Warm Southern Breeze

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Marijuana in Alabama: Show me the money!

Posted by Warm Southern Breeze on Saturday, January 5, 2019

How Much Money Could Alabama Earn By Legalizing, Taxing, and Regulating Marijuana?

How much money could Alabama stand to realize if it Legalized, Taxed, and Regulated (LTR) cannabis for Adult Recreational Use (ARU), and Medical Use (MMJ)?

In order to make a reasonably accurate estimate, we need certain pieces of information from reliably accurate sources, such as:

1.) How many people would purchase it?

2.) How much tax would be placed upon it?

3.) How frequently would they purchase?

There are other questions, but let’s start by answering those three.

First, let’s determine how many people consume marijuana in the state – adults, of course.

The National Survey on Drug Use and Health (NSDUH), is an annual survey which first began in 1971 and is conducted in all 50 states and the District of Columbia. It’s conducted under the auspices of the Substance Abuse and Mental Health Services Administration (SAMHSA), Center for Behavioral Health Statistics and Quality.

From the 2016-2017 National Survey on Drug Use and Health: Model-Based Prevalence Estimates (50 States and the District of Columbia), Table 2, page 4 (Marijuana Use in the Past Year, by Age Group and State: Percentages, Annual Averages Based on 2016 and 2017 NSDUHs), the NSDUH estimated use that, in Alabama, between 6.6% – 9.86% of respondents aged 26+ had used marijuana in the past year. That statistical data has a 95% Confidence Interval.

From the same report, Table 3, page 6, marijuana use in the past month, same age category, 26 and up, ranged from 3.74% – 6.30%, and also has a 95% Confidence Interval.

According to the United States Census Bureau, Alabama’s 2018 estimated population was 4,887,871. According to the same agency, the estimated number of Alabamians aged 21+ the year prior, was 3,544,111 – or, 72.5% of the state’s estimated population. (2017 pop = 4,874,747; 2018 pop = 4,887,871, or a 0.002685013577486% difference – statistically insignificant.)

NOTE: The SAMHSA has a very weird age range categorization scheme. It’s nonsensical. They go 12-17, 18-25 and 26+. those are two entirely different ranges – 5 years, and 7 years, respectively, in 3 overly broad categories, spanning 12 years. To me, it makes no reasonable, rational, logical sense, because within those ranges, youth in those three age groups undergo enormous change emotionally, mentally and physically – and progress well into adulthood – which uniquely differentiates and separates them from one another. For example, no one would imagine that a 12-year old would have many things (if any) in common with a 17-year old, nor that an 18-year old would have much in common with a 25-year old. In my estimation, it’s preposterously absurd to combine them all into one large group to determine anything useful. I propose that instead of the 12-25 age range category – because 21 is the age of majority, i.e., the age at which one can legally purchase and consume alcohol, tobacco, etc., and is ostensibly considered an adult for all practical purposes – they should instead use the following categories: a.)12-14, b.)15-17, c.)18-20, and d.)21+. Essentially, category ‘a’ would contain ages 12, 13, and 14; category ‘b’ would include ages 15, 16, and 17; category ‘c’ would include ages 18, 19 and 20; while category ‘d’ would be 21+. By subdividing the group that way, the data obtained would become much more useful, and would account for the differences in the age groups as they mature, and yield much more accurate data, insofar as it would pinpoint with precision a more specific 3-year age range when events happen. There’s no reasonable, rational purpose to lump such vastly different emotional, intellectual, psychological, and physical development categories into three very broad groups. The age-related behaviors of the ages within the groups I propose are much more similar, rather than different. So, for example, if they wanted to determine the age at which a thing/event occurred, they could much more precisely determine the same by using age categories which are much more similar, rather than dissimilar, emotionally, mentally, and physically. Considering also, that at age 16, youth are legally able to drive independently, while at age 18, youth are legally eligible to vote, and at age 21, they’re legally able to purchase and consume beverage alcohol, etc., and they’re each in different groups accordingly, as I propose.

Continuing…

Extrapolating (extrapolation means to infer or estimate by extending or projecting from known information), 3.74% – 6.30% of respondents aged 26+ had used marijuana in the past month could be at least, or roughly approximated from the same population figures for 21+. The differences between 21 and 25 (a 4-year difference) would be statistically insignificant. Thus, the range of 3.74% – 6.30% of respondents aged 26+ could be determined from the age 21+ population, which was 3,544,111.

Those figures then expressed, are: 3.74% of 3,544,111 which is 132,549.7514, or rounded up, is 132,550. And 6.3% of 3,544,111 is 223,278.993, which rounds up to 223,279.

Thus, the population ranges (number of people that used marijuana) for past month use are 132,500 to 223,279. The average of those two figures is 177,890.

From the same data, the range for the number of people who used marijuana in the past year was 6.6% – 9.86%, also with a 95% Confidence Interval. And extrapolating, those numbers are 233,911 and 349,449. The average of those two figures for people who used marijuana in the past year is 291,680.

Summarizing, an average of 291,680 people in Alabama used marijuana in the past year, while an average of 177,890 people used marijuana in the past month.

Commentary: I think it’s fascinating to see that 39% more people used marijuana in the past year, than used in the past month.

If we wanted to get a combined, or unified, estimated annualized picture of those who used marijuana in the past year, we would have to take two figures –– a.)those who used in the past month, and; b.)those who used in the past year, and divide it by 12 to get a combined monthly rate. Then add a+b, and multiply by 12 (months in the year) to get an estimated annual use figure.

We’ll use the averages for simplicity sake.

Past Year Marijuana Use = 177,890
Past Month Marijuana Use = 291,680

PYMU 177,890 ÷ 12(months) = 14,824(rounded)
PMMU = 291,680
PMMU + MYMU = MUR
Thus, a combined Monthly Use Rate would be 306,504, meaning that a combined estimated 306,504 adults aged 21+ years in Alabama used marijuana in the past month.

A combined estimated Annualized Marijuana Use Rate (AMUR) is MUR x 12, or expressed as 306,504 x 12(months) = 3,678,048.

NOTE: Those figures represent events of use, not people. Why? While the base figures are people, if 3.67 million people in Alabama were consuming marijuana, that would represent more than the adult (age 21+) population of the state, which is 3,544,111. We’ll check that work to determine its accuracy by showing another calculation (sales) – and that it would be reasonable to expect that 3.5 million sales would occur annually.

Briefly, here’s why it would be reasonable to expect 3.5 million sales annually:
If we ignored the people who used once annually, and focused upon those who use monthly, we can roughly extrapolate consumption by use rates. Thus, if PMMU is 291,680 people, it can be said, and therefore roughly approximated, that those people would be monthly consumers. To determine an annualized basis, multiply PMMU by 12 months, or 291,680 x 12 = 3,500,160.

Summarizing so far, we’ve been able to: a.)determine how many potential customers would exist; b.)based on very accurate (95% Confidence Interval) statistical models that provide estimates of monthly, and annual consumption rates in Alabama.

That combined estimated Monthly Use Rate figure is: 306,504.

Moving forward…

To determine how much money (revenue) Alabama could earn by LTRMJ (Legalizing, Taxing, and Regulating Marijuana), the next question we need to ask is: How much tax would be placed upon it?

Since 1988, Alabama has had a law that taxes marijuana (and other currently illicit substances), as found in the Code of Alabama, Title 40, Section 17A which is entitled as the “Drugs and Controlled Substances Excise Tax.” The law states in chapter 8, paragraph 1 in part that, “A tax is imposed on marihuana and controlled substances as defined in Title 40-17A-1 at the following rates: (1) On each gram of marihuana, or each portion of a gram, $3.50…”

Effectively, that law just takes up space in the Code of Alabama, because it has not produced any revenue. The only purchases of tax stamps that have occurred, are simply from those who seek them for their novelty. The Department of Revenue has said that the amount collected from it is “de minimis,” which means negligible, valueless, or too trivial to merit consideration.

However, that being noted, the state has already assessed a rate, at $3.50 per gram, and upon each portion thereof. So, to calculate the tax value assessed upon one ounce, we need to know how many grams are in an ounce – and that is 28.349523125. But for ease of use, we’ll just say 28 grams per ounce.

Now, multiply $3.50 x 28 = $98. Rounded up, that could be called $100. So effectively $100/ounce is the tax.

NOTE: In other states that have legalized marijuana for ARU, the rate is much lower, and is expressed as a percentage rate upon Fair Market Value. Those taxes are most typically excise taxes, state sales taxes where applicable, and local taxes. Some states, such as Alaska, don’t have a state sales tax. However, since this is at the state level, we won’t be concerned with the local taxes. Nevada, for example, places a 15% Excise Tax, and a 10% Retail Excise Tax upon the sale/puchase of marijuana for ARU.

Without getting into tax theory and practice, suffice it to say, that a thing should not be taxed at a rate which will substantially or exorbitantly increase the price, which would increase the risk of either creating a black market, or tax avoidance. Thus, given an effective, practical price of marijuana, per ounce of flower (the most valuable part), at $300/ounce, a $50 – $75 tax per ounce would be generous, but not excessive. A 25% tax rate on $300 yields $75.

So, for the sake of illustration, we’ll use both figures $50/ounce and $75/ounce.

And, for the sake of simplicity, we’ll use the monthly marijuana use figure, or PMMU, which is 291,680.

Reiterating, the NSDUH has said that, in Alabama, between 3.74% – 6.30% of respondents aged 26+ had used marijuana in the past month. Based upon the U.S. Census Bureau’s 2017 Population Estimates of adults aged 21+ in Alabama – which is 3,544,111 – 3.74% of that figure is 132,550, while 6.3% of that figure is 223,279.

If respondents who used marijuana in the past month are monthly users – and it is reasonable to suppose that they are – and on average purchase one ounce of marijuana a month, at a tax rate of $50/ounce, the range would be expressed as follows:

132,550 x $50 = $6,627,500
223,279 x $50 = $11,163,950

Again, these figures are NOT including adults who consume once yearly.

So the revenue range for one month is $6,627,500 –– $11,163,950.

Multiply those two figures by 12 months and you get this range:
$79,530,000 –– $133,967,400.

Using the $75/ounce tax rate, the figures are:
132,550 x $75 = $9,941,250 x 12 = $119,295,000
-and-
223,279 x $75 = $16,745,925 x 12 = $200,951,100

So, there you have it.

It’s conceivable that the State of Alabama could reasonably expect to generate AT LEAST between $79,530,000 to $200,951,100 annually if they Legalized, Taxed, and Regulated the sale of marijuana for Adult Recreational Use and Medical Use.

The average of those two figures is: $140,240,550.

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