Michael Pakko, chief economist, Arkansas Economic Development Institute (AEDI), has done a study estimating that the adult-use marijuana market could add up to $2.36 billion to the state’s gross domestic product (GDP) over the first five years, and add 6,400 jobs by 2027.
Pakko’s analysis said Arkansas could see yearly sales reaching $984 million by 2027. His study showed over five years, there would be $163.1 million in revenue from the standard state sales tax on marijuana purchases alone. That would be in addition to an estimated $303.6 million from the supplemental 10 percent cannabis tax imposed under the proposed constitutional amendment.
Pakko said the study didn’t involve an Arkansas market analysis, and instead looked at total sales volumes in other states that moved from legalizing medical cannabis to recreational use by adults.
“Adjusting for the population and the income of Arkansans, we extrapolated to come up with a total expected volume of sales in Arkansas,” Pakko said. “Our presumption is that a large share of demand would come from those presently buying it on the illegal market. A survey of marijuana use indicates about 14 percent of adults have used cannabis in the past year, which is a lot more than the number who have medical marijuana cards. When it comes to economic impact, that class of customers has a fairly substantial impact on market.”
While difficult to measure, the underground market is part of the economy, too. The GDP as measured now doesn’t capture those sales happening in the underground economy, and there are no firm figures on employment in the black market.
“People who work at dispensaries are considered employed and those engaged in the illegal sale of the marijuana are outside of the measured economy,” Pakko said. “If you are talking about shifting illicit demand to aboveground, it is just a change in venue and whether it is being measured and taxed. Tax revenues are a benefit of legal sales of cannabis.”
Pakko said there are advantages for existing medical marijuana patients because Issue 4 would make sales to patients tax exempt. However, medical marijuana patients have to pay annually for a physician, a cost that can run from $150 to $200, and $50 annually for a medical marijuana card. Pakko said in order to compensate for medical marijuana being tax free, adult use would be subject to regular state and local sales taxes, plus a supplemental tax of ten percent.
“The number of dispensaries would triple around the state with the new ones being a combination of medical and adult use or adult use only,” Pakko said. “There would be a mix of different types of stores around the state.”
If Arkansas becomes the first state in the Deep South to legalize adult-use of cannabis, it is expected to increase tourism.
“We looked very much at increased tourism,” Pakko said. “When it comes down to any sort of economic analysis, one of the richest sources of economic activity comes from out of state. So, regardless of what sort of market we are talking about, if it has an impact on tourism, it is going to have a big impact on the economy. And that is what we found in this study. A large share of the economic benefit is because we are working on the assumption it will attract sales from other states.”
They considered three different types of tourists: Those who already vacation in Arkansas and might spend some money on cannabis while here; those who might come for just a very brief visit for the purpose of buying and consuming cannabis; and those who specifically come to Arkansas to take a vacation because adult cannabis is available.
Pakko said while only three percent is expected to be sold to that small group of tourists, their total expenditures account for half the total revenues attributable to adult-use cannabis due to spending on lodging, food and entertainment.
The current patchwork of rules for cannabis across the U.S. can be likened to the situation with legalization of casinos in the South. When Mississippi became the first Deep South state to legalize gaming in 1990, it led to a huge boom in construction of casinos and hotels and created large numbers of jobs. At one point the gaming industry was called “the Mississippi Miracle” especially for creating jobs and economic development in one of the most impoverished counties in the country, Tunica. But as other states also legalized gaming, there was a significant decline in Mississippi’s market, particularly in Tunica where a number of casino resorts have closed.
If cannabis becomes more acceptable, it could follow the path of casinos in that initial impact will decline once more states opt for legalization.
“Those kinds of uncertainties are why we didn’t want to project farther out than five years,” Pakko said. “We based our calculation on Illinois, where many neighboring states don’t allow adult use, and more than 30 percent of sales are from out of state. If all contiguous states also legalize adult use, I would be more hesitant to consider tourism in the economic impact. Missouri is the only state in our area that has adult-use legalization on the ballot. But, in the foreseeable future, we could have people coming from other neighboring states to take advantage of what we have available in Arkansas.”
In some cases, police in states without legalized cannabis wait at state lines and pull over vehicles coming back into the state from a state where cannabis is legal. A local lawyer reported being pulled over twice when leaving Colorado recently. He stood by his rights and denied the police permission to search his vehicle. Several years ago a woman from Eureka Springs who lives in Colorado now and works at a dispensary reported getting stopped in Arkansas, resulting in a search and seizure that ended up costing her thousands of dollars in legal fees and fines, and a police record.
Pakko said that patchwork laws definitely complicate everything.