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Philly420: Is Pa. smoking $2 billion of marijuana?

Estimating the size and value of the underground marijuana market is difficult. But recently the RAND Corporation, a national policy think-tank, attempted to do just that for the state of Vermont.

Estimating the size and value of the underground marijuana market is difficult. But recently the RAND Corporation, a national policy think-tank, attempted to do just that for the state of Vermont.

In a report issued last week, RAND explored a variety of policy options that might replace current prohibition laws. The authors also offered some insight into the existing cannabis economy. RAND would also like the report used as a template for policy debates in other jurisdictions.

So Philly420 broke out the calculator and crunched some numbers for our region. The results may leave your head swimming.

First, though a look at what RAND learned.

The tiny Green Mountain State has a population of about 626,000 people. And about 64,000 of those Vermonters enjoy a daily toke, according to the National Survey on Drug Use and Health. RAND assumed self-reporting to be low and raised the number of actual cannabis consumers up to about 77,000. Then they estimated that in 2014 alone, Vermonters consumed between 15 and 25 metric tons of marijuana for an average of between seven and 12 ounces per user.

How much did Vermonters spend?

Well, there is an amazing variety of cannabis available in the USA. From low grade marijuana at $80 per ounce, to mid-grade at $250 then up to super- bud at $400-$500 per ounce, consumers have access to a veritable smorgasbord.

The options and prices are why RAND offered a wide range on the overall numbers. The study concluded that Vermont tokers spent between $125 million and $225 million on the cannabis in 2014. That means consumers on the low end might spend about $1,600 per year ripping bong loads of brick weed. Consumers who demand the finest Strawberry Kush could spend $5,500 over the year. Concentrates like hash oil and  products like prepared edibles weren't factored into the equation.

Wow, that sounds like a fair amount of paycheck to dish out for a recreational intoxicant.

It is small change compared to what Americans already pay for alcohol. But more on that later.

RAND makes some tax revenue forecasts for Vermont. The study estimated that legalized, commercial marijuana could generate a $25 million to $75 million windfall for state coffers. I expect this estimate will  light a fire under legislators who will introduce bills soon.

Vermont decriminalized possession in 2013. Misdemeanor arrests declined rapidly but did not disappear entirely. RAND found that $1 million was spent by state and municipal authorities in Vermont on prohibition enforcement.

Now, let's do a little experimental extrapolation. RAND used some complex formulas in their report. I'm going to simplify things a bit.

Is this going to be fuzzy math?

Readers can rest assured my math was calculated while sober, though not entirely by choice. Full disclosure: I'm on federal probation for a joint at the Liberty Bell and cannot partake.

The feds estimate about 6.5 percent of Pennsylvanians use marijuana. That's about half of the rate of Vermont's. However, our overall population is much larger at 12.7 million people. So let's figure that amounts to at least 825,500 stoners in the Keystone State.

That number seems awfully low.

The federal estimate seems very conservative. The National Survey on Drug Use and Health reported somewhat higher rates of marijuana use last year in legal and decriminalized states. But is use really going up? Or, relieved of criminal prohibition, are people more willing to be honest on a government survey? My sense is the latter. Still, for the purposes of our exercise, we will use the low trending number supplied by the federal government along with RAND's suggestion to adjust it higher by 20 percent.

Let's now assume a  population of about 986,000 cannabis consumers here in Pennsylvania.

Additionally, let's assume all of Pennsylvania's weed enthusiasts consumed marijuana at the same rate as Vermonters, between 7 and 12 ounces over the course of a year. That would calculate to underground sales of 9,367,000 ounces.

That equates to 585,437 pounds or 265.5 metric tons of non-taxed, underground cannabis.

Remaining conservative, let's estimate an average cost per ounce sold at $250. At that price, $2.3 billion in cold hard cash likely changed hands in 2014 within Pennsylvania's existing cannabis economy.

If it were all taxed at the same model being employed in other states, at a rate of about 25 percent, that would lead us to believe that Pennsylvania last year left more than $585 million dollars on the table.

Again, these are conservative estimates by one modestly employed writer --  not a well-funded think-tank team.

How much are we spending on enforcement?

A lot. These unfortunate numbers are also much easier to calculate. Pennsylvania currently arrests about 21,000 people every year for possession. Another 5,500  are arrested for sales and cultivation. RAND estimated that it costs $1,266 for every common misdemeanor arrest for weed. For sales and cultivation crimes, RAND estimates the costs increase to $8,600 to collar each offender.

If we assume that formula is correct, Pennsylvania is spending about $26.5 million every year to charge marijuana users found with 30 grams or less. But wait, that number gets higher. Pennsylvania taxpayers shell out approximately $47 million to arrest and prosecute offenders for sales and cultivation. Add those two figures ($26.5 million and $47 million), and that comes to about $73.5 million spent just on arrests. Even more is spent on probation supervision, jail and prison.

The good news comes with decriminalization. RAND estimates that the cost of issuing a marijuana citation in Vermont is a mere $20.

Philadelphia adopted a similar policy last year and arrests in the city declined 78 percent. Using the RAND cost model, Philly was spending $5.5 million per year on pot smokers. Now the city should save about $3 million per year with the new tickets.

How does all this compare to alcohol?

Because Pennsylvania operates a state-controlled alcohol system, we have some experience with selling something people consume for enjoyment. The Pa. Liquor Control Board is the regulatory authority for wine and hard liquor (beer is not covered). Last year, PLCB sales were $2.24 billion. The PLCB collected $526 million in taxes and generated profits on those sales.

So in a nutshell …?

Marijuana prohibition is costly. It's expensive to enforce and millions are lost in potential tax revenue.

According to my calculations, the existing marijuana market is about equal to (or perhaps greater than) the legal wine and spirits market in Pennsylvania.

Right now there is an efficient network of cannabis producers, distributors and consumers. Already these underground folks are an important part of the overall economy.

Regardless of the regulatory scheme employed,  it would only be right if those in the existing supply chain be given the opportunity to come above ground with their business. Too much regulation -- and heavy taxes -- will do nothing to quell the thriving underground market.

Pennsylvania has little to lose and much to gain if we can bring our state cannabis economy into the light.

The RAND study only focused on the Green Mountain State. But it also implied that surrounding states could benefit if Vermonters voted to completely legalize marijuana.

From my viewpoint, the real answer lies not in individual states adopting these policies piecemeal but in national reform.

Chris Goldstein is an associate editor for Freedom Leaf magazine.