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Millions will be at stake when Council makes its marijuana decision

Where there's smoke ...



In April, Colorado State University's Colorado Futures Center released a study forecasting what the state might expect in tax revenue from recreational-marijuana centers in 2014. Even taking a high-end approach — where it was estimated a cost of $600 to grow a pound of marijuana — authors Charles Brown and Phyllis Resnick found the state could reap $130.1 million.

Now, an Independent analysis built on the center's study estimates the city of Colorado Springs, without any new taxes, could collect a minimum of $1.2 million in revenue next year from an estimated 53,500 local buyers (our population equivalent to the statewide estimate of 642,772 marijuana customers). This would come from a combination of the 2.5 percent sales-and-use tax, and the tax-sharing agreement between the state and local municipalities written into House Bill 1318.

Of course, the number could be much bigger than that. Cannabis advocates iComply and Sensible Colorado project Colorado Springs' revenue at $3.9 million. And the Indy's estimation does not include monies derived from the proceeds of infused products, like brownies; marijuana paraphernalia; or sales to out-of-state customers. It also uses a state sales-tax rate of 10 percent, which is the amount voters will be asked to approve in November — as well as 15 percent excise tax to fund school construction — even though the new law would allow the Legislature to increase the tax to 15 percent without voter approval, something that is thought likely to happen.

And this would all be in addition to whatever amount the city continues to collect from sales of medical marijuana from consumers who don't make the switch. Last year, it was $1.1 million.

Time is ...

But it's all pretty much for naught if the city decides to either opt out of recreational marijuana sales completely, or to institute a one-year moratorium, as City Council plans to discuss Tuesday, July 23. The effect of a ban is obvious, and the Futures Center explains the other in one sentence: "While this study did not model beyond the first full year after legalization, our preliminary analysis suggests that the high water mark for marijuana tax revenue will be in the years just following legalization."

There are a couple things at play, says Resnick in a phone interview from Denver, where the public-policy research center is based.

"I think we'll have a real bump in the beginning — there's a little bit of a 'wow' factor," says the economist. "We may get some out-of-state demand, but I don't think that rate of growth will sustain.

"And, if in fact we don't have very, very robust demand growth, and the price falls over time instead of rises, it's entirely possible that the tax revenues, depending upon how quickly the price falls, could decline in the [ensuing] years instead of increase."

Resnick points to the price per ounce of medical marijuana starting off in the $400 range in 2010, and falling to around $180 currently. (Interestingly, despite that decline, city collections of MMJ sales-tax have continued to rise almost every month.)

Regardless, any study is suspect at this point, says City Council President Keith King.

"The revenue issue, I think, is questionable, and there's already been a lot of questions about those assumptions," says the former state senator. "But I question whether or not there is that much revenue that will be lost by not doing it right away, just because of the availability of people having medical marijuana cards."

... ticking

Councilor Jill Gaebler doesn't see it as King does.

"I don't have any official estimates on lost revenue, but I believe it will be significant, and only worsen as other cities begin to regulate. ... It's a lost opportunity for us as a city," she writes in an e-mail. "I will work to keep the moratorium to no longer than 6 months, as that will give us time to learn the outcome of the state tax vote and to craft reasonable regulation that protects our youth."

Reached for comment, the influential Medical Marijuana Industry Group also says it opposes the city's current trajectory. "Colorado Springs can either reap the economic benefit of controlling and taxing cannabis sales," writes executive director Michael Elliott, "or waste taxpayer money hopelessly trying to control an out-of-control black market."

Ultimately, this all assumes rates as they are. If the city were to ask voters to add an additional local tax — like the 5 percent Breckenridge and Denver are considering, or the 26 percent sales tax and 15 percent excise tax that's recently been discussed in Boulder — the potential revenue could be much, well, higher.

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