The Increase Of Personal Economic Growth And Development

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Introduction

Throughout recent years legalization of marijuana became well-discussed topic. However, this prompted a question of whether or not it is beneficial from economic point of view, since previously illegal drug freely entered the market for recreational use on January 1, 2014. In 2012 residents of Colorado approved Amendment 64, which legalized retail marijuana, with 55.5% vote. Colorado is one of the four states which legalized marijuana and was the first to do it. Although legalization is still controversial topic, benefits outweigh social costs in a long run. In addition, legalization allowed government to control the market, as previously illegal cannabis contributed to rapidly growing black market for drugs. Also, due to legalization consumers can be confident that drug is not laced with any other addictive drugs. Marijuana reform in Colorado did not only create a new industry and significant amount of job opportunities, but also introduces notable research opportunity for each major discipline such as agriculture, medicine, social work, etc. Legalization of marijuana directly contributes to the economic growth and development, new social norms that were introduced in different spheres like public safety, public health and overall consumption of cannabis.

Marijuana can be considered a demerit good and it creates negative externality of consumption, because private benefits outweigh the social benefits. Demand for demerit goods is inelastic, usually due to addiction of the consumers, however it could lead to expansion of black market. Therefore, to prevent it, government legalized marijuana. Although, legalization of cannabis shortened demand for marijuana at the black market and brought government revenues, it created a negative externality of production due to social costs being bigger than private costs.

I am interested in given topic due to its effects on economy and society’s lifestyle. As many new drugs continue to enter black market, it is an interesting to observe how government of Colorado uses cannabis to increase economic growth and development. Before marijuana was legalized it contributed to increase of the revenue on the black market due to inelastic demand for it amongst consumers. Also, cannabis sold illegally usually was laced with other addictive drugs, which amplified an addiction crisis. However, once government legalized the drug it became one of the most controversial yet lucrative industries. Although Colorado government receives new taxation revenues from newly developed legal industry and provides thousands of people with new jobs, I would like to investigate the research question “To what extent has the legalization of marijuana increase economic growth and development in Colorado?”

Theory and analysis

Since introduction of cannabis to the legal market economic growth and development should have risen over the years. Economic growth, which is measured in percentage rate of increase in the real Gross Domestic Product (rGDP), should have escalated due to increase in components of GDP, such as consumption of households, investment, government spending and difference between exports and imports.

Ideally increase in GDP should be presented through shift to the right of LRAS, AD and SRAS curves to LRAS1, AD1 and AS1 respectively, setting new equilibrium. Due to legalization aggregate demand increased, which forced short- run aggregate supply to follow, because producers want to increase their revenues on new industry. As there is no further information on criminalizing cannabis products in Colorado long- run aggregate supply will, also, shift to the right, showing an increase in GDP. Due to increase in demand for retail marijuana in September 2015 an in-state production increased by 81.5 tons. Therefore, with the increase of an aggregate demand, followed by increase in aggregate supply, Colorado’s GDP has risen in 0.3 percent, which equates to $725 million in estimated new sales. However, Colorado’s production rate has to be maintained at new equilibrium, so that LRAS curve would shift, however, due to easy access to black market, which can decrease consumer demand.

As GDP= C+I+G+(X-M) 5 components of the economic growth contribute to increase in GDP. First and foremost is consumption and household expenditures on the product. The total of $236.3 billion were spent for personal consumption on all goods and services in 2016 in Colorado. 0.55 percent of all personal consumer expenditures equaling to $1.3 billion were due to marijuana sales in 2016. By comparison, 7.2 percent of personal consumption expenditures in Colorado were dedicated to food and beverages purchased for off-site consumption.

Since marijuana was legalized major increase in sales is visible until today. Increase in marijuana sales led to abrupt increase in the marijuana related facilities and businesses. Although there is an increase in GDP, economic and social costs of legalization exceed the benefits of the industry as Colorado citizens spent approximately $4.50 for every dollar gained in tax revenue .

A small portion of the remaining demand for illegal marijuana was met by organized, illegal production within Colorado. Gettman’s (2006) estimates of marijuana production by state indicate that Colorado accounted for 0.03 percent of the nation’s illegal marijuana growth, against 1.75 percent of total consumption, meaning that 98 percent of illegal demand was met through imports. Accounting for medical marijuana supply, less than half of Colorado’s demand prior to legalization was met through in-state production. because the revenues that come from the new industry should have been invested further into the development of the state.

Economic development refers to a process that leads to improved standards of living for a population as a whole. Economic development can be defined as a process where increases in real per capita output and incomes are accompanied by improvements in standards of living of the population and reductions in poverty, increased access to goods and services that satisfy basic needs (including food, shelter, health care, education, sanitation and others), increasing employment opportunities and reduction of unemployment, and reductions of serious inequalities in incomes and wealth.

Human development

Thinking about development has progressed further in more recent years, building on an even broader interpretation of development that was provided by Denis Goulet as early as 1971. Goulet defined three core values of development: life sustenance, self-esteem and freedom:3 Life sustenance refers to access to basic services (merit goods) such as education and health care services, as well as satisfaction of basic needs like food, clothing and shelter.

Self-esteem involves the feeling of self-respect; development is desirable because it provides individuals with dignity, honour and independence. Self-esteem is related to the absence of exploitation and dominance associated with poverty and dependence. Freedom involves freedom from want, ignorance and squalor; it is freedom to make choices that are not available to people who are subjected to conditions of poverty.

These immediate-term substitutions concern the short- term effects of economic development, commonly represented through measures of industry employment and output. However, the second set of hypothesized consumption shifts manifest in terms of long-run development. Places with distinctive consumption practices grow and change differently over the long term. Over the past fifty years, population migration into the Mountain West and Pacific coast reflects both conventional measures of economic opportunity (jobs, income, real estate) and the valorization of natural, urban, and cultural amenities by mobile professionals (Busch 2015; Jurjevich and Schrock 2012). Western states have also drawn on residents’ enthusiasm for beer, wine, natural foods, and outdoor recreation to develop nationally leading industrial concentrations in brewing, distilling, natural foods, and outdoor apparel (Clark 2013). Here, cities and urban regions benefit from the co-location of production and consumption, which mutually strengthen one another by allowing firms and product developers to test emergent innovations easily and quickly (ibid.).

Supply and demand

Prior to 2012, Colorado was a net importer of marijuana from climates better suited to the plant’s growth. However, the legalization of medical marijuana production in 2000 created a significant amount of licensed in-state production, totaling 60.4 tons on the eve of legalization (Table 2). Additionally, an estimated 3.9 percent of users met their consumption needs from homegrown supply.

The size of this increase is equivalent to the combined size of Colorado’s primary metals and electronic equipment industries (US Bureau of Economic Analysis 2013). While the absence of input–output data on the industry make the calculation of an economic impact multiplier impossible, the man- date to produce in-state ensures nearly zero leakage on backwards demand for the product.

To the extent that it simply reflects the legalization of existing demand for marijuana, the growth of marijuana retail sales does not come at the expense of reduced consumption of other consumer goods. In fact, early studies of consumer spending in Colorado suggest that the net out-of- pocket amount spent on marijuana decreased between 2014 and 2015, because of the high intoxication content and comparatively low-price points of legal marijuana (Light et al. 2014). Among new consumers and tourists in particular, consumer-spending surveys suggest that marijuana consumption leads to at least a partial reduction in spending on alcohol, as well as decreased spending on pharmaceuticals. These substitutions will partially mitigate net growth in Colorado economic output, but with limited effect: The mandate for in-state marijuana production ensures that sales in the industry will have a larger economic impact than any other consumption option, including brewing, natural foods, and other goods for which large portions of demand are met by in-state supply. –

Increase in sales and regulation

After Amendment 64 passed in November 2012, recreational marijuana stores in Colorado opened Jan. 1, 2014. Although marijuana is legal in all of Colorado, each local jurisdiction can decide whether to allow medical or recreational marijuana retail stores. As of June 2017, 65 percent of Colorado jurisdictions (out of 320) had banned both medical and recreational stores, 4.7 percent had allowed only medical stores, 3.4 percent had allowed recreational stores only and 26.6 percent had allowed both recreational and medical marijuana stores.

In the first month that recreational marijuana stores opened in Colorado, recreational sales exceeded $14 million and medical sales more than doubled that amount at $32.5 million (Chart 1). Since then, recreational sales have grown sharply while medical sales have remained roughly flat. In 2014, total annual recreational sales were $303 million, while medical sales totaled $380 million. By 2017, recreational sales had grown to almost $1.1 billion, and medical sales were almost $417 million. Thus, in 2017, combined marijuana sales in Colorado exceeded $1.5 billion.

Due to legalization of marijuana government of Colorado could regulate the use of cannabis and improve economic state through tax revenues. The sales of marijuana started to increase in January 2014 when it was legalized, due to lack of data prior to 2014, since Colorado Department of Revenue (CDOR) could not systematically track them.

In Colorado and elsewhere, marijuana laws require all retail cannabis sales to consist of plants seeded and grown in the state. Thus, calculating the net gain in local production rests on (a) estimating the geographic origin of marijuana sold prior to legalization, (b) estimating likely demand changes after legalization, (c) discounting existing medical marijuana supply, and (d) accounting for the individual-level production authorized by state law.

Impact on tax revenue

In 2015, Colorado collected more than $135 million in taxes and fees on medical and recreational marijuana. Sales in the state totaled over $996 million. A report from the Colorado State University-Pueblo’s Institute of Cannabis Research recently found that the legal cannabis industry has contributed more than $58 million to the local economy, primarily through taxes and other fees. Should marijuana become legal on a federal level, the benefits to the economy could be exceptional: a report from cannabis analytics company New Frontier suggests that federally legal pot could generate an additional $131.8 billion in aggregate federal tax revenue by 2025.

State Sales Tax: The state sales tax rate on all tangible personal property, including marijuana, is 2.9%. These taxes are charged on the final consumer purchase price. Retail marijuana and retail marijuana products are exempt from state sales tax. The tax will still apply to medical marijuana and medical marijuana products. (Colorado Department Of Revenue, 2019) State Retail Marijuana Sales Tax Rate: There is a 15% retail marijuana sales tax on all sales of retail marijuana and retail marijuana-infused products in the state charged on the final consumer purchase price.

Marijuana legalization creates at the stroke of a pen businesses subject to a range of new taxes, such as a 25 percent excise tax on producers in Washington and a 15 percent retail tax in Colorado. The variance in state-level taxation procedures signals the importance of state law in shaping the industry’s structure and trajectory. Following the US Department of Justice’s “Cole” memo, which prohibited the movement of marijuana across state lines, Colorado, Washington, Alaska, and Oregon all mandate seed-to-sale tracking systems to ensure that plants remain in-state from seed to smoke (US Department of Justice 2013). However, other regulations integral to industry structure and operation vary substantially by state. For example, Oregon and Colorado allow individual-level cultivation, which Washington law prohibits. Colorado law devolves retail licensing authority to municipalities, which have no power to deny licenses in the Pacific Northwest (Vermont Legislature 2016). Highly variable from state to state, these and other technical measures shape the industry’s growth, consolidation, and competitive standards. The industry’s primary economic development mechanisms, however, are less sensitive to place.

Public safety

The total number of marijuana arrests with legalization decreased by 46% between 2012 and 2014, from 12,894 to 7,004. Marijuana possession arrests, which make up the majority of all marijuana arrests, were nearly cut in half (‐47%). Marijuana sales arrests decreased by 24%, while arrests for marijuana production did not change appreciably (‐2%). Marijuana arrests that were unspecified, meaning the specific reason for the arrest was not noted by law enforcement, went down by 42%.

Public health

According to the National Survey on Drug Use and Health, administered by the Substance Abuse and Mental Health Services Administration, the current prevalence rates for marijuana usage in the past 30 days have increased significantly for young adults (18 to 25 years old), from 21% in 2006 (pre‐commercialization) to 31% in 2014 (post‐commercialization). Reported current marijuana use by adults (26 years or older) increased significantly, from 5% in 2006 to 12% in 2014.

The Colorado Behavioral Risk Factor Surveillance System (BRFSS) is a statewide telephone survey conducted by the Colorado Department of Public Health and Environment (CDPHE). In 2014 the BRFFS was expanded to include questions about marijuana use. Overall, in 2014, 14% of adults reported marijuana use in the past 30 days and 33% of current users reported using daily. The Colorado Department of Public Health and Environment analyzed data from the Colorado Hospital Administration and categorized visits according to determine if the visit indicated possible marijuana exposure or used a diagnosis/billing code indicating marijuana.

Hospitalizations with possible marijuana exposures, diagnoses, or billing codes per 100,000 hospitalizations increased from 803 per 100,000 before commercialization (2001‐2009) to 2,413 per 100,000 after commercialization (2014‐June 2015). The period of retail commercialization showed a significant increase in emergency department visits, from 739 per 100,000 (2010–2013) to 956 per 100,000 ED visits (2014–June 2015).

The number of calls to poison control mentioning human marijuana exposure has increased over the past 10 years. There were 44 calls in 2006 and 227 in 2015.

Impact on youth

The number of juvenile marijuana arrests increased 5%, from 3,234 in 2012 to 3,400 in 2014. The rate of juvenile marijuana arrests per 100,000 increased from 598 in 2012 to 611 in 2014 (+2%).

Legalizing marijuana results in decreased teen marijuana use. Researchers at the Washington University School of Medicine found that ‘the rates of marijuana use by young people are falling despite the fact more US states are legalizing or decriminalizing marijuana use and the number of adults using the drug has increased.’ Colorado teens between 12 and 17 years old reported a nearly 12% drop in marijuana use just two years after adult use was legalized, according to the National Survey on Drug Use and Health.

The Marijuana Policy Project, an organization that leads marijuana legalization campaigns, said, ‘Study after study has confirmed that marijuana policy reforms do not cause rates of youth marijuana use to increase… The most in-depth state surveys suggest modest decreases in rates of youth marijuana use in Colorado and Washington.’ Even though retail marijuana shops opened in Colorado and Washington in 2014, past-year marijuana use among teens in those states was lower in 2015-2016 than in 2014-2015.

Legalization of cannabis reckon for setting up nurseries and dispensaries. These would not only create jobs but also start economic activity in the pot industry in these areas. These jobs would likely come from the quickly growing industry. Workers would be needed to farm, process, distribute, and sell marijuana-based products. Further, there would be ample opportunities for secondary industries which are related to legal cannabis although not directly involved in its production and distribution. These might include software developers, financing services, construction companies, and many others.

First, Colorado’s status as the first state to legalize retail marijuana sales gives it the longest experience with legal marijuana, and a first-mover advantage that further magnifies the industry growth and diversification processes at issue.1 In terms of research strategy, these conditions position Colorado as a critical case—a unique intersection of the circumstances crucial to understanding both the industry and its implications for theories of consumption-driven development (Yin 2008). Second, the public, exuberant nature of legalization facilitates secondary data collection.

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