California is on the verge of creating a legal market for marijuana worth more than $5 billion that will help make the state a destination for pot-loving tourists, according to a new state-sponsored economic study.
But about 29 percent of all cannabis consumers may stay in the illegal market at first to avoid the cost of new regulations requiring marijuana to be tested, tracked and taxed at 15 percent of its retail value, according to the study by the University of California Agricultural Issues Center.
State officials developing the regulations hope to gradually persuade the vast majority of cannabis users to go through the legal market, said Lori Ajax, director of the state Bureau of Marijuana Control, which hired the center to look at the economic impact of the new rules.
“It’s going to take some time,” Ajax said. “While it’s unlikely that everyone will come into the regulated market on Day One, we plan to continue working with stakeholders as we move forward to increase participation over time.”
The economic projections are both encouraging and daunting to state officials who hope to begin issuing licenses in January to thousands of businesses that will grow, transport, test and sell marijuana, after voter approval in November of an initiative legalizing recreational use.
Maine voters also approved legalization of recreational marijuana in November, for adults age 21 and older. State officials and legislators are now crafting the licensing, regulatory and enforcement infrastructure for retail sales to begin in the state sometime next year. The cannabis research firm ArcView Market Research estimated the Maine market would be worth $220 million by 2020.
In California, the study also indicated there will be economic benefits for the state from a regulated market.
The analysis estimated that as of last November, aggregate annual sales of medical marijuana were $2 billion per year (about 25 percent of total marijuana sales), sales in the illegal market were $5.7 billion (75 percent) and total cannabis sales were $7.7 billion.
Voter approval of Proposition 64 set in a motion a system for fully legalized marijuana, which may bring state and local governments $1 billion in tax revenue, according to government estimates. The study estimated that more than 1,200 jobs will be created for testing and handling cannabis in the legal market.
New regulations allowing purchase of marijuana for recreational use are expected to reduce medical cannabis sales from $2 billion to $600 million as people are given an alternative to going through physicians to get medical marijuana cards for a fee, the study said.
“Revenues for medical cannabis in Washington state, for instance, fell by one-third in the first year after the legal adult-use cannabis system took effect, and by more subsequently,” the study said.
After the state adopts regulations, legal recreational use will make up 61.5 percent of the overall market, illegally purchased marijuana will make up about 29.5 percent of the market and legal medical marijuana use will be about 9 percent of the overall market, the analysis estimated.
“We projected that when legally allowed, slightly more than half of the demand currently in the illegal adult-use segment will quickly move to the legal adult-use segment to avoid the inconvenience, stigma and legal risks of buying from an unlicensed seller,” the study said.
Californians should be concerned about the high rate of continued illegal activity, said Kevin Sabet, president of Smart Approaches to Marijuana, which opposes legalization of the drug.
“We have seen this in other states too, that the legal market is easily undercut by the well-established underground market,” Sabet said. “This is unsurprising. It is just one more unrealized promise from the marijuana industry.”
The study also said the legalization and regulation should boost California’s tourism industry as visitors come in from states and countries that do not allow the sale and use of marijuana.
“Given that adult-use cannabis remains illegal in most other states, California’s legalized adult-use industry may attract some new visitors whose primary reason for visiting the state is cannabis tourism, as has been observed in Colorado,” the study said.
Sabet noted that some cities have taken steps to ban marijuana sales, including Pasadena and Laguna Beach.
“I think you’re going to see a lot of cities opposing marijuana stores in their community precisely because they do not want the pot tourism that comes with them,” Sabet said.