Marijuana: Amendment 64 study authors defend higher revenues than state predicted
Update:A Colorado Center on Law and Policy study predicting the economic impact of Amendment 64, the Regulate Marijuana Like Alcohol Act, has become a political football for proponents and opponents. Now, CCLP reps are defending the methodology of the report, whose totals differ from those of state officials.
The report, on view below, predicts that revenue generated by Amendment 64 could reach $100 million after 2017. However, Roger Sherman, campaign director for the No on 64 organization Smart Colorado, scoffs at the figure. "It's not a surprise that a report paid for by an out-of-state, pro-legalization organization, the Drug Policy Alliance, overstates the impact of legalizing marijuana for recreational use," he wrote via e-mail. "This report triples the estimate from the state's unbiased, non-partisan Office of Legislative Council in the Blue Book."
In responding, CCLP communications director Terry Scanlon stresses "that we have tremendous respect for the Legislative Council staff. We look at their work all the time and hold it in the highest regard."
However, he goes on, "we have some different factors than they do. We look at the state sales tax revenue, local sales tax revenue and the excise tax revenue, because Amendment 64 calls for an excise tax on marijuana."
Adds Chris Stiffler, a CCLP economist: "There's uncertainly what percent the excise tax will be, but up until 2017, it can be as high as 15 percent, so we ran the numbers at 15 percent," due in part to the presumption that legislators would likely approve the maximum, as they tend to do when it comes to so-called "sin tax" items like cigarettes.
The excise tax was key to consider, Stiff goes on, because "the majority of that money is allocated to the BEST program for more school construction." Hence, voters will presumably be interested in the amount of money Amendment 64 might generate for this cause, event though the question goes beyond the Legislative Council's mandate to calculate only how much the state would collect in sales tax revenues.
That wasn't the only difference between the state's findings and CCLP's. As Scanlon points out, "the Legislative Council assumes a higher per-ounce sale price after Amendment 64 is passed" -- a figure that would translate to more revenues that the study predicts.
And when it comes to state sales-tax revenues, the state's data is in the same ballpark as that put forward in the study, Stiffler notes. "They gave a range of $4 million to $22 million depending on different scenarios -- and our state sales-tax revenue was about $8.7 million."
In defending the study as a whole, Scanlon says, "a good portion of the work we do is state tax and fiscal-budget work. So it's important to us that public-policy discussions are informed by credible independent research." When the Drug Policy Alliance "reached out to us for help, we agreed because we believe decision-makers on public-policy matters, whether voters or legislators, are better served when they're informed with credible data. And our analysis is a similar approach to what the Legislative Council took, although we include more factors. And our numbers are not inflated.
"I think someone used the term 'rosy'" when it came to the study's predictions, Scanlon goes on. "But the Drug Policy Alliance didn't have any influence over the findings of this report, and we didn't produce numbers we thought would please the campaign or that would improve their chances this fall. We produced a report that we believe provides the public with independent, credible analysis about what Amendment 64 would mean on the revenue side."
Continue reading our previous coverage of the controversial Amendment 64 study. Update, 9:04 a.m. August 20: Last week, Amendment 64 backers ballyhooed a study showing the marijuana measure's passage could lead to $100 million in revenues after 2017 -- findings that an anti-64 group ripped: See info about both below. Now, Amendment 64's Mason Tvert and Art Way of the Drug Policy Alliance's Colorado branch are firing back with critiques of the criticism. What do they have to say?
In short, Smart Colorado's Roger Sherman questioned the findings of the Colorado Center on Law and Policy due in part to the fact that the Drug Policy Alliance, a national organization, commissioned the research. He also noted that the numbers were considerably higher than estimates made by state officials for the voters guide known as the Blue Book. In addition, he suggested that the data ignored societal costs, particularly for schools, and argued that federal regulations governing banks, which have largely refused to do business with the medical marijuana industry for the past year, will create a cash-only business likely to result in more criminal activity.
We asked Mason Tvert, one of the main Amendment 64 boosters, to share his thoughts on these issues, and he replied with a statement in which he maintains that the campaign "sees no reason to provide a detailed response to Roger Sherman's off-the-cuff and ill-informed objections to the thoughtful report released by CCLP. He is not an economist, and clearly he is uninformed on this issue."
Tvert adds his view that "Mr. Sherman is confusing the banking issue, which is a problem for individual medical marijuana centers, with the issue of whether states and localities will be able to collect tax revenues. Is he unaware that millions of sales tax dollars are being collected annually already? If so, he should conduct some additional research and provide a new statement."
He also defends the study itself, writing that Sherman "owes an apology to the good people at CCLP for suggesting that they would fudge the results of their analysis based on who commissioned the survey. As 'evidence,' he draws a comparison between their figures and those produced by the state's 'unbiased' Legislative Council, but completely ignores that the Legislative Council did not include any projected revenue derived from the proposed excise tax, since it will be up to the legislature to set the level and put it to the people for a vote. It is entirely reasonable - and more intellectually honest - for CCLP to assume that the legislature and the people will approve this excise tax."
Finally, Tvert addresses the differences between federal marijuana law and what Colorado might embrace with the passage of Amendment 64. In his words, "we believe that once the people of Colorado end marijuana prohibition in the state by passing Amendment 64, there will be far more thought given to whether it is appropriate to force the state to have marijuana sold to non-patients by drug cartels and other criminal enterprises. We are moving toward the future here and the federal government needs to respect the state's wishes, just as it did by repealing alcohol prohibition after Colorado voters did so via ballot initiative. We hope that Mr. Sherman will also stand up for the people of Colorado when that time comes."
For his part, Art Way, who heads up the Drug Policy Alliance's Colorado office, breaks down Sherman's comments line by line via e-mail. Below, read a Sherman "claim," followed by a DPA "response."
Claim: "First of all, it fails to take into account the added costs to schools for drug treatment and prevention, which are already increasing. Suspensions for drug violations at Colorado's public schools increased 45 percent over the past four years, expulsions for drug violations increased 35 percent, and referrals to police increased 17 percent."
Response: Higher drug treatment and prevention costs does not mean an increase in teen usage. It does imply that since the regulatory structure concerning dispensaries have been enacted law enforcement has stepped up enforcement measures as our Attorney General is no friend of medical marijuana. A recent CDC report reveals teen usage on the decline during the exact same time Sherman references.
Claim: "It's not a surprise that a report paid for by an out-of-state, pro-legalization organization, the Drug Policy Alliance, overstates the impact of legalizing marijuana for recreational use,"
Response: There is nothing overstated in the analysis. It does the Drug Policy Alliance no good to pay for a biased report. The track record of CCLP speaks for itself. The Drug Policy Alliance chose Colorado due to the broad criminal justice reform the state has engaged in for years, this includes drug policy. Art Way, Senior Policy Manager for the Drug Policy Alliance in Colorado, is and has been part of that reform. He is a fifth generation native of Denver's eastside and a virulent advocate for issues impacting his community. Drug Policy Alliance is confident their goals are the same as many decision makers and reform advocates in CO. This was proven with the signing of SB-20.
Claim: "There's no guarantee any of this money would go to schools," he argues. "Marijuana is a Schedule I drug, which means proceeds are subject to seizure at any time. And schools, like banks, would be understandably reluctant to accept money from illegal drug proceeds."
Response: There is a guarantee that the tax proceeds of the excise tax go to school construction. The ballot measure mandates that the tax revenue goes into a state account and then the state awards the money to school districts. Second, the state already collects a fee for marijuana licensing that is kept in a cash fund maintained by the state. We assume that's in a bank, not under a mattress. The tax revenue from this measure would be treated by financial institutions as tax revenue collected by the state, not as "illegal drug proceeds."
Claim: The report is triple the estimate of leg council's Blue Book.
Response: The Legislative Council staff is well-respected. And their analysis is sound. But their analysis is more limited. The CCLP report includes excise tax revenue and the Blue Book analysis did not factor in the savings that will be realized when the police and courts no longer enforce prohibition. Legislative Council did not include those two factors.
Page down to read our previous coverage, including the complete Colorado Center on Law and Policy study. Update, 11:42 a.m. August 17: Yesterday, boosters of marijuana-regulating Amendment 64 released a new report by the Colorado Center on Law and Policy suggesting that annual cannabis revenues in the wake of the measure's passage could top $100 million after 2017; see it below. But an anti-64 group scoffs at the claim and wonders where the dough will go given most banks' antipathy toward pot money.
In a statement provided to Westword, Roger Sherman, campaign director for Smart Colorado, aka No on 64, begins by going after the Drug Policy Alliance, a national organization, albeit one with a big local presence, that commissioned the Colorado Center on Law and Policy study.
"It's not a surprise that a report paid for by an out-of-state, pro-legalization organization, the Drug Policy Alliance, overstates the impact of legalizing marijuana for recreational use," he maintains. "This report triples the estimate from the state's unbiased, non-partisan Office of Legislative Council in the Blue Book."
Speaking with Westword about the findings, Amendment 64's Betty Aldworth implied that the positive monetary impact on Colorado could actually be higher that the report suggests because it didn't take into account factors like increased productivity by individuals whose opportunities might have been limited by marijuana arrests. However, Sherman believes the study's authors misread or ignore other price tags.
"There are a number of problems with this report," he maintains. "First of all, it fails to take into account the added costs to schools for drug treatment and prevention, which are already increasing. Suspensions for drug violations at Colorado's public schools increased 45 percent over the past four years, expulsions for drug violations increased 35 percent, and referrals to police increased 17 percent."
Sherman also raises questions about the Amendment 64 clause that requires the first $40 million in revenue raised annually by taxes on marijuana to be "credited to the public school capital construction assistance fund."
"There's no guarantee any of this money would go to schools," he argues. "Marijuana is a Schedule I drug, which means proceeds are subject to seizure at any time. And schools, like banks, would be understandably reluctant to accept money from illegal drug proceeds."
Expect the Amendment 64 folks to shoot down this assertion, since the money would go to a fund, as opposed to individual institutions. But a tougher question is this one posed by Sherman: "Where do proponents plan to put the money since there's no bank that will take it?"
This isn't merely an academic inquiry, as evidenced by banking issues that have bedeviled Colorado's medical marijuana industry for at least a year. Because banks are federally regulated (and since marijuana is illegal for any use at the federal level), institutions have feared that by signing up dispensaries and the like, they'll run afoul of interstate regulations. As such, the few banks that previously took MMJ business have stopped doing so: Onetime industry favorite Colorado Springs State Bank dropped all pot accounts on September 30 of 2011, with The Bank of Denver quickly following suit.
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The problem became so severe that late last year, state Senator Pat Steadman floated the idea of a medical marijuana credit union. He subsequently scaled back his original plan, eventually settling on enabling legislation that would have allowed various groups to come together and form such a credit union, as opposed to it being a state facility. But even this less-sweeping bill was rejected by the senate's finance committee in February.
Sherman plays off this situation in his statement, writing, "No bank or credit union will accept marijuana accounts since it's an illegal drug. To do so [would] put their entire institution at risk. So how do they plan to regulate and financially control a recreational marijuana industry, including commercial grows, marketing and retail shops, that's run on a cash basis? That's an invitation to more costly criminal activity, not less."
We'll feature the Amendment 64 team's response to these claims in a future post.
Page down to read our interview with Amendment 64's Betty Aldworth and see graphics and the complete report. Original item, 1:27 p.m. August 16: The campaign for Amendment 64, the Regulate Marijuana Like Alcohol Act, is touting a new report by the Colorado Center on Law and Policy declaring that passage of the measure could result in $60 million in new revenue and savings for Colorado -- and that total could reach the $100 million-per-annum range after 2017. Yet a spokeswoman thinks even those figures may be low.
"This study specifically addresses law enforcement costs," notes Amendment 64's Betty Aldworth. "It doesn't address collateral cots outside of law enforcement -- and we know that the direct and indirect costs of marijuana prohibition are much more significant than simply the law enforcement costs."
Example? "When a person is saddled with a marijuana arrest on their record, there's the potential that they become a less productive member of society generally because they lose access to a variety of different things, such as student loans and some job opportunities" -- items that are difficult to quantify.
By the way, the Colorado Center on Law and Policy is described on its website as "one of Colorado's leading advocacy organizations dedicated to promoting justice, economic security, access to health care and sound fiscal policies." The study was commissioned by the Drug Policy Alliance, a major proponent of Amendment 64. But Aldworth stresses that the DPA "had no influence over its findings."
The report, on view below in its entirety, contains a lot of interesting assertions, not all of them related to revenue projections. Here, for example, is a graphic that estimates the cost of producing marijuana.
Still, most of the graphics pertain to costs. This one estimates how much taxpayers pony up to keep marijuana illegal for recreational use.
Hover to enlarge.
This one estimates the amount of additional tax money that would be generated by Amendment 64's passage.
Additionally, there's an estimate of how many jobs Amendment 64 would create over the next five years.
Another graphic presents three scenarios for Amendment 64 benefits.
Hover to enlarge.
And this one suggests that Amendment 64 would bring in more moolah to the state than the lottery -- by a long shot.
Hover to enlarge.
The report's last line reads: "Given marijuana's inelastic demand, the government has the potential to easily generate $100 million in new tax revenue from the sale of marijuana."
Of course, Smart Colorado, the No on 64 campaign, does the math very differently, (update) as seen in the statement above. Furthermore, law enforcement sources are already suggesting that should Amendment 64 pass, illegal diversion of marijuana, which they say is exemplified by this week's 59-count indictment against the Silver Lizard dispensary, would get infinitely worse. Aldworth's response?
"I anticipate that over time we will see less diversion," she says. "Those individuals and organizations that have gone through the licensing process won't risk losing those valuable licenses, and jail time, by selling illegally.
"The indictments we've seen against Silver Lizard, and other reports about illegal behavior, are really warnings to those who think they can take advantage of a regulated system. We believe a fully regulated system will eventually lead to the elimination of the underground market in Colorado, and we don't expect that the passage of Amendment 64 would make Colorado a hub for interstate distribution."
Aldworth also cites Centre for Addictions Research of BC data that estimates the annual health-related costs for the average marijuana user at a modest $20, as compared to $165 per user of an already legal substance: alcohol.
Read the complete report here.
More from our Marijuana archive: "Marijuana: Colorado Democratic Party convention supports Amendment 64."
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