Anna Staver

Statesman Journal

Estimating the money Oregon will make from legalizing recreational marijuana is tricky.

Economists use surveys rather than empirical data to estimate market size; they guess at regulatory conditions and they lack information on what price per ounce will convert black market buyers.

"Economists aren't a whole lot of good without data," State Economist Mark McMullen said. "And even if we had data, habits are likely to change when it becomes legal."

At first glance, legalization looks like a sticky wicket for McMullen because a few weeks after the November election, he's tasked with giving the governor a revenue forecast on which to build his budget for the next two fiscal years.

If he guesses wrong, that could leave the state and the agencies that would oversee the new system with too little or too much money.

But when the $16 million to $40 million in annual estimated marijuana taxes are set beside the $15.5 billion in the current biennium budget, the size of McMullen's challenge becomes clear.

"Even if it's at $70 million, that size is still small," said Mazen Malik, an economist with the Legislative Revenue Office.

To put the numbers in perspective, if a person's monthly budget was $4,000, the high estimates for revenue generated by marijuana sales would add $21 to that person's pocket.

"It's good. Every bit helps," Malik said. "If someone is thinking it's going to solve our fiscal problems, they are probably going to be disappointed."

Malik's office estimates marijuana taxes would add about $3.73 million to Oregon's common school fund in the first fiscal year.

That's millions of dollars schools didn't have before, but it works out to 0.1 percent of the $6.75 billion in spending power Oregon's education system received for the current two-year budget.

Lottery sales, by comparison, hit $1.1 billion for the fiscal year ending June 30, 2013, and added about $547 million to Oregon's economic development fund.

Liquor sales are the third-biggest revenue generator for Oregon. The state made $396.7 million during the 2011-2013 biennium.

Those big numbers come from bigger markets for liquor and the lottery. The revenue office estimates 8 percent of Oregonians will use recreational marijuana.

What Malik isn't sure about is how long it will take to raise that 8 percent from the underground market.

"Which segment of it becomes legal and which segment of it continues to be underground will be based on price," Malik said.

Marijuana sells for about $177 ounce on Oregon's black market, but legal pot is estimated to go for $330 an ounce.

Malik thinks about 30 percent of users will convert immediately, but the rest will wait for the price of legal marijuana to become more in line with black market prices.

The Colorado Legislative Council has slashed its tax estimates for marijuana for this reason and because medical marijuana users, who the state believes belong in the recreational market, aren't moving.

In fact, taxes collected from medical marijuana in Colorado are outpacing recreational revenue.

Hiccups in the rollout of Washington's marijuana sales left stores without product and prices that were well above the black market.

The lesson this has taught Oregon economists is to estimate low because marijuana markets need time to stabilize.

"The price has to start changing before you get people into the legal market," Malik said. "We think that's a few years down the line; maybe a 10-year horizon."

astaver@StatesmanJournal.com, (503) 399-6610, or follow on Twitter @AnnaStaver

How much marijuana will Oregonians consume? Here's what the Legislative Revenue Office estimates:

Approximately 416,721 Oregonians will consume marijuana. That's about 11 percent of the state's population.

Of that 11 percent, about 8 percent ( 321,815) will be recreational users who will buy marijuana from a retail shop.

LRO thinks those users will fall into two categories: Heavy users (23,151) and occasional users (298,664).

Heavy users are expected to consume 27 ounces per year. (For context, a typical joint has about 0.5 grams of marijuana, so 27 ounces translates to about 1,512 joints per year.)

Occasional users are anticipated to consume about 4.14 ounces in a year.

Tourists are expected to increase marijuana consumption in Oregon by about 20 percent.

Using the tax rates for marijuana provided in the initiative, LRO expects the state to earn between $17.5 and $25.9 million in the first year.

The price of legal marijuana is thought to initially be about $330 per ounce.

The price of black marker or illegal marijuana is about $177 per ounce.

Factoring in estimates for the start-up and maintenance costs of a new regulatory system around recreational sales, net revenue for fiscal year 2017 is project between $6.5 and $12.8 million.