Act Track

Learn the Business of I-28 Portlandsterdam University

Financial Income Analysis of I-28

By Mike Mullins

Revised March 13, 2009

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Consumption

It is important to know the consumption rate when calculating production and dispensary quotas. 

There are two variables used for Consumption; Ounce and Cost. The assumption is made that the average patient will consume two ounces of medicine per month. This, simply put, is an 24 ounces per year.

Reasoning: It is well known that the two ounces per month is a standard amongst many providers.  This however is not a true case.  The argument can be made in either direction and there is no recommended amount to use as a medicine. Each individual and each case differs.  Some use much less and many use much more.  Most patients we talk to cannot survive with only two ounces per month.  For the sake of knowing that this unit of measure is easy to verify, we have used it. According to a British survey by the Independent Drug Monitoring Unit[4], "regular" users average 2 oz of cannabis per month or about 2 grams per day (a gram yields one or two joints).

To determine Cost we used the $40.00 per eighth ounce figure. This appears at this time to be the best market value that would be used in our area. This figure is at the low end of the scale and we hope this is not a true reflection of what will be.

According to National Studies[5], “the total value of the domestic marijuana market can be estimated on the basis of its current retail price. Depending on quality, retail price of a single gram (one or two joints) ranges around $10 - $15 ($280 - $420/ounce) for domestic bud, or as low as $5-7 for Mexican grass. For comparison, the prevailing price on the quasi-legal Dutch market is $6/gram. In a legal market, prices could be expected to fall. If they fell to current Dutch prices, the retail value of the current market would be less. However, this decrease would be at least partly offset by an increase in consumption”.

Studies have shown that in areas where marijuana has been legalized, prices have dropped 30 percent. We fully expect the price to be much lower than that which we use in this study. This factor should be set by open competition and not pre determined by any authority.

The calculations are done in both ounces and pounds.  Here are the results.

Production and Dispensaries In General

This area required the most work.  To calculate this we used two differing methods then compared the two methods we used against each other. We then took the matching results to use in this report.

  Dispensaries

To calculate the revenue of dispensaries, we used the number of dispensaries from Consumption with the combined revenue of licensing and tax, based on gross sales.

Gross sales were figured at an average annual rate of $50,000 per dispensary. In our second revision we matched this figure by calculating consumption and production requirements to meet the determined consumption rate. Both methods cross referenced with the same results. Here we use the Consumption Quota for Dispensary Gross Sales. This variable comes from Dispensary Gross Sales figures on the Production sheet. The

Gross Sales Variable of 50k is not used. The only variable change on this sheet is the number of Dispensaries which will change License fees. You must change the Dispensary Gross Sales from the Production sheet.

 Licensing is set at the $2000 dollar annual cost.  Tax is figured at 10% gross revenue of dispensary.  There was no provision made for business licensing, employment and other taxes.  Here are the results.

Production

To figure production revenue we first calculated production rates. This allows us to calculate the number of producers required for the consumption rate. We used this method to match and cross reference both our Dispensary and Production revenues.

Production Yields

First I configured the annual production rate for a single producer. This is based on the 24 plant limit, each plant producing 5 ounces, 4 cycles per year. The assumption is that the indoor plant will produce at best 5 ounces, four times per year, matching an outdoor plant at approximately one pound per year.  Thus 5 ounces was used as the variable.

Once the production yield was calculated we used this result against the annual consumption rate in ounces. Ounces were calculated at $320 each for Dispensary and $150 each for producers. Here is the result.

In view of not every patient using the dispensary services, we have calculated only a small percent for production licensing. It is also expected that there will be wholesale pricing when discussing sales of goods from the producer to a dispensary. This has been taken into account in the calculations through reduction of the ounce price to 150 per unit..

In the following chart, we simply calculate the revenue by taking the number of producers times the combined licensing fee and 10% tax on gross sales. Here is the result.

The Results (Master)

The final results show the combined income of card holders, dispensaries and producers. Here is the result.

 Looking at just the first year, we can see that the addition of I-28 will be significant financial revenue for the State.

Additional Federal and State Taxes

In addition to the new taxes are the standard taxes of running a business.  We calculated a 30% Federal and State tax on Gross Income from Dispensaries.  We also included the number of employees that will be required to run these dispensaries.  Note that this does not include local city license and taxes. Here is the results.

Summary

The summary of this work is found on the I-28 document attached to this study.

     DHS Financial Report

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Last modified: 01/15/10