Colorado Sees Higher Than Expected Marijuana Demand, Tax Revenue

Only a week after recreational marijuana shops opened for business in Colorado on January 1, stores are seeing unexpectedly long lines such that their planned supply is not enough to meet the demand from customers.

3D Cannabis Center, one of 18 marijuana shops in the Denver area, had made only 25 medical marijuana sales per day on average over the past few years.  The shop’s owner, Toni Fox, prepared a supply of marijuana that she thought would last her store through the end of February.

However, on January 1 alone over 500 customers lined up to purchase marijuana for recreational use.

“We are going to run out,” noted Fox after the first day of sales.  “It’s insane.”

Fox closed her store for two days to reevaluate what her and her staff needed to do to meet demand.

The long lines seen at Fox’s marijuana shop were the same at recreational marijuana shops in the Denver and Pueblo areas.  Not only were Colorado residents lining up to make purchases, but estimates as high as half of sales were made to people who traveled from outside of Colorado.  Many had to wait several hours in order to complete their recreational marijuana purchases.

“It’s awesome,” added Fox.  “I wish more stores could have opened.”

Highway Patrol departments for Wyoming, Oklahoma, and other nearby states issues warnings to residents to remind them that while it was legal to purchase marijuana in Colorado, it was still illegal to bring that marijuana back across state lines.  Penalties for possessing marijuana vary by state but can mean up to 12 months in prison and thousands of dollars in fines for even small quantities.

Prices for recreational marijuana have doubled since January 1, reaching approximately $400 per ounce because of the huge demand for the product.

Marijuana Sales Lead to Increase in Tax Revenue

Not all cities in Colorado are reaping the benefit of recreational marijuana sales.  The Colorado Springs City Council voted in July 2013 not to permit marijuana shops to sell pot for recreational purposes.

Colorado Springs has approximately 75 shops permitted to sell marijuana for medical purposes.  In 2012, the latest numbers available, Colorado Springs collected approximately $1 million in tax revenue on the sale of medical marijuana.

Experts believe cities such as Colorado Springs that have chosen not to permit the sale of recreational marijuana may be missing out on as much as five times the tax revenue as what they receive from medical marijuana sales.

“It’s a challenge for an economist to study any new market that has not existed before,” noted Tom Binnings, an economist based in Colorado Springs.  “It’s a wonderful market experiment.  It will provide interesting data for researchers in the future to look at what happens when a market that is illegal and becomes legal.”

But some members of the Colorado Springs City Council noted they were not comfortable moving forward with a yes vote on recreational marijuana sales until the long-term impact was better understood.

“We have not had a chance to see how it might affect law enforcement and drug counseling or rehab,” said Val Snider, a member of the City Council who voted no on recreational marijuana sales.  “Once we get more data from Denver and Pueblo County that have gotten a chance to assess it, then yes, let’s re-look at this as a city.”

Connect with Mark on Google+

by Mark Johnston

Mark has been a contributor to legal web sites related to bankruptcy, tax, and criminal law since 2011. He has an Accounting degree from Texas A&M University.