Colorado Gov. Proposes 50% Cannabis Tax Increase
Colorado has made headlines nationwide for its rapid accumulation of cannabis tax revenue. But the state’s governor has announced his intention to implement a tax increase that some experts say may be too steep, sending consumers (and less scrupulous providers) to the illicit market.
Just one year after Colorado lawmakers approved a tax cut on cannabis, the state’s Governor, John Hickenlooper, has proposed a 50% increase on the forthcoming tax rate to fill holes in the education budget.
The current tax on cannabis includes the 2.9-percent sales tax on all goods in the state and the Marijuana Sales Tax, which presently stands at 10-percent. A two-percent decrease was authorized by lawmakers last year, which will put the tax at eight-percent in the near future.
A 12.9-percent tax rate on cannabis means customers pay $25.80 in taxes on the purchase of a $200 ounce, which does not include the state excise tax of 15% that’s already been factored into the product price at the point of sale.
The tax is part of the state’s plan to address a $135.1 million reduction in property taxes triggered by the “Gallagher amendment” in the Colorado Constitution. The tax would provide an additional $42 Million to Colorado public schools, but the state would still need to find a way to address the nearly $100 million shortfall.
According to the Colorado Department of Revenue, which produces a bi-annual number of what the the market price is looking like, the current price of a pound of processed marijuana is $1,471. The current excise tax on a pound sold at that rate is about $220 — or would be.
Unfortunately for Colorado, when they forced vertical integration on the industry they lost that excise tax, which was essentially a transfer tax. Now much of Colorado’s Cannabis is no longer being transferred anywhere.
PHOTO GRACIE MALLEY FOR CANNABIS NOW
To account for this, producers are expected to pay the excise tax based on the market price per gram. For the current six-month period in Colorado the excise tax is 49 cents per gram.
We reached out to NORML Founder & Legal Counsel, Keith Stroup, to get his take on the proposal by Hickenlooper.
Stroup doesn’t claim to be a tax expert, but he said one of the main reasons for regulating marijuana was eliminating the black market, and that states attempting to take more than their fair share in revenue could be detrimental to that goal.
“To the extent that a state looks at marijuana legalization as a limitless stream of revenue, and continues to increase the taxes placed on marijuana, it allows room for the black market to thrive, offering cheaper, untaxed version of the product,” Stroup said. “We should be careful to avoid the situation in New York and a few other states with highly-taxed tobacco, and a thriving black market in out-of-state tobacco.”
According to Business Insider, 58% of all the cigarettes in New York City are said to have originated in the black market.
Many policy experts have publicly said that states should move away from taxing cannabis based on its price per unit.
One of those experts is Pat Oglesby, a former Hill staffer and tax-expert who served on the California panel with Gavin Newsom prior to the passage of The Adult Use of Marijuana Act.
He said the infrastructure requirements of doing a per unit tax like weigh stations would easily dissuade lawmakers from going that way early on, especially during the early price bumps in places like Colorado and Washington before the market developed an adequate supply.
“It’s natural to do what seems the simplest — it’s so easy to slap on a pricetax,” Oglesby said, but added that his experience on the California’s Blue RibbonCommission had shown him that instinct is not to be trusted. “The Commission did a good job of spotting the issues in advance: price based taxes are going to erode. It still makes sense to have those, at least at first. But to have a system with a sales tax and producer tax that are reasonable enough to the point where product doesn’t slip through the tax,”
Oglesby noted the market can bear a higher tax when the producer price goes down and that eventually the price the will be so low that the costs of staying in the black market won’t be feasible for those producers.
“We clearly mentioned the issue that taxes can go up over time. They should be the lowest at the start,” he said. “The legal market is dealing with start up costs but the black market is still firmly entrenched.
Dr. Amanda Reiman, Manager of Marijuana Law and Policy at Drug Policy Alliance, echoed many of Oglesby’s insights.
“There is a price at which taxes are high and people are using less but the illicit market booms, and a price at which taxes are too low and consumption becomes reckless,” Reiman said. “Politicians and others are used to embracing taxes as a justification for legalizing sins like drinking and smoking and tend to overtax rather than under tax; illicit markets don’t really concern them as much as making money does.”
She added that over-consumption doesn’t present the same issues with cannabis as is does for other legalized “sins” squeezed for revenue.
“Over-taxation of cannabis is a real issue because, one, we don’t need high prices to keep people from using too much because the risks are not the same as other highly taxed commodities,” Reiman said. “And two, revenue has been a huge selling point for legalization, so politicians who supported it feel pressure to show a windfall.”
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