Study: Sacramento region’s pot economy could soar with legalization

By Peter Hecht

phecht@sacbee.com

October 17, 2016 04:00 AM

A new University of the Pacific study sees potential economic upside for the Sacramento region if Proposition 64 passes in November. Andrew Seng aseng@sacbee.com
A new University of the Pacific study sees potential economic upside for the Sacramento region if Proposition 64 passes in November. Andrew Seng aseng@sacbee.com

Expanded legalization of marijuana could create a vast cannabis industry in the Sacramento region, accounting for an annual economic output ranging from hundreds of millions to potentially more than $4 billion if local governments endorse widespread marijuana production, according to a University of the Pacific study.

The analysis, prepared by researchers for the university’s Center for Business and Policy Research, Eberhardt School of Business and McGeorge School of Law, was commissioned by a cannabis industry investment group co-founded by Daniel Conway, a former top aide to Sacramento Mayor Kevin Johnson.

The study comes as California voters are contemplating Proposition 64, an initiative to legalize adult use and sales of recreational marijuana, and as Sacramento city officials are drafting regulations to govern commercial marijuana cultivations, pot deliveries and other local cannabis businesses.

The authors’ most robust forecast – that the Sacramento region could produce 20,000 direct and indirect jobs as a result of marijuana legalization – would depend on local governments adopting widely permissive rules to position the region as a cannabis production center supplying both local consumers and a major share of the California market.

Under a far more modest scenario, study authors Jeffrey Michael and Thomas Pogue said the Sacramento region can produce more than 700 marijuana industry jobs, 1,100 related jobs and $386 million in total economic impact if the pot trade grows only marginally beyond the current medical marijuana economy.

That model is based on allowing a restricted number of marijuana stores and limited cultivation and distribution in a region with at least 250,000 marijuana consumers over 21 in Sacramento, El Dorado, Yolo, Placer, Yuba, Sutter and Nevada counties.

The authors said the regional cannabis industry eventually could boom to as much as $2 billion in annual revenues and up to $4.2 billion in total economic output if the region develops a “cluster” model including marijuana sales, pot microbusinesses, transportation, commercial cultivation and cannabis product manufacturing for local and out-of-area markets.

Michael, a professor of public policy who directs the Center for Business and Policy Research, said the most robust analysis would envision “new value” marijuana businesses to include “cannabis clubs, specialty retailers, lodging establishments and various forms of entertainment that could be offered in conjunction with consumption” of marijuana by residents and visitors.

Under that model, the study said, the Sacramento area’s marijuana industry employment would account for $1.4 billion in annual income, nearly 2 percent of the region’s current gross economic output. However, that model would result only if nearly all consumers buying marijuana in the black market switched to the state-regulated marijuana economy.

Michael said it would also depend on local governments widely permitting marijuana businesses under policies that “embrace the industry and put in policies that allow it to grow and flourish” with investors who “are successful and able to compete well in the state market.”

Sacramento now has a cap of 30 licensed marijuana dispensaries in the city with plans to add commercial cultivation. Sacramento County and the cities of Folsom, Elk Grove, Rancho Cordova and Citrus Heights ban cannabis businesses. Dispensaries and cultivation are heavily restricted in surrounding counties in the region.

The researcher said they are not advocating any local regulation model, but merely gauging the potential scale of the market.

The researchers, using data from the federal Substance Abuse and Mental Health Services Administration, created a demand baseline that estimated that 3.8 million California adults consume 640 metric tons of pot during a calendar year, including between 42 and 50 metric tons in the Sacramento region. The federal analysis estimated that 24 percent of consumers account for 80 percent of consumption.

The local analysis was paid for by the investment fund Truth Enterprises, which Conway co-founded with Ross Haley, 36, chief executive of a cultivation supplies company, General Hydroponics Inc. The company’s mission statement declares that it is focused on “helping innovative and entrepreneurial cannabis companies thrive.”

Conway said he hoped the research would be valuable for local governments setting marijuana policy. “To regulate or grow this industry, they need to have a clear idea of what the trade-offs are,” he said.

The most optimistic market analysis in the University of the Pacific study comparatively appears to outshine statewide forecasts by two cannabis industry research groups, New Frontier Data of Washington, D.C., and ArcView Market Research of Oakland.

Those two groups’ 2016 California Legal Market State Profile valued the current California medical marijuana market at $2.7 billion and said the pot economy would grow to $6.46 billion statewide by 2020 if voters approved Proposition 64.