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Analysis: Estimating the Size of D.C. Marijuana Market

By: Friday October 31, 2014 8:50 am

How easy would it be for an urban location like D.C. to grow its own marijuana?

With people of D.C. set to vote to legalize the possession and home cultivation of marijuana on Tuesday, and the Council already working on a tax and regulate bill, an important question is just how big will this market be. What is the local demand for marijuana among adults? It is an issue that came up several times during the Council’s public hearing on the tax and regulate bill yesterday.

To get a rough answer to this question I did a very basic analysis. These figures are meant only to provide a starting point for future discussions and to highlight why it is uniquely difficult to answer this question for D.C. The figures could be significantly off-base with numerous unknowns at the moment.

It should also be noted that the legal market will probably take a few years to grow to its full size. As we have seen, people will only slowly switch away from their illegal dealers, and it is very likely that limited supply during the first several months will keep prices high undermining some people from using any new retail stores.

The Marijuana Market Among D.C. Residents Only

7.6-17.1 metric tons – A way to get a very rough estimate of the local demand for marijuana among adults is D.C. is to take existing estimates from Colorado and Washington and simply adjust for adult population. The Marijuana Policy Group prepared for the Colorado Department of Revenue a report that provided a useful breakdown of the major market estimates in Colorado and Washington. The highest projection per capita was based on the Rand Corporation’s estimate for the potential market in Washington, and the lowest is the Colorado Center on Law and Policy’s estimates for the residential adult market in Colorado. The Marijuana Policy Group’s own projections for Colorado were just slightly lower per capita than the Rand study.

38,000 to 80,000 square feet of grow space – The next obvious question is how easy would it be for an urban location like D.C. to produce this agricultural product internally since shipments across state lines is prohibited? A report for the Washington Liquor Control Board estimated that an average of 40 grams can be produced per harvest per square foot of grow area. Indoor producers can get between 4-6 harvests a year, which is likely how most legal marijuana facilities would grow it in the District. For the sake of argument, it takes about one square foot of grow area to produce 200 grams a year. So potentially it could take only about 38,000 to 80,000 square feet of grow area to serve the entire residential market. That is less than one city block of space or less than 0.01 percent of the total area the District.

Resident, Tourist and Adults Living in Nearby Communities

11.8 to 26.5 metric tons which would require about 59,000 to 133,000 square feet of licensed grow space.

If non-residents are allowed to buy marijuana the calculations for the legal market become much more difficult. There are numerous factors which would affect purchasing by non-residents including: What is the price going to be? How small will the purchase limit be? Are there going to be marijuana smoking lounges where they can consume marijuana in D.C? How many stores will be licensed and where will they be located? How many other states will marijuana be legal in?

To think about the question it is probably best to split non-residents into two groups, tourists and people living in nearby commuter neighborhoods.

Tourist – Calculating the possible demand of tourists (if they are allowed to purchase marijuana) is difficult, but it is important because the district had roughly 19 million visitors a year. One way to look at it is to assume every visitor stays for one night so over the course of the year tourists artificially increase the overall population of D.C. by roughly 52,000 people or 40,000 adults. That is a 7 percent increase in population. So a 7 percent increase in demand would be 0.6-1.3 metric tons.

Residents of neighboring communities – A much bigger and unique unknown is the huge number people who live very close to D.C. There are a total of about 1.7 million people inside the beltway, but only about 650,000 live in D.C. proper itself. While it is clear some of these people would come to enjoy legal marijuana in D.C., how much depends on the factors listed previously.

Purely for the sake of argument let’s assume 30 percent of the marijuana consumed by adults from these outlying communities eventually will come from D.C. This could be in the form of people from Arlington coming into D.C. to enjoy a joint at their friend’s house or an individual in Bethesda buying a few grams in D.C. and bringing them home. I suspect the D.C. Council will take steps to try to discourage this latter’s behaviors with rules like a very small purchase limit for non-residents. This increases the estimate by an addition 3.6 to 8.1 metric tons.

This 30 percent assumption could easily be off. If the legal price is slightly above the black market, commuter use could be lower; but if price at D.C. stores is significantly lower than the black market, commuter consumption will probably be much higher. This could easily be the biggest variable that makes accurate projections difficult.

For comparison, the D.C. Director of Fiscal and Legislative Analysis, Office of Revenue Analysis estimated the potential market could be around 10.4 metric tons. This estimate is based on the lower end for two main reasons. They assume a relatively low average annual consumption among users of only three ounces and a relatively low rate of D.C. marijuana consumption from adults in neighboring communities.

Jon Walker is the author of After Legalization: Understanding the future of marijuana policy

Oregon Marijuana Legalization Measure Winning in Latest Poll

By: Friday October 31, 2014 7:16 am

It looks like Oregon will be the third state to legalize marijuana. The latest SurveyUSA poll for KATU finds Measure 91 with majority support. If approved, the measure would legalize, tax and regulate marijuana for adults 21 and over.

The poll found 52 percent of likely voters planning to vote for the ballot measure, while 41 percent are planning to vote no. The remaining 7 percent are undecided.

Not surprisingly the measure enjoys overwhelming support among voters under 35 but it’s opposed by a majority of senior citizens.

During the 2012 election SurveyUSA proved to be pretty accurate in their final polls of the marijuana legalization measures in Colorado and Washington state.

Jon Walker is the author of After Legalization: Understanding the future of marijuana policy

D.C. Council Prepares for Historic Move Towards Marijuana Legalization

By: Thursday October 30, 2014 7:16 am

The Council of the District of Columbia is set to make history as the first legislature in the country to pass a law legalizing, taxing, and regulating marijuana sales for adults. At 11:00 am the Council will hold their first public hearing on a proposed legalization law and I will be there testifying.

You can watch the hearing here, and my written testimony is attached below.

Marijuana sales are already legal in Colorado and Washington State but those laws were adopted via ballot initiative. While the voters of D.C. will have a chance to legalize marijuana possession by voting for Initiative 71, D.C. ballot law prevented the campaign from including tax and regulate provisions. So that task is left to the Council. With a new poll showing that 55 percent of D.C. likely voters want the Council to adopt a tax and regulate law if the Initiative 71 is approved, the Council is getting ready to fulfill the will of the electorate.

How the Council decides to craft the final version of this bill could have wide ranging implications. Most states don’t allow ballot initiatives, so there is a good chance this bill could end up serving as the model in states where the only path forward for reform is via the state legislature. It will be the first time the basic rules are written by professional legislatures instead of activist campaign that needs to focuse on language that sounds best to voters.

My written testimony:

To the members of the Council of the District of Columbia,

I’m Jon Walker, senior policy analyst at Firedoglake. I’m the author of After Legalization: Understanding the Future of Marijuana Policy, and I’m also a D.C. resident.

The D.C. Council has the unique chance to make history. It could be the first legislative body in the country to adopt a law approving the taxation and regulation of recreational marijuana use, and it could serve as a model for other states.

While I support marijuana legalization, I will leave it to others here today to make the arguments in favor of it. Instead, I want highlight six specific policy considerations the Council should keep in mind when drafting the final version of the legislation:

1. Keep in mind your power to shape the market and consumption habits – The rules and taxes the Council adopts can shape consumption habits in the region for decades to come. The Council could design policies to favor potent marijuana over weak marijuana, vaporizing over smoking, edibles over flowers. For example, the explosion in popularity of flavored vodka is in part the result of a decades old tax advantage that flavored spirits received.

2. Allow legalization of personal possession and home cultivation to move forward right away – There is little practical reason for delaying the main elements of Initiative 71. Ending the criminalization of personal use can exist without a regulated retail system. In Colorado, possession of up to an ounce of marijuana and limited home cultivation was legalized in December 2012, and it was just over a year later when the first retail shop opened. During that time, there were very few problems to speak of, but there was a significant drop in small marijuana arrests.

In addition, allowing home cultivation will give added reassurance that residents would still have a legal way to obtain marijuana in the event of possible future interference by federal agencies against the retail system. Data from Europe indicates that very few adults go through the hassle of growing their own marijuana when it can easily be obtained at retail locations; however, when home cultivation is the best legal option, a significant number take part.

Finally, Allowing home cultivation should potentially help the long term development of the D.C. marijuana industry. Just as laws allowing homebrewing eventually lead to the growth of craft brewing, home marijuana cultivation could play a similar role.

3. A small limit on non-resident purchases – The Council needs to balance two concerns. On one hand is the goal of eliminating the black market. On the other hand, the Council should aim to prevent the diversion of marijuana to neighboring states that haven’t legalized it, in accordance with the Cole memo. Banning non-residents from buying any marijuana may seem like it would help with the latter goal, but it would create huge potential for a grey market in which residents re-sell marijuana purchased legally. This black market could easily become large and organized enough that it would undermine that anti-diversion goal and other Cole memo priorities like preventing use by minors and revenue going to criminal organizations. The smartest course seems to be a middle ground that relies on placing a very small limit on what non-residents can buy.

Here are some numbers to keep in mind when choosing a limit. A joint contains roughly 0.5-1 grams

  • 1 gram – This tends to be the smallest unit of marijuana flower for sale in places where it is legal
  • 3.54 grams – An 1/8th of an ounce is commonly purchased for personal use in America
  • 5 grams – The limit on how much a person can buy at a coffeeshop in the Netherlands
  • 7.09 grams – Non-residents are only allowed to buy 1/4th an ounce of marijuana in Colorado
  • 10 grams – Marijuana possession under 10 grams was recently decriminalized in Maryland
  • 14.17 grams – Under half an ounce is considered simple possession in Virginia, a misdemeanor

4. Allow vertical integration – Vertical integration is allowed in Colorado’s marijuana industry but not in Washington State’s. I would consider it a mistake to ban it in D.C. If the Council is worried about competition, there are other ways to address that. Arguably, bans on vertical integration actually drove much of the market concentration in the beer industry.

Long-term, it is likely the entire country will eventually embrace marijuana legalization. Given D.C.’s size, its marijuana producers are likely going to remain small, making them eventually vulnerable to outside competition from growers in states where land and labor is cheaper. Allowing vertical integration from the start should hopefully allow the D.C. industry to better position themselves in the future as local craft options. It was only relatively recently, when states began allowing limited vertical integration in the beer market, that we began to see real growth in the microbrewing/brewpub industry.

5. Consider allowing private clubs or marijuana lounges – One issue in Colorado is tourists have no legal place to consume marijuana. This can result in public consumption, and it made marijuana edibles much more popular among tourists since they can be discreetly eaten. Edibles are not ideal for infrequent consumers. Consuming too much is more likely with edibles, since people can’t easily titrate their consumption the way they do with smoking or vaporizing.

Allowing the creation of on-premise private marijuana clubs or lounges would be a smart approach to give people a safe, controlled and highly regulated place to consume. Especially in D.C., this could really help advance the Cole memo goal of preventing diversion. People at these lounges could be limited to only purchasing as much as they consume while there. If the Council is worried about air quality in these establishments, it can require all marijuana be vaporized instead of smoked.

6. Maximum flexibility for regulators over rules, labeling, and taxes – Whenever a new industry is taking shape, things evolve fast. Add to that the changing legal issues surrounding marijuana, and we could see rules that need to be revised very quickly. Giving regulators maximum flexibility will probably be the best way to deal with the developing market, the political situation, legal issues and consumer behavior.


Poll Shows Legalization Initiative on Path to Victory in D.C.

By: Wednesday October 29, 2014 11:17 am

The American people want Congress to adopt this amendment.

All signs indicate the people of D.C. will vote in favor of legalizing marijuana next week. A new survey by Public Policy Polling for Washington City Paper and the Kojo Nnamdi Show found Initiative 71 leading with 52 percent of likely voters planning to vote for it and only 35 percent planning to vote against it. The remaining 13 percent are still undecided.

Initiative 71 would make it legal for adults 21 and over to possess up to two ounces of marijuana and grow a few plants in their own home. The measure doesn’t include provisions allowing for the regulated sale and tax of marijuana like we have seen in Colorado and Washington State, only because D.C.’s initiative law wouldn’t allow it.

The campaign’s hope is that a strong vote for the initiative will get the D.C. Council to adopt their own regulation law. So far it appears the Council is already preparing to go that route if the initiative wins. On Thursday the Council will hold its first hearing on a bill to create a system of licensed, taxed and regulated adult use marijuana stores.

A Marist poll from last month did find a much higher level of support with 65 percent of likely voters inclined to back the initiative and 33 percent opposed, but that poll pushed voters hard to make a decision. It included definite supporters and those leaning one way, so it had just two percent listed as truly undecided. Based on that it is probably safe to assume most of the undecided in this PPP poll will end up voting yes on Tuesday.

Which Pot Poll to Believe in Oregon?

By: Wednesday October 29, 2014 7:17 am

legalize marijuanaWe have two recent polls on the marijuana ballot initiative in Oregon, Measure 91, and they diverge significantly from each other.

One poll came out yesterday. It was conducted by Elway Research for The Oregonian and KGW.  It found the measure losing, with 44 percent of likely voters planning to vote yes and 46 percent planning to vote no.

The other poll was released by SurveyUSA  for KATU-TV last week. It found 48 percent of likely voters supporting Measure 91 and only 37 percent opposed.

There are three big reasons why I’m inclined to put significantly more stock in the SurveyUSA poll and doubt this Elway poll. The first has to do with issues about the Elway poll’s turnout model. According to the Oregonian the poll assumes 70 percent of the electorate will be over the age of 50. That seems unlikely based on past elections and is very important given how much support for legalization correlates with age. By comparison the SurveyUSA poll puts this age groups share at only 58 percent.

The second reason is past performance. Elway’s marijuana legalization poll of Washington State at this same time two years ago was off. It found Initiative 502 leading only 48 percent yes to 44 percent no, but it ended up winning 55.5 percent to 44.5 percent. By comparison, SuveryUSA’s final poll of Initiative 502 was very close to the final result.

Finally, the big reason to doubt the Elway poll is all the other polls so far. For example the poll for OPB and Fox 12 earlier this month found Measure 91 winning 52 percent yes to 41 percent no. That margin is effectively identical to the SuveryUSA poll. That is why when possible we try to look at the averaging of multiple polls because there is always the chance any one can be an outlier.

Of course in a week we will know which pollster is more accurate and if Measure 91 does lose I will re-evaluate my opinion of the pollsters involved. For now, though, I would put my bets on this SurveyUSA poll.

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