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Gazette Premium Content Road to Legalization: Many factors, including tax revenue, led to marijuana legalization

By Carol McGraw Updated: April 28, 2014 at 11:26 am

Colorado and Washington became the first places to legalize recreational marijuana when, in 2012, voters removed prohibition and allowed for-profit companies to produce, distribute and sell a substance that is illegal at the federal level.

"What happened in Colorado and Washington was historic," said Beau Kilmer, co-director of the Rand Drug Policy Research Center. "It's the first legalization in the world. A lot of people think it was legalized in the Netherlands. But it is illegal there. They just don't enforce the law there."

Timeline: Road to Legalization

Some may have been surprised that Colorado - a state famous for God and guns - would be the first to legally sell recreational cannabis. After all, California, with its reputation for liberalism and drug culture, had the first medical marijuana law in the U.S. in 1996 and would have been most people's bet. But after a failed vote in 2012, proponents say it won't be on the ballot again until 2016.

So why here? Why now? How did Colorado, of all places, become such an important marijuana bellwether?

It certainly wasn't by chance, say those involved in the fight since the 1970s.

Those on both sides of the issue say several factors converged: changing politics; the creation of strong medical marijuana regulatory structures; a smaller number of voters to persuade; national and local grass-roots campaigns to decriminalize possession; the cost of law enforcement; racial inequality associated with arrests; widespread acceptance of medical use; a belief that pot is less dangerous than alcohol; and a relaxation of federal prosecutions in states that had legalized medical marijuana.

And it didn't hurt that recreational sales were pitched as a way to boost tax revenue for states recovering from the recession and budget cutbacks.

Medical first

It was medical marijuana more than anything that opened the door.

Washington was the second state to allow medical marijuana, in 1998. Colorado was the seventh state, in 2000.

But the groundswell of acceptance of medical dispensaries didn't happen until 2009, when the U.S. attorney general said the feds wouldn't go after medical marijuana businesses that were in compliance with state law. That success led to a bigger push for the legalization of recreational pot.

Colorado got its regulatory system for recreational marijuana up and running in January, becoming the first in the nation to open retail recreational shops. Washington shops are expected to open in June.

"I think how we got here was social change more than anything. If you look at polling data, it was young people, and also even those 65 or older who discovered it is beneficial for treating health conditions," said Rachel Gillette, executive director of Colorado NORML (National Organization for the Reform of Marijuana Laws), based in Denver.

"The real momentum grew with advent of social media and advocacy organizations," she said. "We have seen more change in the last five years than the previous 40 years with 20 states that have medical marijuana on the books and others in the process."

Although it seemed politics would have played a role - Colorado voters backed President Barack Obama in the last election and put Democrats in charge of the governor's office and state Legislature - the marijuana campaign didn't necessarily break down along party lines. It was supported in Colorado and Washington by a diverse coalition of Democrats, Republicans, Libertarians, the NAACP, unions, the ACLU, Hispanics and younger voters.

Pro-marijuana forces had money on their side. Eight pro-marijuana committees registered with the secretary of state in Colorado raised $3.4 million for the Amendment 64 fight, compared with two opponent committees that raised $707,283.

In Washington, particularly the Puget Sound region, there were several progressive measures on the books, such as death with dignity, marriage equality and a measure that would protect a woman's right to choose abortion should the Supreme Court change its position.

The Washington campaign also had a variety of supporters, including the King County sheriff, the Seattle City Council and John McKay, the U.S. attorney in Seattle under the Bush administration, according to the Seattle Times. There was little organized opposition, and proponents outspent the opposition 400 to 1, according to news reports.

Supporters in Washington and Colorado also had fewer voters to convince than in heavily populated California. Taking that into consideration, marijuana proponents say they are looking to smaller states to change laws.

Interactive: Americans’ changing views on legal marijuana

California ran into opposition on both sides of the legislative aisle, said Tom Gorman of the Rocky Mountain High Intensity Drug Trafficking Area, which helps law enforcement with analysis and coordination.

"Sen. (Dianne) Feinstein was against it, and other high-profile people were against it," he said. "We didn't have that in Colorado. The mood in Colorado seemed right."

Although Colorado and Washington approved recreational marijuana at the same time, Colorado was able to start sales faster because it had a stronger medical marijuana regulatory structure in place, said Alison Holcomb, attorney with the American Civil Liberties Union in Washington, which was primary author of the Washington marijuana law.

Years of work

While the road to legalization seemed to emerge suddenly on a high-speed race track, it did not happen overnight.

"It's a long, sordid story, going back 40 years," said Gillette of Colorado NORML. "It started in the Nixon era and his war on drugs."

NORML, founded in 1970, has been a leader in the decriminalization movement that evolved into campaigns to first legalize medical marijuana, then recreational pot. Other groups would follow. They found the key that seems to work: Pass medical marijuana laws first, and when people are comfortable with that, press for recreational use.

The efforts were bolstered by changes in social attitudes, including a belief among many that weed is safer than alcohol and that enforcement of drug laws is lopsided, Gillette said.

From 2001 to 2010, there were 8 million pot arrests nationally, or one bust every 37 seconds, according to an ACLU report last year. The report noted that blacks are four times as likely as whites/Hispanics to be arrested on charges of marijuana possession.

Using FBI statistics, the Marijuana Arrest Research Project found that 10.5 percent of those arrested in Colorado on marijuana-related charges from 1986 to 2010 were black, yet blacks made up only 3.8 percent of the state's population. Hispanics accounted for 25.4 percent of those arrested for possession but made up only 19.2 percent of Colorado's population.

And minorities and the poor bear the brunt of incarcerations, even though the level of drug use is similar across classes and race, Gillette said.

Revenue stream

Another selling point to Colorado voters came with dollar signs.

Marijuana was predicted to be a significant moneymaker, not only for retailers and growers but also for the state - especially for school construction.

There are several taxes that come into play. Recreational buyers pay the regular 2.9 percent state sales tax, plus local taxes, as well as a special 10 percent marijuana sales tax. (Those buying medical marijuana do not have to pay the 10 percent tax.)

Also, those producing and selling the product pay the state a 15 percent excise tax on the wholesale value. Under Amendment 64 - the measure that legalized recreational pot sales in Colorado - it's the excise tax that goes for school construction; specifically, "the first $40 million" in collections. About $535,000 was collected in January and February, according to the state Department of Revenue.

Tax collections, of course, are tied to sales, and while early projections were rosy, so far, the numbers are more modest.

Originally, the Legislative Council of the Colorado General Assembly predicted that in its first year, the recreational market could produce as much as $578 million in wholesale and retail sales combined.

Colorado State University's Colorado Futures Center economists estimated the market for medical and recreational marijuana at $617.5 million, generating $101.8 million in tax revenue.

The state Department of Revenue reported that medical and recreational marijuana revenues totaled $3.5 million collected from 59 outlets in January and $4.1 million from 83 businesses in February. (There were 189 facilities open at the end of March, but that month's figures won't be available until May.) That translates into recreational sales of $29.4 million for the two months and $66.7 million in medical marijuana sales for a total of $96.1 million.

At that rate, recreational sales would total about $176.4 million - well below what the legislative council projected.

But there are too many variables to make good end-of-year projections yet, said Henry Sobanet, director of the Governor's Office of State Planning and Budgeting. Phyllis Resnick, lead economist for CSU's Colorado Futures Center, said the state will know a lot more in six months when the market starts to stabilize, and it may take two or three years to get the full picture.

Regardless, Sobanet said, state officials are being cautious about spending the revenue and will wait until next year to dish out most of the recreational marijuana tax money.

Market shakes out

If marijuana sales aren't quite up to the forecasts, Resnick said, it may be that a lot of people stayed in the black market, even though there isn't the data to prove it.

"They had dealers they were happy with and loyal to," she said. "The price when marijuana opened was $400 an ounce, and getting it from dealers was less."

Prices might come down, and if they do, more people might go to retail outlets instead of black market dealers, which would increase tax revenue. But if more states follow the lead of Colorado and Washington, Colorado and Washington's coffers could suffer.

"There will be effects in and out of state. Other states legalizing would cut down on travel here, and marijuana tourism would fall off the table," she said.

The numbers also are expected to increase as more shops become licensed.

In March, the state had issued medical and recreational licenses to 189 retail stores, 242 cultivators and 49 manufacturers of pot-laced products, according to the state Department of Revenue.

Sales may also increase if more municipalities approve recreational shops, but several entities have said they don't want it.

The Colorado Springs City Council voted to ban stores from selling recreational marijuana, and just this month, Palmer Lake and Larkspur rejected the idea. Manitou Springs is the only city in El Paso and Teller counties to say yes to retail recreational sales and will allow two stores to open this year.

Still, other states are intrigued by the economic possibilities of pot. There are 27 states with 45 reform bills of various types in the works, with some just aiming for decriminalization. Oregon and Alaska will vote on recreational use in November.

The economy is driving policymakers in some states to entertain the idea of recreational legalization, when they might not have five or 10 years ago, said Allen St. Pierre, national executive director of NORML, who crisscrosses the country lobbying legislators.

"They are keen on cannabis money, and it's loosening up because the men and women running government now are the baby boomers whose experience is more tolerant of marijuana than what we call the World War II generation," he said.

When St. Pierre gives lectures and lobbies these policymakers, he said, he not only gives out his business card but also a special laminated copy of receipts from Colorado. "Those receipts are powerful visuals and really get their interest. There are not many places in government where people are standing in long lines to pay a 35 percent vice tax."

Closely watched

Undoubtedly, a lot of those states that are considering legalization of marijuana will closely monitor Colorado and Washington, not only to gauge the financial gains for state coffers but also to weigh any costly health and safety issues.

The American Medical Association last winter refused to change its policy that says marijuana is dangerous and addictive and believes the federal government's law enforcement efforts have not been effective. Officials suggest more studies be done on long-term use, especially among youths, according to its website.

Marijuana experts have noted that Colorado's marijuana is particularly potent. An Oklahoma narcotics official told The Gazette recently that the strength was "frightening." Other states have complained that Colorado's legalization has made their enforcement more difficult.

Of special interest will be what happens to alcohol consumption as more people use marijuana, said Kilmer of the Rand Drug Policy Research Center. In the marijuana campaign, alcohol interests donated to defeat legalization. Big tobacco has been eyeing the possibilities of jumping into the market.

"There may be lots of money at stake, depending on how consumers react," Kilmer said. "So it will be significant to see what happens. Will people move from heavy drinking to smoking, or use both?"

It may not matter. A recent Gallup poll shows that 58 percent of Americans favor legalization of marijuana. That's an increase of 10 percent in the past year - a year in which the spotlight had been on Colorado and Washington.

As state Sen. Pat Steadman, a member of the Joint Budget Committee, said recently in a widely disseminated remark that underlined the potential of adding marijuana to the marketplace:

"The whole world wants to belly up to the trough."

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