If California voters decide to legalize recreational marijuana on November 8, local governments across the state should make sure not to ruin the party.
In addition to legalizing marijuana, Proposition 64 could create a windfall of revenue for state and local governments. Prop. 64 includes a 15 percent tax on marijuana at the point of sale (in addition to state and local sales taxes) along with a $2.75 per ounce tax on growers.
Those are actually more modest marijuana taxes than what other states have approved. The tax plan contained in Prop. 64, pro-marijuana activists say, could help California avoid some of the pitfalls that Colorado, Oregon and Washington dealt with in the aftermath of legalization. Each of those states initially imposed tax rates in excess of 25 percent (Oregon had the highest initial rate, 37 percent), but all three already have taken steps to reduce their taxes on weed.
Higher tax rates, those states found, kept the marijuana industry partially in the shadows. Californias lower tax rate should help to bring the states robust black market for weed into the light. Thats good for consumers, good for businesses and good for the states tax coffers.
California isnt alone in learning this lesson. States considering legalization this year are all aiming at lower tax rates. Voters in Arizona and Nevada, like those in California, will decide on Nov. 8 if they want to legalize recreational marijuana and tax it at 15 percent. A marijuana legalization initiative in Maine would set taxes at 10 percent, and Massachusetts proposed 3.75 tax rate would be the lowest in the nation for recreational weed, if voters approve it.
In California, state officials arent sure how much revenue the tax would produce – it would depend on a wide range of factors, including how permissive local governments decide to be – but the Tax Foundation says the tax will produce at least $646 million annually. That could grow to more than $1 billion in annual revenue within a few years, according to an analysis from the Los Angeles Times.
Thats more than six times the amount that Colorado collected from its marijuana taxes in 2015, a sign of just how massive the marijuana market in California could be.
The first $25 million would be earmarked for law enforcement and public health expenses related to legalization, and the rest would be spent on drug education and treatment programs, environmental projects and DUI enforcement.
Still, local governments could throw a wrench into Californias weed-revenue-infused future. CalCann Holdings LLC, a consulting firm that helps marijuana-related businesses navigate tax and regulatory policies in California, says there are essentially three types of cities that might impose additional taxes on growers and buyers.
Progressive cities expected to welcome the marijuana industry will likely set low rates – like the 2.5 percent tax rate currently applied to medical marijuana in places like Berkeley and Stockton – with the intention of drawing recreational weed out of the black market and creating new economic opportunities.
Local governments opposed to legalization could try to reverse state voters decision by outlawing recreational marijuana (Prop. 64 gives local governments that authority, if legalization is approved statewide) or by piling on punitive taxes to keep marijuana businesses away. Thats a short-sighted approach that would hold back local economies and maintain existing black markets, but its a mistake local governments would be permitted to make.
The third group of cities is the most interesting – and potentially the most worrisome. According to CalCann Holdings, some deeply indebted California cities might see marijuana legalization as the proverbial goose that lays golden eggs. They could be tempted to pass high local tax rates on marijuana as a way to pay for new spending projects or to plug budget holes in things like notoriously underfunded pension programs. Thats a temptation they would be wise to avoid.
News Moderator: Katelyn Baker
Full Article: Marijuana Taxes, Government Budgets And The Black Market
Author: Eric Boehm
Contact: The Orange County Register
Photo Credit: Christopher Furlong
Website: The Orange County Register
