States Weighing Legal Pot Look To Tax Revenues In Colorado, Washington

09/16/2014 12:05 pm ET | Updated Sep 16, 2014
  • Adrienne Lu Stateline
PABLO PORCIUNCULA via Getty Images

This piece comes to us courtesy of Stateline. Stateline is a nonpartisan, nonprofit news service of the Pew Charitable Trusts that provides daily reporting and analysis on trends in state policy.

When voters in Alaska, Oregon, Washington, D.C., Florida and Guam head to the polls in November to decide whether to legalize marijuana, either for medical or recreational use, some may wonder how much new tax revenue legalization might bring in.

The answer, according to early returns in Colorado and Washington: nobody knows.

In Washington, which opened the doors to recreational marijuana (also known as retail or adult-use marijuana) on July 9, the state expects to collect taxes of $3 million on sales of $12 million as of September 8. Washington imposes taxes of 25 percent at the producer, processor and retail levels. Because state officials were unsure how much revenue the new market would bring in, the state is not counting it as revenue to fund its current two-year budget

In Colorado, sales of retail marijuana have reaped about $18.9 million in state taxes (with a percentage to go to local governments) from January through June 30, according to the state Department of Revenue. That’s about 46 percent of what the Colorado Legislative Council, the nonpartisan research staff to the state’s General Assembly, predicted before legalization. But sales of retail marijuana are continuing to climb, and reached their best month yet in July.

Advocates of legalization say that however much tax revenue legal marijuana generates, it is money that would have otherwise ended up in the black market.

“We believe the figures we’ve seen come out of these two states so far have been overwhelmingly positive, especially when contrasted with the previous policy of prohibition,” said Erik Altieri, spokesman for the National Organization for the Reform of Marijuana Laws (NORML), which lobbies in favor of legalizing marijuana.

But Calvina Fay, executive director of the Drug Free America Foundation, which opposes the legalization of marijuana for recreational use, said the revenue raised will not be sufficient to cover costs to society of increased marijuana use.

“If you look at alcohol and tobacco, at a national level, we are not raising enough in tax revenues to cover the societal costs related to those two drugs,” Fay said. “Why would we think marijuana would be any different?”

Among the states that are watching are Alaska and Oregon, which have ballot measures to tax and regulate the production, sale and use of non-medical marijuana. Washington, D.C. could allow the possession of up to two ounces of marijuana. Voters in Florida and Guam will consider legalizing medical marijuana.

Colorado Assumptions

Before Coloradans voted in 2012 to legalize recreational marijuana, pro-legalization advocates aired a jingle: “Jobs for our people. Money for schools. Who could ask for more?”

But estimating revenue for a new market – particularly for something that was previously illegal – is a tricky enterprise. (Recently, states have also struggled to accurately forecast tax revenue from online gambling, for example.) 

Even now, it’s hard to tell exactly why the state’s projections were too high, according to Larson Silbaugh, a senior economist with the Colorado Legislative Council who worked as part of a team to forecast marijuana tax revenue.

“You’re forecasting an illicit drug and there isn’t good, reliable information on it,” Silbaugh said.

In Colorado, retail marijuana is subject to a 15-percent excise tax, which is based on the wholesale market rate, and a 10-percent tax on retail sales, in addition to the 2.9-percent retail tax that is also charged on medical marijuana. Last fall, voters approved the 15-percent and 10-percent taxes, with the first $40 million from the 15-percent excise tax earmarked for school construction projects and the proceeds from the 10-percent tax dedicated to paying for the regulations governing legalized marijuana, such as licensing retailers. One reason recreational marijuana sales have been lower than predicted is that fewer people than expected have shifted from medical marijuana to retail marijuana.

State Rep. Dan Pabon, a Democrat who chairs a special legislative committee on marijuana revenue, said another problem is a provision in Colorado law that allows “caregivers” to grow medical marijuana for other people.

"What we’ve seen is caregivers may be diverting product from their patients and putting it onto the black market,” Pabon said. “That’s having an impact on recreational sales because people aren’t going to the regulated market as much as we had planned for.” Some longtime marijuana users, it seems, are reluctant to abandon their trusted suppliers, even though there is now a legal alternative. The committee is considering legislation aimed at tightening up regulations around caregivers, Pabon said.  

Phyllis Resnick, lead economist for the Colorado Futures Center at Colorado State University, said that while lower taxes may be one reason many people have stayed with medical marijuana, she expects that eventually more users will shift to the retail market rather than renew the paperwork required to use medical marijuana, for example.

The retail environment for recreational marijuana in Colorado is changing day to day. For example, local jurisdictions determine whether to allow retail marijuana stores, so more stores are opening as more cities and counties approve them. Aurora, the state’s third-largest city, recently awarded its first licenses, for example.

Another change that could affect sales: Under current state rules, those in the marijuana business must both produce and sell marijuana, but starting in October, businesses can choose to do one or the other.

“With any new market, it takes a while for it to settle,” Resnick said. “It’s not going to find its resting place probably for another year or more.”

Lessons for Other States 

Twenty-three states and the District of Columbia currently allow medical marijuana, according to the National Conference of State Legislatures (NCSL). Another 11 states allow limited access to specific medicinal products with low levels of THC, the active ingredient in marijuana. Many of the states that allow medical marijuana tax it through a general sales tax, as over the counter medications are typically treated, according to Karmen Hanson, a program manager for NCSL.

The Marijuana Policy Project, which lobbies to end the prohibition of marijuana, has campaigns to legalize non-medical marijuana through ballot initiatives in a number of states, including Arizona, California, Maine, Massachusetts and Nevada. They are also pushing legislation in Rhode Island, Vermont and New Hampshire.

Resnick warned that other states considering legalizing marijuana shouldn’t expect marijuana tax revenue to solve their fiscal woes.

The Colorado Futures Project’s most optimistic projections for marijuana tax revenue were in the neighborhood of $100 million annually, she said. Meanwhile, the state is facing long-term budget gaps in the range of $2 billion-$3 billion.

“All these promises that get made about free money to solve problems, marijuana is not going to be that,” Resnick said. “If you look at the state budget, if you look at alcohol tax vs. sales or income tax, it’s a couple of percentage points. That’s what marijuana revenue is going to be – it’s not going to be the budget workhorse.

Hanson said many states are hoping to learn lessons from Colorado and Washington.

“People are looking to Colorado and Washington as examples of is it going to fly or sink and it’s like any new program – it’s going to have needs and fixes that come down the road,” Hanson said. “Some will be apparent pretty quickly and some will take some time to show.”

Also on HuffPost:

  • 1 Former President Bill Clinton
    AP
  • Bill "Didn't Inhale" Clinton has supported decriminalizing marijuana for more than a decade and more recently has spoken out against the war on drugs.

    “I think that most small amounts of marijuana have been decriminalized in some places, and should be," he said back in 2000 in an interview with Rolling Stone. "We really need a re-examination of our entire policy on imprisonment.”

    He's since spoken about the issue of marijuana and drug prohibition a number of times. Last year, he appeared in the documentary, "Breaking the Taboo," where he argued that the war on drugs has been a failure.
  • 2 Sen. Rand Paul (R-Ky.)
    AP
  • Paul exhibited his libertarian tendencies earlier this year when he explained that he'd favor reforming marijuana laws to either decriminalize or reduce penalties for possession.

    “I don't want to promote that but I also don't want to put people in jail who make a mistake," Paul said. "There are a lot of young people who do this and then later on in their twenties they grow up and get married and they quit doing things like this. I don't want to put them in jail and ruin their lives."

  • 3 Former Rep. Ron Paul (R-Texas)
  • As a congressman, Paul took his opposition to marijuana and drug prohibition a step farther than his son has so far. He supported a number of bills that would have removed the plant from its current status as a Schedule I substance under federal law, where it is considered alongside heroin and PCP. Because his history on the topic is so expansive, just take a look at the video to the left for a selection of his comments.
  • 4 Evangelist Pat Robertson
    AP
  • While the 83-year-old Robertson may say a lot of things that make him sound like a kooky old man, he's also made a few remarks to endear himself to marijuana advocates.

    "I really believe we should treat marijuana the way we treat beverage alcohol," Robertson said in an interview with The New York Times in 2012. "I've never used marijuana and I don't intend to, but it's just one of those things that I think: this war on drugs just hasn't succeeded."

    Robertson has made similar remarks on his "700 Club" show before, but the Times, like many others, perhaps felt they must have misheard him.
  • 5 New York City Mayor Michael Bloomberg
    Getty Images
  • In a state of the city address earlier this year, Bloomberg made it clear that he supported a promise by New York Gov. Andrew Cuomo (D) to push marijuana decriminalization. "I support Governor Cuomo's proposal to make possession of small amounts of marijuana a violation, rather than a misdemeanor, and we'll work to help him pass it." A similar effort specific to NYC has made some progress, but faces an unclear path forward with New York lawmakers.
  • 6 Actor Bryan Cranston
    Getty Images
  • Some may think of Cranston as more of a meth guy thanks to Walter White, his character on AMC's hit show "Breaking Bad," but in real life he's spoken out against current pot laws, suggesting that recreational marijuana use isn't a big deal -- and shouldn't be treated like it.

    “[T]o me, marijuana is no different than wine," he said in an interview with High Times. "It's a drug of choice. It's meant to alter your current state -- and that's not a bad thing. It's ridiculous that marijuana is still illegal. We're still fighting for it ... It comes down to individual decision-making. There are millions of people who smoke pot on a social basis and don't become criminals. So stop with that argument -- it doesn't work.”

    [H/T Marijuana Majority]
  • 7 Former New Mexico Gov. Gary Johnson (R)
    AP
  • Unlike many politicians, Johnson, a Libertarian presidential candidate in 2012, has unabashedly admitted using marijuana. But beyond his personal history with pot, he's been an outspoken advocate for legalizing and taxing it.

    From his campaign platform:

    "By managing marijuana like alcohol and tobacco - regulating, taxing and enforcing its lawful use - America will be better off. The billions saved on marijuana interdiction, along with the billions captured as legal revenue, can be redirected against the individuals committing real crimes against society."
  • 8 Author Stephen King
    Getty Images
  • King hasn't been shy about advocating for a legal marijuana industry that could give easy access to recreational users and revenue to the states.

    “Marijuana should not only be legal, I think it should be a cottage industry," he said in an interview with High Times. "My wife says, and I agree with her, that what would be really great for Maine would be to legalize dope completely and set up dope stores the way that there are state-run liquor stores.”

    [H/T Marijuana Majority]
  • 9 Rep. Dana Rohrabacher (R-Calif.)
    Getty Images
  • Rohrabacher was a co-sponsor of the 2013 "Respect State Marijuana Laws Act," which seeks to protect marijuana users or businesses acting legally according to state marijuana laws from being prosecuted under the federal Controlled Substances Act.

    While marijuana has been made legal for various uses in a number of states, the Obama administration continues to enforce federal laws across the nation. This has led to numerous raids of marijuana-based businesses, as well as prosecutions of growers and other people involved in pot.

  • 10 Rep. Don Young (R-Alaska)
    AP
  • Young was also a co-sponsor of the 2013 "Respect State Marijuana Laws Act."
  • 11 Rep. Justin Amash (R-Mich.)
    Getty Images
  • Amash was also a co-sponsor of the "Respect State Marijuana Laws Act."
  • 12 Glenn Beck
    AP
  • Back in 2009, when Beck had a Fox News show, he suggested that marijuana legalization could be a worthwhile solution to raging drug violence on the nation's border with Mexico.

    "I think it's about time we legalize marijuana," he said. "We have to make a choice in this country. We either put people who are smoking marijuana behind bars or we legalize it, but this little game we're playing in the middle is not helping us, it is not helping Mexico and it is causing massive violence on our southern border."
  • 13 Billionaire Richard Branson
    AP
  • From an op-ed by Branson arguing for an end to the war on drugs:

    "Decriminalization does not result in increased drug use. Portugal's 10 year experiment shows clearly that enough is enough. It is time to end the war on drugs worldwide. We must stop criminalising drug users. Health and treatment should be offered to drug users - not prison. Bad drugs policies affect literally hundreds of thousands of individuals and communities across the world. We need to provide medical help to those that have problematic use - not criminal retribution."
  • 14 GOP Mega-Donor David Koch
    AP
  • Koch may have funneled countless dollars to conservative candidates who oppose reforming marijuana laws, but back in 1980, when he was the vice presidential candidate for the Libertarian Party, he suggested that it was "ridiculous" to consider people who smoked pot "criminals."
  • 15 Texas Gov. Rick Perry (R)
    Getty Images
  • In 2010, Perry told Jon Stewart that he believed in a federalist approach to marijuana laws -- that is, to allow states to determine their own approach and to tell the federal government to butt out. He's since suggested he'd be willing to support decriminalizing possession of small amounts of marijuana.
  • 16 Comedy Central's Jon Stewart
    Getty Images
  • Stewart has made a habit of taking down politicians who exhibit an uncompromising stance on marijuana prohibition. In 2012, Stewart took New Jersey Gov. Chris Christie (R) to task for vetoing a marijuana decriminalization bill.

    “Alright, as much as I disagree, I don’t think marijuana should be illegal, but it is illegal on the federal level," Stewart began. "Christie is a former prosecutor, a man of conviction, of principle, doesn’t believe that the state should supersede federal law."

    The praise in the second sentence is a good sign that Stewart is about to shred Christie. Watch the rest of his takedown above.
  • 17 Actor Jack Nicholson
    AP
  • In an interview with the UK's Daily Mail in 2011, Nicholson said that he personally still used marijuana, before making the case for ending the prohibition on pot as well as other drugs.

    "I don't tend to say this publicly, but we can see it's a curative thing. The narcotics industry is also enormous. It funds terrorism and - this is a huge problem in America - fuels the foreign gangs," he said. "More than 85 percent of men incarcerated in America are on drug-related offences. It costs $40,000 a year for every prisoner. If they were really serious about the economy there would be a sensible discussion about legalization."
  • 18 Former Utah Gov. Jon Huntsman (R)
    AP
  • In a 2013 American Conservative op-ed chock full of moderate Republican views, Huntsman snuck in a call to "applaud states that lead on reforming drug policy."

    While Obama and his administration have responded to state marijuana reforms by saying they must enforce federal laws against marijuana, the president has the power to reschedule the drug, which would allow federal authorities to shift resources away from a prohibitive approach.
  • 19 Former Alaska Gov. Sarah Palin (R)
    AP
  • Palin spoke out on marijuana in 2010, saying she didn't support legalizing it but also calling it a "minimal problem" for the nation.

    "However, I think we need to prioritize our law enforcement efforts," Palin said. "If somebody's gonna smoke a joint in their house and not do anybody any harm, then perhaps there are other things our cops should be looking at to engage in and try to clean up some of the other problems we have in society." While Obama has spoken repeatedly about not being interested in prosecuting small-time marijuana users, he hasn't done anything to prevent them from being busted by law enforcement in states where the drug is still illegal.
  • 20 Comedian Jimmy Kimmel
    Getty Images
  • Kimmel notably took a shot at Obama while serving as host of the 2012 White House Correspondents Dinner, questioning a continued marijuana crackdown under the president's administration. He then went on to say that the issue of its continued illegality was a serious political concern for many Americans.

    (Check out the video above.)
  • 21 Former President Jimmy Carter
    Getty Images
  • Carter hasn't minced words in expressing his opposition to harsh marijuana and drug prohibition policies.

    In 2012, the former president said he was fine with state legalization efforts, though he himself doesn't necessary support legalizing the drug.

    “As president 35 years ago I called for decriminalizing -- but not legalizing -- the possession of marijuana,” Carter said. “Since then, U.S. drug policies have been very horrible to our own country because of an explosion in prison populations.”
  • 22 Former Virginia Attorney General Ken Cuccinelli
    AP
  • A staunch conservative who failed in a run for the U.S. Senate last year, Cuccinelli suggested in 2013 that he was "evolving" on marijuana legalization, and that he supported the rights of states to determine their own pot laws.

    "I don't have a problem with states experimenting with this sort of thing I think that's the role of states," Cuccinelli said, according to Ryan Nobles of WWBT.
  • 23 Columnist Dan Savage
    AP
  • Savage slammed Obama for perpetuating the war on drugs while on HBO's "Real Time With Bill Maher" in 2009.

    “The proof will be in the policy. The war on drugs has gotten a really bad rap, when you ask people if they support the war on drugs they say no ... [Obama's] budget once again has the same old drug warrior policy ... I reject the assumption that everybody who is using drugs needs treatment or is an addict and needs to get arrested ... Not all drug use is abuse.”

    He's kept up the fight for drug policy reform since.

    [H/T Marijuana Majority]
  • 24 MSNBC's Al Sharpton
    Getty Images
  • Sharpton has repeatedly spoken out in favor of reforming drug laws. In 2011, he suggested that the nation had wasted trillions of dollars in an ill-fated effort that had weighed particularly heavily on the African American community.

    “We've been fighting the war on drugs since the '60s. And guess what? Trillions of dollars later, we are losing," Sharpton said during a segment on MSNBC. "When you look at the disparities in sentencing drug offenders, hasn't this kind of injustice undermined the legitimacy of our criminal justice system?”

    [H/T Marijuana Majority]
  • 25 Former Rep. Tom Tancredo (R-Colo.)
    AP
  • Tancredo came out aggressively in favor of reforming marijuana laws in 2010, telling the Colorado Independent that the correct path forward was "Legalize it. Regulate it. Tax it."

    Tancredo continued, “The arguments against marijuana today are the same as the arguments against liquor years ago.”

    Years later, the former congressman agreed to smoke pot on camera with a documentary filmmaker, a deal that he later backed out of.

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