according to a first-of-its-kind analysis of the economics of legal cannabis in the state.
The study, conducted by the economic consulting firm Marijuana Policy Group, is based on two years of sales numbers from the state of Colorado. It measured both the direct effects of legalization – including close to $1 billion in retail sales in 2015 – and the industry’s spillover effects on the Colorado economy.
These indirect impacts of marijuana legalization came from increased demand on local goods and services: growers rent warehouse space and purchase sophisticating lighting and irrigation equipment, for instance. Marijuana retailers similarly rely on other companies, like contractors, lawyers and book-keeping services, to conduct their own businesses.
“If this is done right, regulated right, taxed right, this industry can bring real economic benefits to a state,” study co-author and MPG founder Adam Orens said in an interview. “If the state or the local governments manage, permit and enforce [marijuana regulation] in a thoughtful way, then this can have real benefits.”
The state commissioned the study to analyze the initial marijuana market size and demand in Colorado, as well as a review of market performance post-legalization.
Previous attempts to quantify the marijuana industry’s financial footprint have often been hindered either by limited real-world data, or by extrapolating state and national numbers from surveys and anecdotal reports based on erroneous assumptions. Those methods can lead to large over- or under-estimates of the true economic impact of legal marijuana.
The Marijuana Policy Group estimates that the majority of growth in the legal marijuana industry is not coming from new, previously untapped demand for cannabis, but rather from a reduction of the unregulated black market.
“It would be easy to confuse the rapid growth in marijuana sales with an inherent growth in marijuana demand,” Orens and his co-authors write. “But that is not the case. Legal marijuana sales are increasing due to a supply shift - away from gray and black market suppliers, toward licensed suppliers.”
The elimination of the unregulated black market is often cited by legalization proponents as a benefit of creating a legal, commercial marijuana market. In Colorado and Washington, those black markets have persisted to an extent, frustrating regulators and providing fodder for legalization critics.
The new report suggests, however, that the black market is being significantly reduced by legalization, and that those reductions will continue. MPG expects that by the year 2020, more than 90 percent of the market will be supplied by regulated, state-licensed dealers. The other 10 percent will come from home growers and a small fraction of unregulated and gray market dealers who manage to maintain a customer base without transitioning fully into the legal market.
When that saturation point happens, the Marijuana Policy Group expects growth in the state’s marijuana industry to slow. It will begin to resemble growth in other retail industries, which largely follow population growth.
On the tax side of the ledger, the report finds that marijuana is already pulling in tax revenue at three times the rate of the alcohol industry. By 2020, the firm expects marijuana taxes to outstrip cigarette taxes as a revenue-generator as well.
In 2015, marijuana taxes brought in about $121 million in revenue to the state. The firm expects that number to rise to about $150 million by 2020.
Orens stresses that this report only looks at the economic impacts of legalization – by design it’s blind to any effects, positive or negative, that legal weed has had on public health or criminal justice. Other recent reports have attempted to quantify those factors.
Orens says, furthermore, that smart regulation doesn’t happen by itself overnight.
“In Colorado, we have a great rule-making process where we’ve adjusted and evolved our rules and controls to mature with the market,” he said. One of those areas of adjustment has been the regulation and labeling of edible products.
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