Washington overhauled its recreational marijuana industry’s tax structure on Tuesday in a move that boils down to one thing: the federal government will make less money off the state’s recreational cannabis industry.
Gov. Jay Inslee signed H.B. 2136 on June 30, eliminating the state’s previous three-tiered system that had levied a 25 percent tax on the producer, a 25 percent tax on the processor and a 25 percent tax on the retailer of recreational cannabis. Under the new tax code, the tiers have been consolidated into a single 37 percent excise tax at the point of sale.
Under the old tax system, dispensaries would charge users the 25 percent tax that they had to pay to the state and then the dispensaries still had to pay a federal income tax on the full price they charged the customer, but did not actually gain in revenue.
“It was absolutely imperative to have an update and refresh of the initiative law,” said Rep. Reuven Carlyle, a Democrat who sponsored the measure.
The new cannabis tax regulations, which went into effect on Wednesday, have an excise tax that operates in the same way as a sales tax so that stores don’t need to report the tax as income to the federal government.
“Ongoing evaluation on the impact of meaningful marijuana tax reform for the purpose of stabilizing revenues is crucial to the overall effort of protecting the citizens and resources of this state,” the bill states.
The language of the bill also said that Initiative 502, which legalized recreational marijuana in Washington in 2012, had “a clearly disadvantaged regulated legal market with respect to prices and the ability to compete with the unregulated medical dispensary market and the illicit market.”
However, the new tax law’s effect on pricing remains unclear, as the market adjusts to the new system. Representatives across the cannabis industry supported the tax reform under the assumption that the prices will end up lower.
Brian Smith, the communications director for the Washington State Liquor Control Board, said the initiative reform is “particularly gonna be a benefit to all producers, processors and retailers, considering they were the ones that lobbied for it.”
The reform bill signed Tuesday also allows for looser zoning regulations around cannabis shops. Cities and counties will now be able to vote to allow dispensaries within 100 feet of schools, public parks, libraries, arcades, transit centers and child care centers, when before the limitation was set at 1,000 feet. The bill also bans marijuana clubs, drive-throughs and vending machines.
Even with the passage of the consolidated tax law, other states with legal marijuana still have lower taxes on their cannabis. In Colorado, the recreational marijuana tax laws impose a 15 percent excise tax, as well as a 2.9 percent sales tax, a 10 percent special marijuana sales tax and additional local taxes. In Oregon, legislation for the state’s upcoming legal sales industry has passed and is waiting to be signed into law that would set the statewide tax at only 17 percent, in a move that lawmakers hope will help keep small growers and distributors from being pushed out of the burgeoning economy.
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