Colorado gold rush

In the land of retail marijuana, the real green is destined for the state

Andrew Hetherington/Redux

Andrew Hetherington/Redux

Please, no “Rocky Mountain High” jokes. Unless “high” is followed by “revenues”. The state treasury of Colorado, America’s trailbazer for legal retail marijuana, is beginning to see the first results of its Noble Experiment. According to an account from a Denver CBS affiliate, they are a little underwhelming:

Sales tax revenue on recreational marijuana in Colorado is down compared to early projections. Total tax revenue on recreational pot is 13 percent below state estimates which means Colorado is bringing in nearly a half a million dollars less.

“We’re not seeing number of individuals using recreational marijuana that everybody originally thought we would. So because of that it’s very difficult to budget as to how do we spend dollars we don’t know whether we will or won’t,” said State Rep. Geri Gerou.

Not only are sales lower than projected but so are the number of business approved to sell it. The state expected to approve 110 businesses in the first month but only 59 were approved as of Feb. 1.

What’s the dang problem here? Check with the state revenue department, and you discover the important word in the CBS quote: “recreational”. Licensed vendors of medical marijuana only have to apply the state sales tax of 2.9% to the green goods. Buyers of recreational marijuana face an extra 10% in sales tax at the counter, making 12.9% in all, and there is also a hidden 15% excise, paid on the wholesale price by the grower.

In what has come as a surprise to Colorado legislators, and to anybody else who hasn’t had Economics 101 or a History of Prohibition seminar or even a short course in How Humans Behave, buyers are strongly preferring the lower tax rate, which is available for the minimal trouble of getting a note from one’s doctor saying that one suffers headaches or ADHD or bad juju. It turns out American physicians are real free with prescriptions, and if you don’t believe it, ask the nearest American if they are carrying a Xanax or an Ambien or an Adderall on their person right now. (Note: any “no” is a lie.) In dollar terms, sales of medical marijuana in Colorado remain four or five times as large as sales of the strictly-for-partying kind.

Colorado has just switched to monthly reporting of marijuana revenue data. Even with the clumsy dual tax rates on the same item intended for different markets—keeping in mind that medical-marijuana retailers do have a higher regulatory burden—the total state take from all pot for the first two months of calendar 2014 was $7.6 million. The medical part of the market is still growing fast: total sales of medical weed for the first two quarters of fiscal 2014 were $215 million, which is almost equal to the total volume ($225 million) for the first three quarters of fiscal 2013.

$7.6 million, in two months, from a population of 5.3 million: that’s not too shabby. Because Colorado law prescribes limits on the total amount the government can rake in from an authorized tax, wherever the initial rate is set, the state may end up actually having to relinquish some of its recreational-pot revenue. (O happy realm!) But Colorado’s government is probably skimming off less than half as much as it could if it (a) taxed all marijuana at the same rate and (b) set that rate at a revenue-optimizing level, as a national government is free to.

Still, go ahead and multiply even these early, minimal revenue numbers over Canada’s population of 35 million. Pretty soon, as the saying goes, you’re talking real money.