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Estimates differ on marijuana revenues

Official projections far less than figures backed by advocates


Two estimates differ sharply on how much money will be generated for Oregon coffers by voter approval Nov. 4 of a marijuana legalization ballot measure.

An unofficial projection by a Portland firm, done at the request of the measure’s sponsors, pegs the first-year yield for the state at $38.5 million — and $78.7 million for the 2017-19 budget cycle.

A proposed official estimate by a state committee, which prepares figures for voter consideration, puts that amount at just $9.3 million in the first year. The estimate projects $40 million in the 2017-19 budget cycle, although in subsequent years, it offers a range of between $17 million and $26 million annually, and a mid-point of $21.4 million; the state budget cycle is two years.

Still, says Mazen Malik, the state economist who prepared the lower estimate, “in the long term, you would expect marijuana to bring in a higher amount of revenue.”

A public comment period is scheduled Wednesday, July 30, by the state committee, which is led by Secretary of State Kate Brown and has three other state officials and a local government representative. The meeting is from 1 to 4 p.m. in Hearing Room 50 at the Capitol in Salem.

The financial estimate committee, also know as the “price tag” panel, must prepare official analyzes for the state voters pamphlet and online voters guide. The estimates cover only state and local governments.

“This is such a speculative estimate to begin with,” says Michael Jordan, who as director of the Department of Administrative Services is one of the committee members.

Others are Jim Buchholz, director of the Department of Revenue; Tom Rinehart, chief of staff for the Oregon Treasury, and Deb Guzman, local government representative and chief financial officer for Tualatin Valley Fire & Rescue.

If the committee decides there need to be changes after hearing comments about any of the estimates, Brown said it would reconvene next week for one more meeting.

Figuring finances

Oregon’s marijuana legalization measure, which qualified last week for a statewide vote, is modeled on measures passed by voters in Washington and Colorado in 2012. It leaves details to the Oregon Liquor Control Commission, which would have the authority to regulate and tax marijuana, sales of which could start in mid-2016.

After OLCC startup and operating expenses, which are estimated at $3.8 million for 2015-18 and $3.2 million annually afterward, revenues are divided among state agencies based on a formula in the measure.

Beneficiaries, in descending order, are the Common School Fund, 40 percent; mental health alcoholism and drug services account, 20 percent; Oregon State Police, 15 percent; city law enforcement, 10 percent; county law enforcement, 10 percent; Oregon Health Authority, also for treatment and prevention, 5 percent.

Economists for ECONorthwest, based in Portland, and the state say the differences in their estimates are easily explained.

The ECONorthwest study, done at the request of sponsors of what is likely to become Measure 90, was released last week. It is based partly on data gathered from Colorado, where legal sales began about six months ago. (Washington state sales began on July 9.)

Robert Whelan, a senior economist for ECONorthwest, says Oregon’s measure would tax marijuana less than in Colorado.

The Oregon measure would impose an average tax of $28 per ounce — $35 per ounce of flowers (buds), $10 per ounce of leaves, and $5 per immature plant. Colorado imposes a tax based on 15 percent of annually set values of plants, plus a sales tax.

“We determined that more than 20 percent of the black market would go to the legal market,” Whelan says, and that legalization would attract first-time buyers, particularly older people with no ready access to the drug.

A 2013 Oregon State University estimate pegs the number of current users who would switch to a legal market at 40 percent, about 110,000 of 260,000 who are age 21 and older. Users between 18 and 21 were excluded.

Based on a 2009 study by the Rand Corp., which projected that retail prices in California would have dropped by 80 percent under a proposed legalization measure, Whelan says Oregon’s projected price of marijuana per ounce would drop about 20 percent from $177 to $145. (California voters rejected legalization in 2010.)

Whelan says despite such a drop, “the Napa Valley of marijuana is the Medford-Grants Pass area,” referring to Southern Oregon, where much of Oregon’s currently illicit crop is produced outdoors.

Whelan and Mazen Malik, senior economist for the Legislative Revenue Office, agree on one point.

“This is a difficult market to analyze because it’s hidden,” Whelan says.

Differing assumptions

Malik says his estimate assumes something entirely different.

“The legal stuff is not necessarily cheaper than the not-legal stuff,” he says. “You would have movement in the price in an illicit market, but it would be smaller” than assumed by Rand and ECONorthwest.

Malik, who works for the office that advises lawmakers about tax measures, says cultivators and retail sellers of marijuana still would be subject to all the employee taxes and property and utility costs of other businesses. Unlike those businesses, however, Malik says marijuana-related businesses cannot deduct their operating costs before paying federal taxes.

Still, he says, as growers got more efficient and police cracked down on unlicensed operations other than self-cultivators allowed under the law, prices could come down more.

But Malik says for growers and retailers to maintain a healthy margin, “the market will push toward more production of higher-quality stuff.”

Malik also says he assumes an 8 percent rate of self-cultivators, higher than the 3 percent rate assumed in the ECONorthwest report.

As for Colorado, where up to 50 percent and more of proceeds from early retail marijuana sales have come from out-of-state tourists, Malik says Oregon should not expect such a large share given policies in neighboring states.

Oregon was the first state in 1973 to decriminalize possession of less than one ounce of marijuana; California followed suit in 1975. Washington did so as part of the 2012 legalization measure.

Marijuana for medicinal purposes became legal in all three West Coast states in the 1990s; California was first in 1996.

Of Oregon's four neighbors, only Idaho does not have decriminalization or medical marijuana laws.

However, ECONorthwest’s Whelan says its report does not assume that Oregon’s buyers will mirror Colorado’s under full legalization.

peterwong@PortlandTribune.com

(503) 385-4899

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