Marijuana

MYTH: Marijuana = money

For many cannabis advocates, the Great Recession offered a new argument for legalizing their favorite greens. Tax and regulate marijuana, the thinking went, and the states can puff their way back to solvency.

As recently as April, a national blogger proffered legalizing pot as the solution for Puerto Rico’s $72 billion budget deficit. Maybe pot could even salvage the massive pension shortfalls bankrupting cities around the country!

However, the results in the two states that legalized marijuana in 2012 — which have now seen a year’s worth of sales — are mixed.

When Colorado voters legalized marijuana for recreational use, they did so with fairly high expectations. Gov. Jim Hickenlooper expected the subsequent “Green Rush” to bring in upwards of $134 million in tax revenue, a chunk of which was destined for the state’s schools. Legislators, however, projected
a more conservative amount of
$67 million.

Instead, first-year revenues were actually $47 million.

“We really didn’t understand the scope of the recreational marijuana market at the time,” said Deputy Director of Marijuana Coordination Skyler McKinley, in a telephone interview from Denver.

Colorado found itself in the unusual position of having to figure out the workings of “a brand new commodity market.”

The state set taxes on medical marijuana at 2.9 percent while imposing multi-tiered taxes on recreational cannabis. To get around the tax, more people enrolled in Colorado’s medical marijuana program, allowing them to purchase product for significantly less, resulting in less revenue for the state.

Others simply continued buying it from their black market dealers, who charged significantly less even without the taxes.

Washington state took a different approach, taxing medicinal marijuana as a retail sale (which is what California also does; some cities, like Oakland, also levy a local sales tax). The state took in $70 million in taxes on pot in fiscal year 2015 on $265 million in sales.

This year, Washington legislators revamped their pot taxes, eliminating multi-tier taxation in favor of a simple 37 percent excise tax, charged to the buyer at the retail level. That change took effect July 1.

California, however, is a different game altogether.

“I think it’s going to generate a significant amount of money
for California,” Board of Equalization member Fiona Ma told SF Evergreen.

Ma is extremely bullish on cannabis’ potential for the state. The BOE has estimated that sales of medical marijuana may exceed $1 billion. Tax revenue is lagging, but could be much higher: Of the estimated 2,000 dispensaries in California, “less than one quarter” pay state sales taxes, she said.

Colorado’s McKinley, however, believes that windfalls shouldn’t be the focus. Pot, he said, should pay for itself.

“If we look back at the last 18 months, it’s been less vexing than we thought it would be,” he said. “It’s not the economic sensation everyone thought it would be.”

Photo by Ed Andrieski/AP