LEGALIZATION OUTCOMES C OLORADO T WO Y EARS I N PRESENTED BY Adam - PowerPoint PPT Presentation

Marijuana Policy Group LEGALIZATION OUTCOMES C OLORADO T WO Y EARS I N PRESENTED BY Adam Orens, Founding Partner aorens@mjpolicygroup.com www.mjpolicygroup.com

ABOUT  Leaders in economics, finance & policy FOUNDED  Market intelligence – policy design IN 2014  Colorado MED cannabis economist Experience in 17 states, 2 countries: Market sizing Business modeling ‒ ‒ and planning ‒ Demand estimation Government ‒ Market analytics ‒ consulting 2

HISTORY OF COLORADO CANNABIS LAWS LEGAL for medical purposes  Unregulated market  Caregiver model  “Red card” 2000 – 2009 2006 2007 2010 2011 2000 2001 2002 2003 2004 2005 2008 2009 2012 2013 2014 2015 Pre-2000 2010 – 2012 Regulated medical market emerges ILLEGAL Federal Schedule I drug  Licensed dispensaries  Vertical integration required  3 license types: Cultivation; “MIP;” Retail

HISTORY OF COLORADO CANNABIS LAWS Amendment 64  Popular vote in favor of legal: – Possession – Regulation – Taxation  Tax revenues were a major selling point for the campaign November 2012 2006 2007 2010 2011 2000 2001 2002 2003 2004 2005 2008 2009 2012 2013 2014 2015 January 2014 Regulated market opens  67 metric tons of marijuana sold legally (~$670 million)  $75 million in tax revenues

HISTORY OF COLORADO CANNABIS LAWS Year-end 2015 The market grows  Market grows to $996 million  $137 million in tax revenues 2006 2007 2010 2011 2000 2001 2002 2003 2004 2005 2008 2009 2012 2013 2014 2015 January 2014 Regulated market opens  67 metric tons of marijuana sold legally (~$670 million)  $75 million in tax revenues

FEDERAL RESPONSE US Dept. of Justice: Cole Memorandum  Prevent distribution to minors  Prevent $$$ from going to criminal syndicates  Prevent diversion  Prevent regulated system from being used as a “cover”  Prevent violence and use of firearms in cultivation  Prevent DUI and other adverse public health consequences  Prevent cultivation on public lands  Prevent marijuana use on federal property 6

NECESSITY IS THE MOTHER OF INVENTION Marijuana Enforcement Division  Former gambling regulators  Strong central surveillance and security  Licensing, watching, tracking Seed-to-sale tracking  “METRC”  RFID tags on every plant  Immature > Veg > Flower > Harvest > Package Denver is cannabis silicon valley 7

LEGAL JURISDICTION State Authority:  Employee and facility licensing  Public health and food safety  Tracking County / City Authority: The power to ban  Each county or city can “ ban ” stores, cultivators, or manufacturers.  322 legal jurisdictions in CO: 218 districts: “banned,” 31 partially “banned,” 73 districts “allowed” Tax Methodology: Alcohol used as model  License Fees + Excise Tax + Sales taxes 8

SUPPL Y AND DEMAND  Use prevalence  Product mix  Demand  Economic impacts  Pricing  Supply channels  Medical vs. adult use &

PAST MONTH PREVALENCE — 18+ 14.9% 16% 14% 12.7% 11.3% 11.0% 12% 10.4% 9.2% 9.8% 10% 6.5% 7.3% 7.5% 7.8% 8.1% 8% 6.2% 6.1% 6.0% 6.0% 5.9% 6.0% 6.4% 6.8% 6.9% 7.1% 7.4% 8.0% 6% 4% 2% 0% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Colorado U.S. 10

Past 30-day marijuana use, 12-17 years YOUTH MARIJUANA old, 2006 - 2014: NSDUH USE 14% 12.6% 11.2% 12% 10.7% 10.5% 10.2% 9.9% 9.1% 10% 8.1% 7.6% 8% 7.6% 7.5% 7.4% 7.2% 6% 7.1% 7.0% 6.7% 6.7% 6.7% 4% 2% 0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 Colorado U.S. 11

PREVALENCE AND DEMAND Frequency Usage Amounts: Share of .. of use: Note: Low Mean High users demand 20% of users <1 240 361 721 29.2% 0.4% = 1- 5 2,625 4,039 5,756 24.5% 4.0% 80% of Demand 6- 10 2,138 3,289 4,686 7.5% 3.2% Heavy users: 11- 15 1,476 2,271 3,237 3.2% 2.2% 3x as much 16- 20 3,728 5,735 8,172 5.8% 5.6% demand per day 21- 25 19,888 24,478 29,067 8.1% 24.0% (Units: 26- 31 66,007 81,240 96,472 21.8% 79.8% thousands of grams) Total: 96,103 121,412 148,112 Thousand Grams (LBS): 211.9 267.7 326.5 Thousand Lbs Total: 96.1 121.4 148.1 Metric Tons Total: (Oz) 3,390 4,283 5,224 Ounces 12

DEMAND 147.8 Cohorts for Use Days total metric per Month 160,000 130.3 tons total metric 9% 140,000 Tourist tons 7% 3% 7% 10% <1 days/mo. 120,000 3% 7% 4% 1-5 days/mo. 10% 100,000 Metric Tons 19% 6-10 days/mo. 80,000 65% 11-15 days/mo. 60,000 65% 16-20 days/mo. 62% 40,000 21-25 days/mo. 20,000 26-31 days/mo. 0 2014 2015 13

MEDICAL VS. ADUL T  Adult Use – 88% growth USE  Medical – 6% growth 100% 90% 80% 44.8% 59.0% 70% 60% Adult Use 50% 40% Medical 30% 55.2% 41.0% 20% 10% 0% 2014 2015 14

PRICING — FLOWER $30 $25 $22.79 $20 $14.82 $15 $10.25 $10 $9.98 $6.87 $5.61 $5 $0 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Medical $/Gram - CO Adult Use $/Gram - CO Recreational $/Gram - WA 15

PRODUCT MIX — MEDICAL 100% 90% 2014 77.3% 80% 73.1% 2015 70% 60% 50% 40% 30% 19.3% 14.1% 20% 6.3% 6.4% 10% 2.4% 1.2% 0% Flower Concentrate Infused Edible Infused NonEdible 16

PRODUCT MIX — ADUL T USE 100% 90% 2014 80% 70.1% 67.0% 2015 70% 60% 50% 40% 30% 17.0% 14.7% 13.6% 20% 11.6% 3.6% 10% 2.4% 0% Flower Concentrate Infused Edible Infused NonEdible 17

ECONOMIC IMPACT Direct Impact Retail Colorado Total Secondary Cannabis Manufacturing Impact Impact Market Cultivation + = $996 Million $1.39 Billion $2.39 Billion + = 9,821 jobs 4,223 jobs 14,044 jobs 18

ELEMENTS OF SUPPL Y 147.8 160 total metric tons 130.3 140 total metric tons Regulated Market - Medical 29.7% 120 32.6% 100 Regulated Metric Tons market 80 Regulated Market - Adult 42.7% 26.5% Use 60 40 Unregulated Market 40.9% 20 27.6% (Homegrows, Caregivers, Grey Market, Black Market) 0 2014 2015 19

SUMMARY Prevalence and demand  Casual users  $ Prices  Concentrate sales  Economic impact  Regulated market serving nearly 75% of demand 75% 20

DISCUSSION Legalization  Prevalence, users, demand   Potency, product safety   Arrests, incarceration costs, illicit market   Social indicators - ??? Prohibition  Prevalence, users, demand   Incarceration persists, illicit market prevails  Social indicators - ??? 21

REGULATORY ISSUES MEDICAL CANNABIS Grams Strain KEEP OUT OF REACH OF CHILDREN  Potency  Advertising  Standard dosage  Diversion  Product safety  Authority 22

Adam Orens Founding Partner Marijuana Policy Group 1999 Broadway Suite 2200 Denver, Colorado 80202 www.mjpolicygroup.com info@mjpolicygroup.com

SOURCES  https://www.colorado.gov/pacific/sites/default/files/Market%20Size%20and% 20Demand%20Study%2C%20July%209%2C%202014%5B1%5D.pdf.  http://cdpsdocs.state.co.us/ors/docs/reports/2016-SB13-283-Rpt.pdf.  MPG Marijuana Impact Model (forthcoming).  National Survey on Drug Use and Health, 2012-2014, Colorado prevalence. 24