EO Media Group
SALEM — Oregon state economists are crunching numbers on a product that in many other states remains illegal — marijuana.
Under House Bill 3470, passed this legislative session, state economists have been asked to project future tax revenues from pot. Meanwhile, the state’s employment department is trying to get a better sense of how many people are employed in the burgeoning legal cannabis industry.
In Oregon, sales of recreational marijuana are taxed at 17 percent of the retail sale price. Cities and counties can tack on a “local option” tax of up to 3 percent.
Late last month, state economists projected that the state will bring in net marijuana revenues of about $142 million in the next two years, but the very short history of legal marijuana and other factors complicate forecasting.
“Currently the outlook for recreational marijuana sales and tax collections remains highly uncertain,” state economists wrote in a quarterly report issued in May, the first where a marijuana-specific forecast was included. “While Oregon has now collected just over a year’s worth of taxes, there have been substantial changes during this time that complicate any analysis.”
For one thing, there have been policy and regulatory changes on the state level. Back in July 2015, when those 21 and older could first purchase marijuana legally in Oregon without a medical marijuana card, marijuana was initially taxed at a 25 percent rate.
There are also significant “upside and downside risks” when it comes to recreational marijuana, state economists say — meaning that the predictions economists make could greatly exceed or fall below expectations.
Among the downside risks: regulatory “changes” or “bottlenecks” that could prevent companies from being able to get licensed or get their products tested quickly.
Sales prices could also fall sharply. Prices have fallen about 20 percent annually since legalization in Colorado and Washington, state economists say. And since recreational marijuana taxes are based on sales price, that could affect state revenues as well.
One risk that can be hard to assess: the chance that the federal government may change its policy toward recreational marijuana and either halt or curtail the business in states that have legalized the drug.
On the other hand, sales could increase if marijuana use becomes more conventional or “gains broader social acceptance,” and the state’s “seed-to-sale” tracking system could reduce black market sales.
And then there are the little things.
For example, the North American Industry Classification System, which the U.S., Canada and Mexico use to classify businesses so they can track economic data, has yet to catch up with the legal cannabis industry.
Under the system, a series of digits correspond to a specific sector, but there’s no code for marijuana businesses.
“If you’re a place that makes edibles, you show up in bakeries and confectioneries, or whatever, so you’re in there with the cupcake shops,” state economist Mark McMullen told lawmakers Aug. 23. “And so it’s hard sometimes to pull these things out, but we’re starting to get numbers. Those numbers are growing rapidly, but they’re still relatively small.”
Beau Whitney, an Oregon-based economist and business consultant who has studied the recreational marijuana industry, says that he has petitioned Canada and Mexico — which have legalized medical marijuana on the federal level — to create a NAICS code that corresponds to marijuana.
State economist Josh Lehner says that his office — the Oregon Office of Economic Analysis — consults with state agencies, such as the liquor control commission and the revenue department, as well as private businesses, to get a sense of where things may be headed.
Whitney said that’s a smart move.
“There’s just not a whole lot of historic data to draw upon, so they really need people in the industry to help them out, to let them know where the movement in the market is, what the consumption patterns are and all that,” Whitney said.
There’s not a profusion of data two years into legalization, but Oregon economists also have two other states, Colorado and Washington, to look to for a glimpse of things to come, says Lehner.
“We’re using them as a guide for what Oregon’s next two years look like,” Lehner said.
There are distinctions between states, though. For example, Oregon’s tax rate on marijuana is significantly lower than Washington’s. Our neighbors to the north have a 37 percent excise tax on recreational marijuana, according to the Washington Department of Revenue.
If the legal marijuana industry keeps growing, some hope that peripheral companies could spring up to support companies that grow pot or produce pot products, in the way that craft brewing made Oregon a hotspot for brewing equipment and other products tangential to beer as the microbrew craze spread in other parts of the country, Lehner said.
Meanwhile, the state’s employment department is still trying to get a better sense of just how many people work in legal cannabis outfits, whether that’s tending to plants or making extracts.
Brian Rooney, a regional economist with the Oregon Employment Department, says that in order to estimate cannabis employment, one can start with a broad range.
For the lower bound of the range, state employment economists can use information that businesses are required to report, per unemployment insurance law, to the government.
Using that data and industry classification recommendations from the U.S. Department of Labor, state employment economists believe that in Oregon, the lower bound for legal marijuana employment is about 3,500 people, as of late May.
On the higher bound of the range, the employment department uses the number of people with active permits from the Oregon Liquor Control Commission to work with marijuana, which as of late May numbered about 12,000. It’s likely that not everyone who currently has a permit is working in the industry.
The employment department has also created its own database of Oregon companies that are known to be marijuana-related.
Since Oregon’s economy is about 60 percent the size of Washington’s, which recently estimated that about 11,000 people are employed in that state’s legal cannabis economy, about 7-8,000 people might be a reasonable but rough estimate of how many people work in the legal industry in Oregon, Rooney says.
The average wage in the legal cannabis industry in late 2016 was about $25,340, according to the employment department.