Then again, booming business prospects have a way of shifting such expectations, as the trend of marijuana legalization elsewhere demonstrates. So it’s fair to ask,
What could legalization do for North Carolina?
To answer that, let’s look at the example of the poster child of the pot boom, the state of Colorado, where both recreational and medical marijuana are legal.
In a prior blog post last year, we touched upon three matters of importance to every cannabis startup. But when it comes to legalization on a grand scale, most people — certainly investors and entrepreneurs — think first of taxes, money, dollars.
The numbers from Colorado frankly are stunning.
- Marijuana sales in 2016 in Colorado tallied $1.3 billion, as reported by the Denver Post’s Cannabist.
- Marijuana sales in Colorado are expected to climb to $20.2 billion by 2021, according to market research.
- March 2017 was the 10th consecutive month in which marijuana sales topped $100 million, garnering nearly $132 million in March alone.
- In the single month of November 2016, marijuana tax transfers and distributions totaled nearly $11.4 million, a 47.5 percent increase over November 2015.
- Sales tax revenue in Colorado for 2017 is projected at $185 million, the Cannabist reported.
A state can do a lot with a windfall like that. The Denver Post reported, “Sales of marijuana and related products translated to $17.7 million in monthly taxes and fees [our emphasis] to go toward school construction, drug prevention and other health programs, bringing the year-to-date revenue total for the 2016 calendar to $180.4 million, according to the Colorado Department of Revenue.”
Payroll taxes provide a paradoxical side note: Because marijuana remains illegal at the federal level, it’s still a cash-only business. Meanwhile, the IRS requires quarterly payroll taxes to be paid electronically under threat of penalties. So producers and retailers in Colorado are routinely slapped with fines for paying those taxes in cash. Estimates suggest that this results in an effective tax rate of up to 70 percent. Meanwhile, these same businesses are paying state and local taxes in greenbacks.
When asking what commerce in marijuana could do for a state, we can’t ignore the public health implications. It’s often observed that pot is safer than alcohol. While the NIH’s National Institute on Drug Abuse lists a variety of beneficial applications of medical marijuana, they are also careful to address some of the potential deleterious effects.
More emphatically positive, Business Insider lists 23 health benefits of medical marijuana use. For example, treatments with medical marijuana can:
- Ameliorate (OK Spicoli, look it up) the side effects of chemotherapy by stimulating appetite, reducing nausea, and alleviating pain.
- Relieve pain, inflammation, and muscle-control problems.
- Treat and prevent glaucoma.
- Help to actually improve lung health.
- Help control epileptic seizures.
- Retard the spread of cancer.
- Moderate anxiety, including for sufferers of PTSD.
- Slow the progress of Alzheimer’s disease.
Nor can we justifiably ignore the potential downside for society such as possible increases in marijuana abuse by teens, fatal crashes, school expulsions, the cost of law enforcement, and hospitals having to treat overdoses. Public health advisories have been issued when, for example, unapproved pesticides have been detected in specific producers’ product.
On balance, however, the social effects of marijuana legalization have not been negative. Thousands of new jobs, the increase in marijuana tourism, and the tax-revenue windfall are clearly popular outcomes, and support continues to rise nationally.
Possibly, and perhaps ironically, schools stand much to gain from the legalization of cannabis.
School budgets depend on many things, including revenue, teacher salaries, cost of living, demographics, employee benefits, class size, and more. Nonetheless, an (over)simplified comparison between public school funding in North Carolina and Colorado might look like this, from 2014:
Source: Deseret News
Not a vast difference between the two states, right?
Both states also have lotteries that benefit education. The primary beneficiary of the North Carolina Education Lottery is in its name. In fiscal year 2016 it contributed almost $530 million dollars to a variety of education programs.
The primary distributions of Colorado’s lottery go to wilderness conservation and outdoor recreational resources, with spillover funds going to education programs such as their BEST program (Building Excellent Schools Today), which received $8 million in 2016 from the lottery.
In education spending in 2014, Colorado ranked 40th in the nation, and North Carolina 45th, according to U.S. Census data. Again, not very distant from each other.
The legalization and commercialization of marijuana in Colorado, however, really heightens the contrast:
- According to the Colorado Department of Revenue, “For FY 2015-16 […] the first $40 million of the Retail Marijuana Excise Tax revenue was distributed to the Colorado Department of Education’s Building Excellent Schools Today (BEST) program. Excise tax collections in excess of $40 million, $2.5 million for FY 2015-16, were transferred to the Public School Fund.”
- “Established in 2008, BEST is a competitive grant program benefiting school districts, charter schools, institute charter schools, boards of cooperative educational services, and the Colorado School for the Deaf and the Blind. BEST funds can be used for the construction of new schools as well as general construction and renovation of existing school facility systems and structures” (BEST Grant Program).
- “The BEST program leverages revenue annually from the School Trust Lands, additional State Lottery revenues and marijuana excise taxes” (BEST Grant FAQ).
- In the FY 2016-2017 grant cycle, 31 grant applications were awarded, totaling $60 million. Matching contributions totaled $101,537,666 for a combined total of 161,537,666.
- Typical school projects awarded were roof replacements, security upgrades, and wastewater improvements.
Imagine what another $40 million or more could do for North Carolina schools.
With large chain stores like Walmart, CVS and Rite Aid store no longer selling cigarettes and declining rates of smoking in the U.S., one may be inclined to think that Big Tobacco is a thing of the past. Not so. Expansion of emerging markets and the product’s stubborn resilience mean that tobacco is still hugely profitable.
But nowadays, calling cannabis “the new tobacco” can convey many of the negative connotations of Big Tobacco: marketing to children, lying about or minimizing its health risks, leveraging regulations to their own benefit, disproportionately targeting advertising to poor and minority neighborhoods (a.k.a. market profiling), being subject to burdensome regulation, and generally corporatizing what was once purely “grassroots.” Some activists dislike the corporatization of marijuana and the costs of legalization. They worry about Big Marijuana borrowing from the Big Tobacco playbook. (One delicious irony in all this: Some cities ban advertising tobacco in states where cannabis advertising is legal.)
Today we are on the cusp of Big Marijuana. Characterising the twist, the ever-savvy Vice asked, back in 2013, “How long until the Denver Nuggets start offering an officially-licensed glass bong alongside the collectible beer mugs?”
That day may not, after all, be quite so far off as a stellar nova in our neighborhood.
As a space for investors, entrepreneurs and innovators, the cannabis sector and its profit potential may be more mind altering than the plant’s active ingredients. At tekMountain, we realize that cannabis is not (yet) legal in North Carolina, but it is legal to invest in or run a business in this industry. So when it comes to balancing the costs and benefits of such a commodity, as well as helping to understand the legal, financial, and compliance issues inherent in this burgeoning field, we at tekMountain stand ready to mentor, assist and connect.