The UK’s All Party Parliamentary Group for CBD met in Parliament to learn from the US Cannabis Council and law firm, Vicente Sederberg, about the economic advantages of amending cannabis legislation.
Colorado legalised cannabis in 2012, making it one of the most mature cannabis markets in the world to date. Today, Colorado’s cannabis industry has more jobs than the State has firefighters, bank tellers and insurance agents, employing nearly 40,000 people.
With a number of countries across Europe looking towards more progressive cannabis legislation, the UK is being encouraged to seize the cannabis opportunity and develop legislation in order to allow the industry to flourish.
Colorado, which has an adult population of 4.3 million, one-twelfth the size of the UK at 53.9 million, has generated over $2bn in tax and fee revenue collections since February 2014 and generates around $400m a year from a market now worth $2.2bn.
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The APPG states that the potential tax-take and benefits to the UK economy are clear, but emphasises that without amendments and updates to existing legislation and regulation – including proceeds of crime, consumer protection, quality standards, appropriate definitions and limits, banking, agriculture and insurance – none of this will be achievable for the UK.
To find out what can be learned from Colorado, Jessica Billingsley, chair of the US Cannabis Council (USCC) and Shawn Hauser, managing partner at Vicente Sederberg LLP, visited the UK to share insights into the pros and cons that the State has experienced since legalising cannabis.
The economic advantages of legalisation change
Colorado first had a well established medical programme before legalisation, a gradual path that Hauser says allowed the cannabis industry in the State to grow faster than any other sector.
The State has seen significant economic benefits from amending its legislation to create a legal and tax revenue-generating cannabis market. Colorado has imposed a 30 per cent excise tax on wholesale cannabis and a 50 per cent retail tax, a portion of which is shared back with local governments, which can also adopt their own taxes.
“Legalisation has had broadly very positive impacts on the US public health and economy. States with legal regimes have realised over $11bn in taxes, in many States, exceeding revenue from alcohol sales,” said Hauser.
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As cannabis is still federally illegal in the United States, this has created no state-level control and means that there is no interstate commerce, making a highly localised industry. However, Hauser says that in Colorado, the industry generates more local economic output than any other kind of sector.
“Every dollar spent on cannabis generates about $2.40 per dollar, which is remarkable compared to something like retail which is around $1.79 per dollar,” said Hauser.
Billingsley commented: “The regulated cannabis industry in the US has proven to be an economic engine. It is estimated that the adult use market for state regulated cannabis products was roughly $40bn in 2021. When we combine this figure with over $11bn in the sales of medical cannabis, we reached an industry total that exceeded $25bn.”
The industry has created hundreds of thousands of jobs in areas such as cultivation and manufacturing, ancillary jobs, such as legal, accounting, construction, marketing, tourism, hospitality and other supportive industries – often, these are high paying jobs.
“In 2021, there was a 33 per cent increase in jobs in a single year, which was the fifth year in a row the annual job growth was greater than 27 per cent,” Hauser commented.
“This is unparalleled by any other American industry, and is comparable to growth in financial and construction industries. It’s clear that States that foster markets that attract business opportunities and investors are the ones that are most likely to see job growth.”
Cannabis programmes that have banned product forms have not done well, says Hauser, such as those that ban smokeable flower, as this segment represents 40 to 60 per cent of consumer demand. This drives consumers back to the illicit market.
“We’re learning the hard way in the US industry, where the latest Federal Food and Drug regulation limited the types of products that were available to big box retailers. The only products that were widely available because of FDA delays were topicals, which constitute less than 5 per cent of the market,” said Hauser.
“This resulted in underwhelming CBD sales and projected market sales never growing at the pace expected, and the market crashing when there is too much supply and demand.”
The three key components to success that Colorado has learned are availability, affordability and assortment.
“This means availability – access to legal supply; affordability – pricing that can compete with illicit channels; and also reasonable tax rates and compliance costs,” said Hauser, highlighting that enforcement is also a crucial aspect of a successful market, otherwise, responsible operators have to compete in a market with bad actors who don’t comply with safety standards
Hauser commented: “Attractive markets require a well regulated, level playing field with some reasonable barriers to entry, whether that be factoring practices, criminal background checks and enforcement of that playing field.
“For markets to be attractive and generate sizeable tax revenues, consumers have to be able to easily access the market and obtain the products they demand.”
Investing in the community
Hauser highlights that a key takeaway from replacing prohibition with a regulated market is that it provides States with a new revenue stream. In Colorado this has gone toward funding programmes that were formerly underfunded, or not funded at all.
This includes school, community health and safety programmes and local budgets, such as school construction, bullying prevention, behavioural health, school nurses and school professionals.
“It’s been an incredibly impactful for our community. In Colorado, $538.7m of cannabis tax dollars has been dedicated to improving the State’s school system,” said Hauser.
“Legalising, regulating and taxing sales has allowed us to fund important public health programmes that either didn’t exist or were severely underfunded. And over a decade of data from 20 years of medical cannabis shows us that the negative harm for cannabis can be well managed through proper education and sensible product regulation.”
Legalisation has also significantly reduced cannabis arrests across all racial groups without seeing an increase in new use.
Billingsley commented: “Legalisation has the potential to free up resources. This can include reducing the prison population, and enabling law enforcement to get away from costly, possibly unpopular enforcement, in favour of combatting serious crime.”
Billingsley highlights that one thing that Colorado did not get right when legalising cannabis 12 years ago, was social equity.
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“Cannabis prohibition in the US and many other nations has its roots in racial discrimination. America’s so-called war on drugs has disproportionately impacted minority communities, and it’s something we need to acknowledge and work to rectify,” said Billingsley.
“This is why the USCC strongly supports, not only donation, but also the expungement of cannabis-related criminal charges. In addition to rectifying the past, we believe that those directly impacted by prohibition should have a real shot at participating in the newly legal industry.
“Nobody should be excluded because they used to work in cannabis prior to legalisation. Don’t let this fall by the wayside, instead, social equity should be integrated into your plan from the start.”
Combatting the illicit market
Hauser highlights that the billions of dollars of cannabis demand has shifted from the illicit market to one that is taxed and regulated, protects children and where operators are subject to robust manufacturing, packaging, labelling and marketing standards.
However, despite the success of the State programmes, the US industry being federally prohibited limits its growth and success.
Hauser commented: “Our businesses don’t realise their maximum potential and we’re unable to fully eliminate the illicit market because of federal illegality. US businesses don’t have access to traditional financial services – very limited banking, insurance options, interstate commerce, and other fundamental limitations that are a result of prohibition.
“We don’t have federal agencies focusing on consumer protection and other regulation – that is all up to the States. So, it’s impractical and impossible to expect the complete eradication of an illicit market and diversion with federal illegality.
“Because not all 50 states have programmes, the extent that illicit activity does occur in a State like Colorado is driven by prohibition in other States, where consumers don’t have access to a regulated market. The solution is federal legalisation.”
Another aspect of combatting the illicit market, says Hauser, is that the tax rate is only part of the equation.
“Cannabis has to be competitive with the illicit market and we must consider that a business cost is not just the taxes, but also operational and compliance expenses,” said Hauser.
“On the east coast of the United States, Massachusetts’ cannabis tax rate is only two-thirds of Colorado, but the prices that consumers pay are significantly higher because of their licensing and compliance costs, and because they have a less competitive market.
“The government must be sure not to impose a heavy tax burden. Starting, as we did in Colorado, with a lower tax rate that increases over time allows regulated businesses to market and counterbalances future retail price declines.
“Reasonable tax rates, coupled with clear and efficient regulatory structures, benefits investors, consumers and businesses. We’ve seen in the United States and especially in Colorado over the past 12 years, tax revenue continues to increase as the market matures.”
Billingsley said: “The State regulated programmes provide roughly 30 per cent of the market across the board. In the United States, the market is still largely illicit so there is more work to be done.
“It’s unfortunate that most of the industry remains in the hands of criminal organisations. The activity is unregulated and people don’t have the competence to know what they’re getting and what they’re putting in their bodies.
“We’ve seen examples of how overly burdensome regulation and high taxes help perpetuate the illicit market, undermining consumer safety in the process.
“So, I recommend devising a strategy for the emerging market, but also to extinguish the illicit market and to grasp onto the scientific pursuit of cannabis efficacy with both hands.”
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