BUY (AND GROW) LOCAL, LET’S CRUNCH THE NUMBERS
By David G Hanger, EA, MBA
March 25, 2015
So it will be the biggest of surprises if you don’t do something really, really stupid.
Were you listening to the radio just yesterday morning you might have heard state observers reporting about the prospect of $20-$25 a barrel oil; the $3.5 billion deficit facing the state right now; and the $500 million a new state tax totaling 10% of what you pay the Feds will bring in. That’s if you were listening to the radio yesterday.
Are you starting to catch on now, Mr. Timmerman?
The focus of your marijuana committee should be how to make money off the stuff.
It is a legal product.
Let’s get down to cases, as in little old Ketchikan here. There are what? Twelve to 15 thousand on this rock? How many are kids or old people? How do we get to how many people in this town smoke dope? Try this.
Say in Ketchikan there are 3000 users who consume one-quarter ounce a week. Some people I have talked to say this figure is low. I don’t know. That means that 3000 users will each consume one ounce a month (obviously actually slightly more) for an aggregate total of 3000 ounces a month, or 187.5 pounds of marijuana consumed a month. The average price per quarter ounce is as much as $150 a quarter, per ounce $400 or so.
By rounding off the 187.5 to an even 200 pounds a month we arrive at what would be an average inventory total for a business, slightly more than the demand. Sixteen ounces times a minimum of $400 is a minimum retail price of $6400 a pound. Times 200 pounds that is $1,280,000 a month. At this moment all literally up in smoke.
One of the advantages of this benchmark is its convenience as a sliding scale. If by some chance the local demand is only half this, then you still have a very substantial local business grossing more than $7.5 million a year. I do think it is more than that.
The next issue of consequence, of course, is how is the product provided? I would guess that no more than 20% to 25% of what is consumed is grown locally, and that number is probably high. That means that 80% of the product, or more is imported from down south (primarily), which means that as much as $1 million or more in hard cash is leaving this community every month to pay for next month’s load. I think this is a product that actually could be provided 100% locally. What advantage is there in having $12 million and more in hard cash staying in the community every year? Buy local, grow local.
At an average sales tax rate of 4% a local business grossing $15,360,000 a year should be paying $614,400 in sales taxes. If stamp taxes are 20%, then an additional $3,720,000 in tax revenues are available. Then there is income tax. But at the local level as much as $4.3 million in extra tax revenue is available. If the consumption level is half the benchmark amount, you are still talking about $2.2 million in extra local tax revenue. If by some off the wall chance it is double that, look at the windfall. Suddenly it ain’t all going up in smoke.
This is business; good business. As a government you do not leave one of your largest industries untaxed in perpetuity for whatever reason. The revenues are needed to cover what is in process of happening now. Quit wasting time because time is in fact money, lots of it.
Again, moralizing is not the issue; cannot any longer be the issue. It is a legal product. Simple business logic says be opportunistic, and here we are talking literally millions.
So are you going to overtax the ordinary locals and businesses, and just leave the up in smoke business alone? Show me how you are planning to get out of the really, really stupid box.
David G Hanger, EA, MBA
Received March 25, 2015 - Published March 25, 2015
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