The marijuana industry generated $700 million dollars of economic activity in Colorado alone in 2014, according to recently released data from the Department of Revenue, but reports that residents are set to receive tax refunds from overflowing revenue are false.
Dispensaries in Colorado sold $386 million dollars worth of medical marijuana, beating out recreational products by $73 million. In terms of revenue, the state brought in $63 million directly from high taxes and $13 million from licenses and assorted fees, according to an analysis from the Washington Post. In 2016, the amount economic activity is expected to skyrocket to $1 billion dollars.
While some outlets have reported that Colorado has surpassed all tax revenue projections and is considering passing some of that money back to residents in the form of a tax refund, in fact, the $44 million dollars in tax revenue from recreational sales is $25 million dollars below initial projections. According to The Daily Beast, the tax refund bandied about is not at all related to marijuana revenues, but the story quickly went viral, and was picked up by The Huffington Post, BBC, the Washington Post, and Rolling Stone.
Regardless, according to Derek Peterson, CEO of Terra Tech, which is a company involved in agricultural production and indoor cultivation, short-term projections aren’t all that meaningful, and what really matters is the definite trend of long-term growth in the marijuana industry.
“Forecasting in this industry is extremely difficult because there are political shifts and demand shifts that people may not be able to anticipate,” Peterson told The Daily Caller News Foundation. “It’s a developed market that’s transitioning to a more overt market. When revenue falls short of projections, I don’t give it much of a second thought, and when states or companies blow the numbers out of the water, I don’t give it much of a second thought, either. With short term goals, there are too many factors to account for, but on the whole, the industry is surging forward.”
The figures from the Department of Revenue also don’t take into account sales from marijuana tourism, and black market activity is similarly nebulous, making it difficult for analysts to determine the precise tax rate at which tax revenues are maximized and sales remain high.
“Taxation, bureaucracy, and red tape can make it difficult to acquire product,” Peterson told TheDCNF. “When you have an excess of those factors, people flock back to the black market. The black market can be as simple as purchasing marijuana from someone else who bought it at the dispensary. It might not be drugs smuggled in from Mexico, but it could simply be product being diverted from medical marijuana states to non-medical states or from patients to non-patients.” (RELATED: Legal US Weed Is Killing Drug Cartels)
Yet another element left out from the analysis is the market for ancillary products like pipes or vaporizer products. TheDCNF reached out to Aaron LoCascio, CEO of VapeWorld.com for his perspective on the nascent marijuana industry.
“Obviously what’s happening in Colorado is exciting and fascinating to watch,” LoCascio told TheDCNF. “The numbers are impressive. We’ve been seeing an increase in the Colorado market and across the entire nation for our products, particularly portables. There’s a greater social acceptance in major population centers, and what basically needs to happen is a continued progression of social acceptance and additional changes in regulation.”
These changes in regulation will likely have to address black market activity which has hit dispensaries hardest, as they’re forced to compete with cheaper products offered outside the regulatory system, while still paying incredibly high taxes. Add to that the problem of operating a business which is legal within state lines but still illegal on the federal level, and it becomes clearer why companies in the marijuana industry have been struggling.
But as far as taxes go, dispensaries got a break in November 2014, when the IRS issued a memorandum saying that marijuana businesses won’t be subject to any undue audits as a result of their activities.
“In California, you don’t see as much black market activity, since it’s very easy to get a medical marijuana card,” Peterson told TheDCNF. “The more restrictive these legislative bodies make their legislation, the more likely you are to see black market activity.”
For now, despite a bumpy ride, Colorado’s success with marijuana legalization is starting to attract significant attention from states that have been waiting on the side to see the results, notably Massachusetts and Rhode Island.
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