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Recreational Tax Revenues Should Subsidize Medical Cannabis Users

A tax revenue graphic shows how much money is coming in from legal states.

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Recreational Tax Revenues Should Subsidize Medical Cannabis Users

If we legalize recreational cannabis, in any jurisdiction, at what rate will it be taxed?  How will these new dollars be used?  Each state contemplating legalization of recreational cannabis faces this question, and faces a unique opportunity to develop regulations that ensure the needs of its populace are being met.

Already, different policies are being implemented from one jurisdiction to the next.

In Colorado, medical marijuana users pay the state 2.9 percent and any additional local sales tax, whereas recreational users pay an extra 10 percent to the state.  The sales tax revenue goes directly to the state, and local taxes go to local jurisdictions.

In the state of Washington, sales of recreational and medical cannabis are both subject to sales tax.  Medical cannabis is exempted from “the retail sales tax exemption provided for prescription drugs, but only when prescribed as authorized by the laws of this state”.

Because cannabis is a Schedule I controlled substance, cannabis is recommended rather than prescribed.  Additionally, retail sales of recreational cannabis are subject to business and occupation tax; a partial or complete credit towards this tax only is available for medical cannabis sellers. Here, too, sales tax revenue goes directly to the state.

One of the main benefits of legalizing recreational cannabis is the fiscal benefit to the state. I propose that some of the additional taxes collected be redirected and put towards covering medical cannabis costs for those who need but cannot afford it.

Additionally, some dollars need to go to community health, education, research, harm reduction and drug and alcohol rehabilitation programs to help balance the impact of the implementation of recreational cannabis laws.  We do face a challenge in defining these categories of need and affordability, particularly in the context of medical cannabis.

At minimum, using some of the additional revenue created by legalizing recreational cannabis could be routed towards covering sales tax on medical cannabis.  Alternatively, a clinical protocol (based on the ICD-9?) could be implemented alongside subsidization of costs for those who qualify based on participation in low-income government programs or an alternative metric.

In January, Colorado made $2 million in tax revenue from the sales of recreational cannabis. This can only be the tip of the fiscal iceberg for this industry; we must consider where these new dollars will go as we ponder legalization in each jurisdiction.

Do you agree with Alexandra? Should recreational tax revenues subsidize medical users? Tell us in the comments below!

3 Comments

3 Comments

  1. Fact Checker

    February 25, 2015 at 9:27 pm

    Where on earth are you getting your figures from?! Why is the top image portraying the idea that the State of Washington had an annual tax revenue of $580m? They operated from July 1, 2014 to the end of the calendar year accumulating approximately $40m in tax revenue across the industry. The figure above ($580m) is insanely inflated when the forecast would indicate approximately $80m in a years time. I am all for the cause but not for misleading information. If you have a source, I would love to review the paper. Then again, this has probably just been constructed after mis-reading the actual information.

  2. Leigh Hunt

    April 26, 2014 at 4:22 pm

    Good stuff….,good thoughts…..lots of lucrative options on this area of the industry…,,

  3. Stan

    April 26, 2014 at 8:27 am

    Alexandra, this is a great article, but it’s missing one critical point that the states and the federal government fail to include as well: RULE 280E. Under this rule, found at 26 USC 280E, businesses and individuals deriving a profit from the sale, transfer or trade of marijuana are subject to approximately 75% tax, in addition to the state and local taxes. Plus, because marijuana is still listed as Schedule I 280E eliminates most deductions and credits. In Washington the recreational statute that authorizes licensed growers, processors and retailers are subject to a 25% state tax for each point of transfer, then the local tax kicks in. People are being misled. There is no statute of limitations on income tax fraud and there are no misdemeanor tax fraud charges, they are all felonies. So the options are either declare the profits and pay about 110% in tax, or hide the profits and risk prison, fines and seizure of assets.

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