Weedonomics

Marijuana is going to turbocharge the economy.

Pot is entirely legal in a number of US states. This givies us the perfect opportunityto examine the effect it has had in those areas, allowing us to see what we can expect if marijuana were legal across the entire country.

Colorado

In 2015, Colorado collected more than $135 million in taxes on medical and recreational marijuana. That revenue is leviedon nearly a billion dollars’ worth of sales. The industry experienced tremendous growth, increasing by 42% from the year before.

The next year, 2016, saw sales increase again. Total sales for the year were $1.3 billion, an increase of 30%. To put that number into context,consider that marijuana sales are getting closer in size to the overall craft beer market in Colorado, worth around $1.7 billion.

It’s important to note that the benefits aren’t solely coming from sales. Legalizing marijuana has created an entire industry – supported by people who work in that industry as well as related industries. Overall, Colorado has added more than 23,000 full-time jobs in the sector.

Regulating and taxing marijuana sales has been an enormous success in Colorado. Naturally, growth will slow down as other states join the party. Currently, there’s a tourism effect that can’t be ignored. Visitors from nearby states where weed is illegal are likely to stay home if legalization is pushed through in their home state.

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Source: Rand Corp

Washington

The success story continues as we move north to Washington.

Since legalization in 2014, the marijuana industry generated $1.6 billion in sales. 2016 accounted for $1.1 billion of that, nearly tripling the market from 2015 to 2016. It also accrued $250 million in taxes.

The legal cannabis industry is responsible for 123,000 full-time jobs all over the US, and Washington is a big winner, with just under 23,000 jobs added.

 California

Last year, California elected to legalize the recreational use of marijuana in November of 2016, and while Californians aged 21 and older are currently allowed to possess and grow marijuana –they still are not able to buy it the way you would a bottle of vodka.

That’s because the licenses allowing merchants to sell marijuana are yet to be issued. Once that happens, it’s likely to have a significant impact.

California is the world’s sixth largest economy. At $2.5 trillion, the Golden State’s economy is comparable with the GDPs of countries such as France ($2.4 tn), Germany ($3.3 tn) and the UK ($2.85 tn). Using population as a crude approximation for expected sales (California has nearly six times as many people as Washington) it’s not hard to imagine that the marijuana market could be as large as $6 billion.

Research backs up that idea. Reports from New Frontier Data and ArcView Market Research estimate the market could be as large as $6.5 billion (by 2020) once California residents and visitors canconsume pot freely.

These United States

So what if all fifty states legalized marijuana? What sort of effect would that have?

It’s important to understand that a new industry has knock-on effects that go far beyond just direct sales revenue and tax income for the government. A new industry causes new jobs and gives life to new, related sectors. As the market matures, new segments will be added, leading to further growth and fueling a virtuous cycle. New industries will pop up to serve the distributors, growers and marketing needs of the marijuana market.

After all, after prohibition ended people started selling alcohol but none of them thought that craft beer would become a whole segment of its own. In California alone, craft beer sales have already blown past the $6.5 billion mark and contributed to the addition of over 50,000 jobs. Who’s to say that marijuana won’t undergo a similar maturation? Legalization could mean that hemp will make its way back to the US. Suddenly you’ve got a whole new industry based around hemp clothing.

weedonomics2

There’s also uptake that needs to be considered. Marijuana use has yet to receive the social approval/tolerance that substances like cigarettes and alcohol have achieved. According to a national survey on drug use, 86% of adults aged 18 and over reporting drinking alcohol at some point in their lifetime. As marijuana gains widespread social acceptance, you can expect to see sales increase.

The total US marijuana market across all 50 states could be anywhere from $45-60 billion. You can reach that number if you just extrapolate the estimates on the California market onto the entire US population. And that’s just the retail market – sales of marijuana. The market for related products – growing and irrigation systems, lighting and security systems – would grow as well and could well be worth another $50 billion.

It’s hard to estimate just how big the industry could be. The Tax Foundation estimates the total market could be worth $45 billion, but a report from Deloitte estimates the size of the entire Canadian cannabis market at $22.6 billion. It’s hard to imagine that a country like the US, which has ten times the number of people as their neighbors to thenorth, could not at least triple that number.

Is it that big of a deal?

Depending on your politics, you either see legalization as a boon or a curse.

If we just look at the numbers, it’s clear that marijuana will have a clear, positive and sizeable effect on the economy. Hold on though – you say – can a $45 billion market have that big of an impact on a US economy that is worth $18 trillion?

Yes and no.

It’s true. $45 billion is just one-quarter of a percent of the total US economy. It’s not that large in absolute terms, but when the economy tends to grow at 1.5% annually after inflation, even a 0.25% increase makes a significant difference. If we saw that entire increase in one year, it would represent a 16% change in real GDP growth.

That’s a big deal.

 

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