Growing An Economy


The year 2012 was historic for drug policy across the globe. Both Washington and Colorado completely legalized marijuana, becoming just the 7th and 8th states or countries worldwide to do this. By 2014, both states implemented new tax and regulatory environments around this once black market, allowing customers to purchase marijuana legally while the state collects revenue on each transaction. To understand where this new economy in Colorado is going, we must start with where it’s been.

Marijuana: Pre-2014


Marijuana was/is front and center in the United States’ Drug War. This “gateway drug” has been the focus of PSA’s dating all the way back to the 1930’s, marketing it as an especially dangerous substance while other, more socially accepted drugs were not subject to similar scrutiny.

However, any discussion of the Drug War must focus not on the campaign against it, but on the human capital that has been lost because of it. Over the last 25 years, 210,000 people have been arrested in Colorado for marijuana related offenses (roughly the population of Richmond, Virginia), with over 50,000 coming between 2006 and 2010.

Colorado’s record mirrors the nationwide trend on marijuana arrests over the last decade.

The logic behind this policy is that the investment in locking these individuals up, combined with the benefit that we receive from their absence on the streets, will give us a healthier, more productive society, and thus, a positive return on our investment (after all, it is our tax dollars that fund the Drug War).

Given the dramatic increase in arrests for possession and distribution of marijuana, there should theoretically be a decrease in its usage, right?

Wrong. Between 2006 and 2010, marijuana usage actually went up, not down. Meaning all those resources the government used to fight the scourge of drug addiction really did nothing to stop people from smoking weed.

It gets worse. The people who are arrested for smoking weed disproportionately represent those who use it. According to a report by the ACLU, between 2001 and 2010, there were 8 million arrests for marijuana in the United States. 88 percent of those arrests came for possession, with four times the number of black Americans arrested for this crime than white Americans.

The American Bar Association states that African Americans represent 14 percent of drug users, yet accounted for 34 percent of all drug arrests and 53 percent of those sent to prison for drug offenses.

Making matters worse, between 1993 and 2005 the number of college students who used marijuana on a daily basis more than doubled, but you never saw anyone getting stopped and frisked on frat row.

Locking people up isn’t free. The Vera Institute estimated that Colorado spent roughly $30,374 per inmate in 2010, a total cost of $606 million. Given that Colorado jails around 10,000 people for marijuana related offenses every year, that’s about $304 million dollars dedicated to housing pot smokers and dealers.

Before its legalization, Colorado followed the Federal Government’s expensive system of disproportionate and discriminatory arrests to try to stem the tide of marijuana, even though usage has either gone up or at best, straight-lined during this campaign.

If busting those who sell and toke dramatically more than we were two decades ago didn’t stop the supply from getting to its users, where is American bud coming from?

For the most part, those vicious Mexican drug cartels you’re always hearing about. They have amassed billions of dollars in the last decade, waging a war right along the U.S. border that has left as many dead as our seemingly endless campaign in Afghanistan. When you push a market into the darkness, violence and corruption will reign.

Coloradans clearly had enough with the ineptitude of the Drug War as it pertained to this relatively harmless drug, as they voted to legalize marijuana for recreational use in 2012. Prior to its official implementation on January 1st, 2014, prohibition still kind-of-sort-of-but-not-really existed. Marijuana was still illegal, but decriminalized, and medical marijuana was available to those who qualified (a distinction that was not difficult to obtain).

The Legality Of Medicinal Marijuana


Between 2007 and 2014 (an era that is referred to as “the Green Rush” in Colorado), the law of the land was crystal-ish clear: you could possess an ounce or less of marijuana (which is basically like a keg of bud), but you could not ingest it, grow it, share it, purchase it, or distribute it. Got it? Good. Because I don’t. Apparently the legislature wanted Coloradans to use it as a paperweight.

There are plenty of people out there who legitimately need medicinal marijuana, but the system was a morass of bullshit and red tape.

I was living in Colorado in 2010 and decided to try and get a medical card because of my “anxiety,” which caused “nausea,” as I told the doctor.

He spoke with me for about fifteen minutes, asking general questions as I diverted everything he suggested back towards my “anxiety and nausea.”

He happily signed a “prescription” for me that I would need to file along with my application to the state in order to receive my medical marijuana card. I was told that I would have to wait at least 35 days for them to send it to me through the mail.

After 40 days or so, I contacted the state and they notified me that because I did not file my application on the same day as my doctor’s appointment, I would need to go back to him to get another note and repeat the application process, making sure that the date on the note matched the date that my application was filed. I had just stuck my toe in this bizarre, legal tug of war, and I decided that wading through the rest of it wasn’t worth the hassle. 2014 was coming, and there was nothing the opponents to legalization could do about it.

The Legality And Taxation Of Marijuana In 2014


Starting January 1st of this year, Coloradans are allowed to possess and ingest up to one ounce of marijuana on private property if you are 21 and have a state license (or a quarter ounce with an out-of-state license). Some counties in the state were allowed to opt out of this law, and a few, like Colorado Springs, have jumped at the opportunity due to a moral aversion to the drug.

This is leading to some confusion about what is actually happening around the sale of marijuana in Colorado. Most counties’ plans either adopt or model themselves off of the statewide ballot initiatives passed in 2012 and 2013.

There is a lot to parse through, and the vast majority of this story has yet to be written, but the most basic things you need to know about the new marijuana laws in Colorado are:

  • You cannot ingest it in public.
  • You cannot be high and drive.
  • You cannot sell it on the internet, only in stores.
  • You must be licensed to grow and sell it.
  • “Bars” or “Cafes” like the ones in Amsterdam are basically illegal.
  • Anyone under 21 is not allowed to ingest or possess it.
  • Selling to a minor under the age of 15 carries a mandatory four year prison sentence.
  • Jail time is not an option for minors caught with marijuana (it was before).
  • You cannot grow more than six plants for personal use and they must be indoors, seven is a felony.
  • Selling what you grow to anyone but a licensed dealer is illegal, but you can share less than an ounce with anyone over 21 for free.
  • Possessing between two and 12 ounces is a misdemeanor, more than 12 is a felony.
  • There are many restrictions on advertising, including “mass-market campaigns that have a high likelihood of reaching minors.” (So you’re saying that’s a no on Rastafarian Camel Joe?)
  • No one has any idea how this will integrate with current federal law, which classifies marijuana as a Schedule 1 drug, on the same level as meth, ecstasy, and peyote.

One thing is clear in all of this, moving away from criminalizing cannabis is making the state money.

Colorado was already expecting to save “tens of millions of dollars” in 2013 by jailing 7,500 fewer inmates than expected; a decline that is attributed to several things, one of them being the decriminalization of marijuana, which should only accelerate the process as its full legalization takes effect.

However, those who are already in prison for marijuana-related offenses will see no retroactive ameliorative relief for committing crimes that are now legal. Sadly, the United States is one of only twenty two nations who does not have this legal policy.

A few countries that do: Myanmar, Omar, Pakistan.

This past fall, voters approved a measure to impose a 15% excise tax on the wholesale price of marijuana along with a 10% sales tax. The state of Colorado is expecting to bring in about $67 million dollars a year through taxes on marijuana, with 41% of that revenue going to Colorado’s public schools, and the rest going to resources needed to regulate this new economy (although there are some who believe they will not need all those funds, which would turn this revenue into a bonus for towns that are strapped for cash).

For example, if an eighth of an ounce of marijuana costs the buyer $30, that means the seller profits $15 off of the wholesale price. The state nets about $6 on that transaction, which is a fairly high level of taxation. Several counties already see the future of this industry in Colorado, and are attempting to pass their own marijuana tax code in order to gain an edge amongst entrepreneurs in this new, large economy.

What The Marijuana Free Market Looks Like


How big is the marijuana economy? With a capital “B” big.

Legalization in just two states is expected to double the total sales of marijuana in the U.S. (this data uses the only verifiable marijuana transactions available: medicinal sales). It is expected to double again by 2018, two election cycles later.

Combine that projection with this next image, and the scale of the opportunity becomes apparent, especially for any entrepreneurs currently living in Colorado and Washington.

In most ways, buying weed is just like purchasing alcohol. You walk into a shop, look around, find what you like, show them your ID, then hand them some cash. The shop that is taking your business is the one that has to deal with the headache.

Application and license fees for new dispensaries are nearly five times more expensive than they are for existing medical dispensaries who wish to expand. To provide our only comparison, Washington’s start up fees are 6.6% the price of Colorado’s.

The next few years should make for an interesting lesson in capitalism. The reduced barrier to entry should make Washington’s industry more competitive, but providing built-in advantages to entrenched businesses with experience in an unknown market can produce a better product too. Only time will tell.

Since such small amounts of marijuana are so potent, it is necessary for regulators to watch the supply of these pot shops very closely. MITS is a radio frequency tracking system used by the state, which is placed on to each marijuana plant grown by licensed individuals. The plant is weighed a few times throughout its production, then must be shipped in packages that cannot weigh more than a pound, which must be weighed by the pot shop as soon as they receive it, and this result goes into the MITS system. This provides regulators with an opportunity to determine how different strains of marijuana grow, which allows them to more accurately determine if the pot shops are up to code.

The Future Of The Marijuana Economy


Until October 2014, every pot shop in Colorado must be vertically integrated; meaning that those who grow their bud must be a part of the same business that sells it. This is known as the 70/30 rule, where shops can only buy and sell 30% of their product wholesale; the other 70% must come directly from their grower. Once this rule is lifted, the marijuana economy will become a much more fluid market.

One business that is positioning itself to take advantage of this new landscape is Cannabase, which takes an aerial view of the market and creates a system that allows buyers and sellers to each create accounts that can be used to buy and sell their goods.

Jennifer Gargotto, founder and CEO of Cannabase, believes that “the end of vertical integration is going to radically impact the market because it’s going to introduce specialists on a whole new level.”

Growing marijuana is a skill. It must be meticulously cared for at specific temperatures and intervals (amongst many other techniques) in order to produce a quality product.

Once growers are divorced from sellers, these talented individuals will be able to freely navigate the market, taking their abilities to areas that will help their business the most.

Sellers will have to compete for the services of skilled growers, which will make the market much more competitive and robust.

Gargotto also believes that edibles and THC-infused products may come to redefine what “pot” is, and that it will “quickly become a very complicated market that can be endlessly tailored for different audiences.”

To get an idea of how large this segment of the market can grow, anything that you cook with butter or oil, you can infuse with THC (the chemical that gives marijuana its potency).  Given many people’s aversion to inhaling smoke, the possibilities for edibles are endless.

Simply put, Gargotto says that “the end of vertical integration will open up the market for both retail shops and infused product suppliers, forcing each component of the chain to become more competitive and efficient in order to stay in the game.”

The End Game


Marijuana has taken its rightful place as a socially acceptable drug in Colorado and Washington, and the rest of the country seems poised to follow their example. If both states can create an effective regulatory environment surrounding it, we could see legalization happen very quickly in this country. Many states are facing massive budget shortfalls and are desperate to find new sources of revenue. Legalizing marijuana could alleviate some of these issues and provide new revenue for areas that desperately need it, like Colorado’s public schools.

The other benefit to legalizing marijuana is decreasing the cost of the massive waste of resources known as the War on Drugs.

Prohibition allows for black market suppliers to charge huge prices for their product, which gives them the resources to obtain and use force when they deem necessary.

Adding to this economic catastrophe is our extensive use of police force and jail time to “treat” addiction, creating millions of unemployable individuals in the process.

The Drug War is one of the most immoral and expensive catastrophes that any society has ever produced, and it does nothing more than perpetuate a cycle of dependence amongst a few financial interests, largely at the expense of poor minorities in our inner cities. Hopefully, the successful legalization of marijuana in Colorado and Washington can lead to a more sane federal policy on these substances which have been around as long as mankind.

Jacob Weindling
Pure bred Coloradan with a dash of Masshole (go UMass). Sports and politics junkie. If I've learned one thing in life to this point, it's that stupid loses more games than smart wins.
Jacob Weindling
Jacob Weindling

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