MARIJUANA SALES, DISTRIBUTION MAJOR PART OF LOCAL ECONOMY

Impact in Colorado Springs Could Be Equivalent to $80 Million in
Retail Sales, Account for 1,100 Jobs

On Nov. 7, Colorado voters will decide whether to legalize the
possession of up to an ounce of marijuana by any person over 21.

Initiative 44, which is modeled after an ordinance that Denver voters
approved in 2004, is seen by both supporters and opponents as a first
step toward comprehensive legalization and regulation of marijuana.

Eliminate the legal, social and moral arguments, and one thing
becomes very clear: even without Initiative 44, the marijuana trade
in El Paso County is a major contributor to the local economy.

According to the National Survey of Drug Use and Health, 13.3 percent
of Colorado residents use marijuana. Use spikes between the ages of
18 and 25, a demographic in which fully a third of all Coloradoans are users.

In Colorado Springs, where age demographics trend younger than
statewide figures, as many as 15 percent of residents might be
marijuana users. Given a metropolitan population of 550,000, that
translates to 80,000 people.

Law enforcement officials, users and dealers estimated that the
average marijuana user in Colorado Springs purchases/consumes about
three ounces annually at a cost of about $1,000.

That translates into a yearly retail market of $80 million, derived
from the distribution of 1,250 pounds of marijuana every month, or 41
pounds a day.

A typical Wal-Mart superstore, such as the one currently under
construction on Baptist Road south of Monument, generates $45 million
in annual retail sales. Is the impact of the marijuana trade, then,
roughly equivalent to a pair of big-box superstores?

Difficult to Compare

Sue Piatt of the Colorado Office of Economic Development is cautious
about making any such comparisons. She points out that such stores
not only pay sales taxes, but, unlike the marijuana trade, also rely
upon a complex infrastructure of buildings, suppliers, transporters
and administrators.

A better measure of the magnitude of the marijuana trade, she
suggested, might be to compare it to the gross annual sales of
selected jurisdictions -- information that's available from the state
Department of Revenue.

Manitou Springs, for example, has gross annual retail sales of about
$65 million. Buena Vista is a little higher, at $90 million, while
Crested Butte, at $79.5 million, nearly matches the estimated annual
volume of the local marijuana trade.

At the Business Journal's request, Fred Crowley, a research economist
at the University of Colorado at Colorado Springs, created an input/
output model of the marijuana business (see sidebar). In an e-mail,
Crowley commented briefly on the model.

"[My] analysis is based on the assumption the money from the sale of
marijuana is spent in the local community. It was assumed $80,000,000
income is made from the sale of marijuana.

"It was assumed the income is earned by a cross section of households
selling the drug from lower to higher income levels.

"Needless to say, the analysis is not an endorsement of the activity.
Rather, it is an effort to identify the economic effects of the money
being spent in El Paso County as a result of the sale of the
marijuana. Social costs have not been included since I do not have
the data on these items."

This is what the input/output analysis determined:

* Job creation: 1,100

* Income creation: $29.83 million annually

* Sales tax collections (state, county and city): $1.76 million

Tough to Quantify

Underground economies are notoriously difficult to quantify, since
the usual metrics simply don't apply. You can't track store receipts,
or sales tax collections, or wholesale inventories or bank deposits.

But you can track people -- people who are supplementing their
incomes by selling or growing marijuana. Their ranks include not only
bartenders and musicians but also middle-aged businessmen and
spirited grandmothers.

"Dave," a slender, cheerful man in his early 20s, is seated at a
rickety wooden table in the kitchen of his modest downtown apartment.

"You won't see anything better than this," he says, passing over a
plastic bag of high-grade marijuana. "This is B.C. bud. You want an
ounce -- it's $400."

B.C. bud is a generic term for high-potency marijuana, much of which
is thought to originate in British Columbia.

Dave is a small-time marijuana dealer -- the last link in the supply
chain. He's been selling to a small circle of friends and
acquaintances since he was in high school.

"I used to ride my bike around Rockrimmon to make deliveries," he
said. "Now I just e-mail my list, and they come by."

For Dave, selling marijuana is a simple, painless and, he thinks,
relatively risk-free way to make extra money.

"I don't make much, maybe a thousand a month," he said. "But I can
work part-time doing construction, and have plenty of time for my
music. Next year, I'm going to finish up at UCCS. I'd like to go to
law school after that. I don't want to be doing construction all my life."

Projecting the Size

Law enforcement officials have long sought to estimate the size of
drug markets by applying a multiplier to the quantity of drugs seized
in transit. Typically, authorities have estimated that no more than 5
percent of marijuana shipments are successfully interdicted.

As a point of reference, last year, 2,391 pounds of "processed
marijuana" were seized in Colorado, as well as 7,383 cultivated
plants. Of the plants, 3,919 came from indoor "grows," and 3,464 from
outdoor plots.

According to local dealers, native-grown marijuana is almost
exclusively cultivated indoors, under the lights. If undetected, it's
a profitable business.

"Jim," a popular Springs bartender, described one such grow. "It's
almost as big as the bar," he said, indicating, with a sweep of his
hand, an area about 30 feet by 50 feet. "And the plants are like six
feet tall."

As a retail business, the marijuana trade appears to have several
unique characteristics:

* It requires none of the infrastructure associated with
similarly-sized retail businesses. There are no fleets of delivery
trucks, no warehouses, no inventory control systems, no point-of-sale
systems, no licensing and no direct tax payments.

* Retail distribution is entirely in the hands of small individual
entrepreneurs, with little access to capital.

* There is little incentive for most of those individuals to increase
their sales activity beyond a certain point. Every additional
customer heightens the risk of detection and arrest.

* It seems likely that most small-time dealers net $1,000 or less per
month, and expend the money as it is received.

Might Be More

Sitting in her light-filled North End home, "Lilith," a 50-something
professional who has lived in Colorado Springs for more than 20
years, reflects on her years as a marijuana dealer. Told that NSDUS
estimates suggest that there are more than 80,000 marijuana users in
the Pikes Peak region, she smiles gently.

"I think that's low," she said. "You wouldn't believe who my
customers are -- they're very straight, very respectable. I've never
had more than half a dozen. The problem has always been finding
suppliers. I need to find a grower."

If marijuana were to be legalized and regulated, what would be the
economic impact of such a change?

Present channels of sales and distribution would likely disappear.
Prices also would likely plummet, even if the product was, like
tobacco, heavily taxed.

Thousands of individuals would lose a substantial portion of their income.

If, as Crowley's model suggests, the marijuana trade is responsible
for more than a thousand jobs in the Pikes Peak Region, the economic
impact of legalization would be comparable to the closure of a
manufacturing business employing a thousand people.

"We'd be out of business -- just like the bookies and numbers runners
went broke when Lotto came in," said "Gary," a former hippie and now
a successful Springs businessman. "Back then, there weren't so many
gamblers, the odds were better, and it was a nice, quiet little
business -- so there'd be a lot more stoners, bad dope and nobody
would make any money.

"But", he added, brightening, "I guess the cops would be out of work, too."