Marijuana economy effects

In 2012, Colorado voters passed Amendment 64, making Colorado one of the first states to legalize recreational marijuana. Since then, the legalization trend has continued, and today, medical marijuana is legal in 29 states and Washington, D.C., and recreational marijuana is legal in eight states and Washington, D.C. So far in 2018, Vermont’s lawmakers have legalized marijuana starting July 1, and at least 11 other states are considering recreational or medical marijuana legalization.i  The marijuana industry has had many effects on the state of Colorado since it was legalized. This issue of the Rocky Mountain Economist focuses on the economic impacts of the marijuana industry in Colorado, the first state to open recreational marijuana stores.

Marijuana Sales in Colorado

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.ii

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.iii  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.

To put the magnitude of marijuana sales in perspective, personal consumption expenditures on all goods and services totaled $236.3 billion in 2016 in Colorado. Marijuana sales were $1.3 billion in 2016, or 0.55 percent of all personal consumer expenditures. By comparison, spending on food and beverages purchased for off-site consumption made up 7.2 percent of personal consumption expenditures in Colorado

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As marijuana sales increased, there also was a sharp increase in the number of marijuana stores and other related facilities (Chart 2). In January 2014, there were 156 business licenses issued for recreational retail stores and 493 business licenses for medical marijuana stores. By February 2018, recreational retail store licenses had more than tripled to 518 stores, while medical licenses had grown slightly to 503 stores. In addition to retail stores, the state of Colorado also provides business licenses for cultivation facilities, infused product facilities, testing facilities, operators and transporters. In February 2018, there were 1,473 licenses for cultivation facilities including both medical and recreational, 535 licenses for infused product manufacturing facilities, 23 licenses for testing facilities, 12 operator licenses and 18 transporter licenses. These licenses are issued by the Marijuana Enforcement Division and signify the number of licenses issued but do not necessarily imply that all of these licenses are being actively used.

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To get a sense of the magnitude of the marijuana industry, we can compare the total number of marijuana-related business licenses in the state to the number of new entity business filings for all industries in the state. Between the first quarter of 2014 and the fourth quarter of 2017, there were about 431,997 new entity business filings in Colorado. By comparison, slightly more than 3,000 marijuana-related business licenses were active at the end of 2017. If all of these marijuana-related businesses started during the first quarter of 2014 through the end of 2017, then they would represent about 0.7 percent of total new business filings in the state since 2014. The actual percentage likely is lower than 0.7 percent because some marijuana-related businesses existed in Colorado prior to 2014, particularly those serving the medical side of the industry. 

As the marijuana industry grew, the industry, and specifically cultivation facilities, began to impact the market for industrial warehouse space, particularly in Denver. According to the CBRE Group Inc., a commercial real estate services firm, the marijuana industry occupied 14.2 million square feet of industrial warehouse space in Denver in the fourth quarter of 2016, roughly 2.9 percent of industrial warehouse space in the metropolitan area. Since then, however, the absorption of space has stabilized due in part to legislation passed in May 2016 by Denver’s City Council that caps the number of cultivation facilities. The influx of cultivation facilities also has pushed up lease rates, with average lease rates for marijuana cultivation facilities two to three times higher than average warehouse lease rates between 2014 and 2016, according to CBRE Research.

Employment in the Marijuana Industry

As the marijuana industry has ramped up in Colorado over the past four years, employment in the industry and in supporting sectors also has expanded. Although there is not an official count of those working in the marijuana industry, the state does provide data on the number of individuals licensed to work in the sector. All employees working in the marijuana industry in Colorado must hold an occupational license issued by the Colorado Marijuana Enforcement Division. There are three types of occupational licenses including support occupational licenses, key occupational licenses and associated key (business owner) licenses. Key licenses are required for “employees that make operational or management decisions that directly impact the business” such as master growers. Support employees include all other employees such as budtenders (those who sell and serve marijuana).x 

As of March 2018, there were more than 38,000 issued individual licenses in the marijuana industry, including 1,637 business owners (Chart 3). Of course, not everyone with a license is working in the industry, and the Marijuana Policy Group estimates that one active license equates to 0.467 full-time equivalent positions.  Using this estimate, the marijuana industry currently employs about 17,821 full-time equivalent staff, a 17.7 percent increase in employment over the previous year.

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