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April 08, 2013 08:07 AM UTC

Taxing (The Hell Out Of) Legal Weed

  • 28 Comments
  • by: Colorado Pols
The state gets a cut of the green.
The state gets a cut of the green.

AP's Kristen Wyatt reports via the Durango Herald:

A legislative panel decided Friday that marijuana in Colorado could be taxed at rates above 30 percent. But voters would have to OK the taxes, and some lawmakers fear the state’s tax-skeptical public could reject such high rates.

A House-Senate panel set up to propose marijuana regulations agreed to ask voters to approve a 15 percent excise tax, plus a 15 percent sales tax on the newly legal drug. If the full Legislature agrees, voters would be asked about the taxes in November. Commercial pot sales will begin in January…

Republican Rep. Brian DelGrosso said many who voted to make marijuana legal did so because of the potential taxes it could raise for schools. But he worried that even tax fans could pause at taxes in excess of 30 percent.

…But most of the panel agreed with the tax rates, pointing out that the Legislature could lower them later. The tax measure passed 8-2.

The fact that Rep. Brian DelGrosso is even talking about such a large proposed tax without invoking the Boston Tea Party reveals something very important about the debate over implementation of Amendment 64, passed last year legalizing the recreational possession and sale of marijuana in Colorado. For our part, we have consistently argued for as high a tax on legalized marijuana as can be levied–and it seems likely that voters will indeed approve a hefty tax on legal pot that they would never support for other commercially sold products.

But how much is too much, folks? We don't have a good sense of the answer to that question. As a vice product that has been illegal for many decades, and using the taxation of, for example, tobacco as a guide, one would think that the public would tolerate a tax on pot that doubled the retail price of the product or more. On the other hand, the easily-quantifiable public costs of tobacco use do not cleanly apply in the case of marijuana–at least not yet.

One thing we agree with Rep. DelGrosso on wholeheartedly is that Amendment 64 was approved by voters to produce revenue for the state, in addition to the goals of policy harm reduction and reasonable, enforceable laws. Despite our state's stoner reputation, we'd say many if not a majority of the voters who approved Amendment 64 are not themselves pot smokers. Those are the voters who need to feel confidence in this process.

And they're in this for the money.

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28 thoughts on “Taxing (The Hell Out Of) Legal Weed”

  1. Pols is correct. It is very difficult to estimate what the cost of regulating marijuana will be because there has never been a legal market for the product in the past, except for medical marijuana. The dilemna policy makers face focuses on how much funding will the regulation of marijuana cost . If the public rejects the proposal or if the rate is set too low, the only place to find the general fund dollars to pay for the regulatory scheme to be established in the Colorado Department of Revenue will be by taking funds away from higher education, transportation or both.  Higher education is receiving a $30 million boost this year in the Long Bill but that is nothing compared to the nearly $300 million the budget declined after the Great Recession of 2008.

    Hopefully, whatever proposal the legislature places on the ballot will result in either the right amount or more than enough to fund the regulatory scheme. If its too much revenue, the legislature can reduce the tax rate without a TABOR election. If its too little, the legislature will have to ask the taxpayers to approve another ballot issue in either 2014 or 2015, but in the meantime, the budgets for higher educaiton and transportation will have to make up the difference.

    Its a difficult problem without a clear answer. Here's wishing the legislature well.

  2. Sure, why not inflate the price of legal pot so you push users to continue to purchase it on the black market? That's some good thinking there…

    1. That's what will happen if they add a 30% charge to it.  From what I understand, even before A64 people smoked it recreationally in the state. 

      2. I'm not so sure about that. Right now, med pot is going for ~$200/oz. I don't think those high prices are sustainable (there's a reason that the MMJ industry fought legalization in WA). True competition may not occur until the federal govt legalizes pot, but the barriers to entry are so low (for growing) that it's inevitable that market forces drive down the price. The black market will move to greener pastures (states where it's still illegal), where they can still get top dollar.

         

    2. I don't think that's a logical argument. legal availability is worth something. do you know that a 30% tax would raise the price to unaffordable versus the black market? what is the price of weed on the black market now?

      2. the regular market, buying from your friends, will have a price equal, or just below, what becomes the legal market. There will be more folks growing their own 6 plants

    1. That's as may be, Craig. The point, however, is that there already is a thriving black market in Colorado. Marijuana is easy to come by, and the illegal stuff is as good or better than the meds. Retailers will not have much luck maintaining a profit if they have to compete with homegrown and the black market.

      I have talked with users who won't get a med card, even though they qualify, simply because of the doctors' fee. I don't think they will cough up an extra $60 or $80 bucks an ounce, just to buy it legally.

      Weed tourists, of course, will pay whatever the stores ask…residents of the state?…I really don't bleeve so.

       

    2. I think 30% is excessive enough to actually cause the state to lose tax revenue to the black market. After all, recreational pot smokers already have sources,  very often trusted friends with whom they feel safe and comfortable. It's not as if most people without prescriptions are skulking around meeting up with scary people to score a little weed and would be happy to pay considerably more to avoid the danger.

      For most,  especially boomers and the next gen, there has been ridiculously little danger, either from their sources or due to risk of being caught, for ages. Why switch to pay so much more?  Tax? Yes. 30%? Too much.

      1. BC (and others who may want to chime in), what price do you think pot will eventually settle at?

        And, if it settles at $10/eighth oz., do you think there will still be a thriving black market?

        1. what price do you think pot will eventually settle at?

          That is extremely difficult to guess and will depend,  in large measure, on what the state does in terms of regulation.

        2. If it's not significantly more expensive or if it's less expensive, including tax, than what people are used to spending anyway, it will command enough of the market to be a good source of tax revenue. A specific fugure isn't the point so much as a comparative one. Here's the way I see it.

          I  think a lot of the more mature market would be open to marketing campaigns stressing that the legal product is locally grown, not an import that enriches criminal organizations both here and in foreign countries, and would be interested in supporting the local legal market as long as it wasn't going to cost them an arm and a leg to do so.  Think of the segment of the market that also likes supporting locally sourced food, hybrid or electric cars, green, local and non-chain businesses and who are also casual recreational smokers who might very well prefer more ethically attractive pot.

          I think a lot of the the younger segment of the market, many of whom don't exactly have the lucrative jobs of their dreams these days, will probaby be more strictly price driven and won't switch to an even modestly more expensive legal market.

          The price must be right. The taxes can't be excessive.

  4. 30% only seems high compared with other consumer products (except cigarettes), but given the new regulatory system that needs to be put into place, possibly quite necessary.

    My bet is that with increased commercial (and home) supply, the price will drop considerably, driving out illegal suppliers from out of state (a really good thing).

    The 30% tax will get lost in the wash.

     

  5. It's a really interesting Economics 101 question.  I don't think there's been a huge market of smokers in Colorado who had been going without because of recreational use being illegal.  The "black" market has been more "grey" (diverted MMJ), and short of MJ tourists, I don't think there's going to be a huge uptick in business for all users.  Some "medical" users will slide back and forth based on price sensitivity, and prices will probably come down slightly, but the system has been so easy to game, I don't think there'll be a huge uptick in demand to drop price that much.

    We'll see.

  6. I think they can tax it high and people will pay. There's a large underground market now because people had no choice. But when it's in stores, more and more will go for the convienence of buying legally.

    1. Well people I know who are perfectly comfortable scoring from their very non-scary friends and who have been doing it for decades with no significant fears of getting in any kind of trouble aren't going to pay higher prices to go to a store. Why should they? Most  folks I know never bothered to get scrips either even though they are a graying lot who easily could for one ailment or another. It just isn't a hardship getting some smoke once in a while from a friend you see socially anyway. I think you may be laboring under he delusion that, for most ordinary casual smokers, it involves meeting shady characters on dark dangerous streets with thoughts of a police ambush a constant worry or something. It 's more like dropping by your friend's house to borrow a sander.

       

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