COLORADO AND MARIJUANA – THE BUBBLE WILL BURST

For years I have advocated decriminalizing pot possession for an amount deemed personal use. Decriminalizing means moving personal pot possession into a misdemeanor category instead of a felony. In other words, you get a fine, pay it, and go about your business without the stigma of a felony on your record. This is a common sense position for which I am constantly criticized by the “legalize and tax” crowd. Let’s try another track.

Admin recently posted an article, “Dude – Where’s My Pot,” about legal marijuana sales for personal use in Colorado, which began on January 1, 2014. The article included a sign in a marijuana store that essentially said “Sold out. Please check again tomorrow.” This initial buying spree and accompanying euphoria from the legalize and tax crowd will soon meet the reality of the black market: vastly decreased marijuana sales tax revenue and increased criminal activity, which will lead to skyrocketing law enforcement budgets. In the end, it is distinctly probable that legalizing marijuana will COST Colorado more than it makes. Here’s a stark, real-world example of why that will happen.

Today, the number one black market commodity on the planet is cigarettes, and that is certainly the case for the state of New York, where 60% of the cigarettes sold in the state are smuggled. That’s not a misprint. 60%.

New York taxes cigarettes to the tune of $4.35 a pack, and New York City tacks on another $1.50 a pack. When you add the federal tax (Obama upped it to $1.01 a pack from 39 cents), New Yorkers pay either a whopping $6.86 tax on every pack of cigarettes in NYC or $5.36 tax a pack elsewhere. Yikes.

Let’s jump on Interstate 95, which goes through the New York City metro area and head south. In a few hours, you’ll be in Virginia, which has a 30 cent tax on a pack of cigarettes. Keep on going. In North Carolina, it’s 45 cents, South Carolina 57 cents, and Georgia 37 cents. Double yikes. A carton (ten packs of cigarettes) of Marlboros in Virginia costs about $45 versus about $120 to $150 in NYC.

Now, let’s crunch some numbers using cases (there are 20 cartons of cigarettes in a case) of cigarettes. A case of cigarettes is not that large ….. 10 cases will fit in the average trunk of a car. Cases of cigarettes are sold in stores at many of the interchanges on I-95 in Virginia, the Carolinas, and Georgia. Gee, I wonder why? Clerks at those stores will tell you that most of the buyers show them driver’s licenses issued by the states of New York and New Jersey. Gee, I wonder why?

So, if you buy a case of cigarettes for $900 in Virginia, in just a few hours of driving north to NYC, it’ll be worth $2,200 (the retail stores in NY which buy black market cigarettes will pay up to $110 per carton and tack on their profit). Multiply that by the 10 cases you buy and put in the trunk of your car, and your PROFIT jumps to $13,000 per trunk load. If you own a van or SUV which can hold 50 cases, you now have a cool $65,000 profit in non-taxable dollars sitting in the back of your vehicle. That’s more than enough to buy a truck with a hard-shell cover over the trunk bed which will hold 200 cases. Yep, that’s $260,000 a truck load. In your pocket. Rinse and repeat.

So who’s involved in these smuggling operations? Everyone. It ranges from Mom and Pop smugglers to organized crime syndicates to drug traffickers to, get this, a member of al Qaeda who was arrested for smuggling cigarettes to fund terrorist operations such as sending people to al Qaeda training camps in Africa and Asia.

Back to marijuana, which already carries a 25% sales tax in Colorado. Well, isn’t that special? And the law excludes purchases of marijuana by anyone under the age of 21. Well, isn’t that special? A ready made guarantee for young pot buyers, those with the least amount of disposable income, to stick with where they currently buy Mary Jane, the black market. Do you think some of those young buyers aren’t going to figure out that they can make some quick bucks by reselling  weed to older customers who can’t or won’t pay the highly taxed “legal price”? I do. Ta dah. Just like cigarettes, you’ve now created a felon. It gets worse.

Legal marijuana sales in Colorado, undoubtedly spurred by the initial high demand, is already selling for 2-3 times the price you would pay on the black market. Just like New York and NYC, which enjoyed an initial explosion in cigarette tax revenues when they enacted Draconian taxes, this will not last. The Mexicans who control the marijuana black markets in Colorado will see to it. “In 2012 the Mexican Competitiveness Institute issued a report saying that Mexico’s cartels would lose as much as $1.425 billion if Colorado legalized marijuana.” That’s not pocket change, and the people you’re trying to take that money from carry guns. Guns with high capacity magazines, which are against the law in Colorado. Heh. Don’t you just love the irony?

I have said repeatedly in the past that these violent organizations will not go quietly into that good night. Over time, I will be proven right. And it will be sooner rather than later because the stakes are so much higher. Avoid the rush and express your appreciation for this keen market analysis with your effusive praise as soon as possible.