(Craig F. Walker, Denver Post file)

Why Colorado’s early pot tax estimates were so wacky

PORTLAND, Ore. — A University of Oregon economist said Thursday the best-case estimates for Colorado’s legal marijuana tax revenue were overstated because of a faulty model.

Economist Ben Hansen said at the Oregon Economic Forum that misjudgments in Colorado pot tax revenue estimates stemmed from a term familiar to students in Econ 101: Elasticity of demand.

Previous estimates of demand for recreational marijuana only looked at the potential shift from the black market to the legal market. But with the medical market suctioning off some new consumers, revenue forecasts changed.

With various substitutes available, from synthetic marijuana to medical and black-market pot, Hansen said, guessing at the potential revenue impact in Oregon remains difficult.

Oregon voters will decide whether to legalize marijuana in a November ballot measure.

Colorado taxes: Get updates on the state’s monthly sales for recreational and medical marijuana

Colorado had varying revenue estimates on its first-of-its-kind retail pot market.

Voters approved $70 million worth of pot taxes last year, a wild guess considering the drug had never been sold legally before. With eight months of taxes reported, Colorado has brought in more than $45 million in taxes, licenses and fees.

Colorado Gov. John Hickenlooper in March sent lawmakers a far more generous estimate of how much pot taxes would bring in this fiscal year — some $98 million. Many have seized on Hickenlooper’s estimate as evidence pot taxes have come in below expectations, though lawmakers did not agree with the governor’s estimate and didn’t budget for that amount.

Colorado has decided to spend pot taxes in arrears, meaning taxes aren’t projected but spent only once collected. The unusual budgeting maneuver was adopted because the pot market is expected to be highly volatile for the first several years.

Legalizing marijuana increases its supply and drops its price, Hansen said. That price drop makes additional taxes harder for consumers to notice. That’s important when the tax rate people pay in Colorado and Washington for legal pot is north of 40 percent. In Oregon, the same rate is anticipated to be about 15 percent.

Map: Colorado recreational marijuana shops and medical dispensaries

While police agencies will no longer arrest or fine people caught with marijuana if it’s legalized, Hansen says taxes function as a kind of fine for marijuana consumption.

“With legalization, we can kind of double-dip,” Hansen said. “We’re no longer paying to arrest and incarcerate people, and we’re getting tax revenue from it.”

Hansen also says he doesn’t anticipate a dramatic impact on the alcohol market, though he says studies have shown heavy drinking and beer sales decline in markets where medical marijuana is approved.

Harvard University economist Jeffrey Miron said Thursday that Colorado’s medical marijuana market was already commercialized when marijuana was legalized.

“The medicinal market was so commercial, so visible, that for all practical purposes, it was legal,” said Miron. “Economists consider all that matters are the fundamentals: Can you get access to it, are there barriers to it.

“I just don’t think you (in Oregon) will see any kind of dramatic change. You’re a long way toward a commercial market already.”

This story was first published on DenverPost.com