Saturday, January 27, 2018
Last week I spotlighted this article published at the Cannabis Law Report titled "An Introduction To The Internal Revenue Code For Cannabis Businesses." The piece was authored by Chris Nani, a student in my Marijuana Law & Policy seminar last semester, and now available here via the Cannabis Law Report is another part of his taxing treatment. The piece is titled simply "Part II: My Proposed Tax Break," and here is an excerpt:
While there is still federal prohibition, Congress should incentivize current marijuana businesses to perform desirable social policy goals in exchange for tax deductions. Because taxes are so astronomically high for marijuana businesses such as dispensaries, by adding an amendment to § 280E Congress could specifically tailor it to marijuana businesses or include all scheduled I and II drugs. I elected to make it about all scheduled I and II drugs.
Under § 280E, the proposed amendment would read:
“Any scheduled I or II drug business that pays federal income taxes, regardless of its legality, is applicable to deduct from its expenses any activities that meet the following: (i) educational programs that demonstrate health risks and safety procedures for the drug(s) the business is involved with (ii) informational programs that display the short and long-term risks of the drug(s) the business is involved with and (iii) informational programs that educate on how to identify the signs of an overdose and how to properly treat it for the drug(s) the business is involved with.”
Just like any statute, my proposed § 280E amendment is vulnerable to abuse, but hopefully the legislative history would be able to give guidance to the IRS and courts if litigation arose. The social goal aimed at this amendment is public health. By increasing awareness and knowledge of a drug, the user will be able to make better judgment calls and more accurately understand the consequences of their actions.
Now, to fully dissect the language of my proposed amendment. The first sentence applies to any scheduled I or II drug regardless of its legality. This includes drugs such as heroin, LSD, and marijuana along with prescribed drugs such as Adderall, Fentanyl, and OxyContin. All of the drugs listed have side effects and can damage the human body. By educating the public on the health risks and safety procedures for the drug, heroin dealers and marijuana dispensaries both could reduce their federal income taxes. I believe it’s better for a heroin addict to understand the deadliness of the drug and how to properly use it beforehand to help minimize the chance of death. Similarly, for marijuana, dispensaries could receive a deduction while showing consumers how to properly use a bong or smoke a blunt while discussing the health consequences of smoking. It would allow dispensaries to showcase their products and demonstrate any new innovative ways to use marijuana while additionally educating the public on how to properly use a device.
Prior related Post:
January 27, 2018 in Business laws and regulatory issues, Federal Marijuana Laws, Policies and Practices, Medical Marijuana Commentary and Debate, Recreational Marijuana Commentary and Debate, Taxation information and issues | Permalink | Comments (0)
Saturday, January 20, 2018
The title of this post is the title of this new article published at the Cannabis Law Report. I am distinctly proud of this article because it was authored by Chris Nani, a student in my Marijuana Law & Policy seminar last semester. Here is a portion of this piece:
Marijuana-related businesses face an additional hurdle other businesses do not. Congress specifically implemented § 280E to prevent any business trafficking illegal drugs from receiving deductions. 26 U.S.C. §280E. The provision prohibits any deductions or credits to businesses trafficking schedule I or II illegal drugs within the meaning of the Controlled Substances Act of 1970. Marijuana is currently classified as a schedule I drug. Because marijuana-related businesses such as dispensaries or farmers traffic marijuana they either are not applicable for any tax deductions under § 162 or are extremely limited on what they can deduct.
The IRS’ current stance on what marijuana-related businesses can deduct is summarized in Chief Counsel Advice 201504011. It allows for marijuana businesses to deduct some of their cost of goods sold (COGS). The memo allows for deductions under § 471 as long as they comply with § 280E. § 471 allows for the inventoriable cost of any good that can be capitalized to be deductible. 26 U.S.C. § 471. Meaning, raw materials or labor costs are deductible because they are used within a year to create a product. Although the IRS updated the tax code with § 263A to permit additional expenses included under inventoriable cost, the IRS memo prohibits marijuana-related businesses from using § 263A in their calculation of COGS.
Thursday, January 11, 2018
"Study: Legal marijuana could generate more than $132 billion in federal tax revenue and 1 million jobs"
The title of this post is the headline of this notable new piece in the Washington Post. Here is how it gets started:
Legalizing marijuana nationwide would create at least $132 billion in tax revenue and more than a million new jobs across the United States in the next decade, according to a new study.
New Frontier Data, a data analytics firm focused on the cannabis industry, forecasts that if legalized on the federal level, the marijuana industry could create an entirely new tax revenue stream for the government, generating millions of dollars in sales tax and payroll deductions. “When there are budget deficits and the like, everybody wants to know where is there an additional revenue stream, and one of the most logical places is to go after cannabis and cannabis taxes,” said Beau Whitney, a senior economist at New Frontier Data.
The analysis shows that if marijuana were fully legal in all 50 states, it would create at least a combined $131.8 billion in in federal tax revenue between 2017 and 2025. That is based on an estimated 15 percent retail sales tax, payroll tax deductions and business tax revenue.
The federal government would reap $51.7 billion in sales tax from a legal marijuana market between 2017 and 2025, entirely new revenue for a business that remains illegal -- and unable to be taxed -- federally. The business tax rate for the study was calculated at 35 percent. The corporate tax rate was lowered to 21 percent in a sweeping tax bill President Trump signed last month.
“If cannabis businesses were legalized tomorrow and taxed as normal businesses with a standard 35 percent tax rate, cannabis businesses would infuse the U.S. economy with an additional $12.6 billion this year,” said Giadha Aguirre De Carcer, the CEO of New Frontier.
The study also calculates that there would be 782,000 additional jobs nationwide if cannabis were legalized today, a number that would increase to 1.1 million by 2025. That includes workers at all ends of the marijuana supply chain, from farmers to transporters to sellers. The study estimates that about 25 percent of the marijuana market will continue to be illicit, and will shrink if the legal marketplace is not overly taxed or expensive.
January 11, 2018 in History of Marijuana Laws in the United States, Recreational Marijuana Commentary and Debate, Recreational Marijuana Data and Research, Taxation information and issues | Permalink | Comments (0)
Friday, December 15, 2017
The title of this post is the title of this new short paper authored by Pat Oglesby now available via SSRN. Here is the abstract:
Recent federal marijuana tax bills address these questions:
1. What should we tax? What should be the “base” or bases of a cannabis tax? (Possible bases include: price; weight of various product types [like flower, trim, and concentrate]; and THC content.)
2. Given any base, what should the tax rate be?
3. Should medical cannabis bear full tax?
4. Should marijuana advertising and selling expenses become deductible for federal income tax purposes? (That would treat cannabis businesses like other businesses; current Internal Revenue Code section 280E bars such deductions.)
A few of the answers are unsatisfactory for tax policy and drug policy, but some of the answers are forward-looking, going beyond what has been proposed before.
Tuesday, October 31, 2017
Alaska marijuana tax revenues growing, which means more resources to help reduce criminal recidivism
As reported in this new local article, headlined "Alaska cannabis tax revenue tops $700K in September," the Last Frontier is continuing to reach new firsts when it comes to taxes collected from marijuana reform. Here are the details:
Alaska's marijuana tax revenue continued a steady climb upward in September, with $723,757 collected statewide, according to a state official. Sixty-four growers from across the Interior, Southcentral and Southeast paid taxes to the Alaska Department of Revenue last month, wrote Kelly Mazzei, excise tax supervisor in the tax division.
Under Alaska's law, growers pay the tax of $50 an ounce for bud, and $15 an ounce for other parts of the plant, like leaves and stems. A total of 716 pounds of bud was sold wholesale in September, and 630 pounds of trim, according to data provided by Mazzei....
To date, Alaska has collected $3,741,810 in cannabis taxes. Most of it — a full 68 percent — has been paid in cash, Mazzei wrote. Alaska's first marijuana shop opened for business Oct. 29, 2016. Revenue was slow to start, as demand outweighed supply, and retailers struggled to get enough cannabis in their shops to keep their doors open.
In June, revenue nearly doubled after three months of hovering around $250,000. Since then, tax revenue has steadily climbed. Mazzei wrote that October's revenue could top $1 million, a potentially "amazing milestone" for the state. Many local governments have also put additional cannabis sales taxes in place.
Last year, the Alaska Legislature budgeted half of the cannabis tax to programs aimed at reducing repeat criminal offenders. The other half goes into the general fund.
Because I think of marijuana reform as, first and foremost, a form of criminal justice reform, I love the fact that Alaska has decide to commit half of its marijuana tax revenue to improving public safety and its criminal justice system. This article from July 2016, headlined "Here's where half of the revenue from Alaska's legal pot will go," provides these details:
Gov. Bill Walker signed Senate Bill 91, a comprehensive criminal reform bill meant to reduce the state's prison population and its associated costs. Included in the bill is a provision that diverts half of the state's cannabis excise taxes to programs aimed at reducing repeat criminal offenders, under a newly created recidivism reduction fund.
Marijuana will be taxed at $50 an ounce. Based on projected marijuana sales, the state hopes $3 million will go toward the recidivism reduction fund in fiscal year 2017, and $6 million in subsequent years.
The marijuana tax money will be used to fund the Department of Corrections' Substance Abuse Treatment Program, which will receive $700,000, and community residential centers, which will receive $300,000; the Department of Health and Social Services' Behavioral Health Treatment and Recovery Grants, which will receive $1 million; and the Department of Public Safety's Council on Domestic Violence and Sexual Assault, which will also receive $1 million.
Because fiscal year 2017 for Alaska started in July and the first 3 months have already brought in nearly $2 million in taxes and revenue growth is continuing, it would appear Alaska could have even more tax revenue than expected going to these important criminal justice concerns.
October 31, 2017 in Criminal justice developments and reforms, Recreational Marijuana Data and Research, Recreational Marijuana State Laws and Reforms, Taxation information and issues | Permalink | Comments (0)
Tuesday, October 24, 2017
In this prior post, I noted reports on the robust sales and tax revenues generated in Nevada in July, the state's first month of legalized recreational marijuana commerce. This new story, headlined "Nevada recreational marijuana sales reach $33M in August," details that month two saw growth over month one:
Nevada dispensaries sold more than $33 million in recreational marijuana and the state pulled in nearly $5 million in total taxes in August, according to numbers released by the Nevada Department of Taxation Monday. That’s up from the $27 million in sales and $3.7 million in taxes in July, the state’s first month of recreational weed sales.
The recreational sales numbers were significantly ahead of the state’s projected $21.5 million in sales for August. In fact, the state did not project any month in the first year of recreational sales to eclipse $28 million.
Andrew Jolley, CEO of The+Source dispensaries and president of the Nevada Dispensary Association, said those projections will likely prove to be fairly conservative, and expects the market to continue to grow steadily over the next several months. “I think it is a good indication that there was a large, pent-up demand that was being served by the black market,” Jolley said....
State Sen. Tick Segerblom, D-Las Vegas, also known as the godfather of pot in Nevada, said he was initially a little worried that the novelty of legal marijuana could lead to a drop off in the second month of sales. But after talking to the industry, he said it was clear that wasn’t going to be the case for August.
“Obviously there’s a demand,” Segerblom said. And Segerblom said he doesn’t think the sales and tax numbers will level off for at least two years, and pointed to the recent opening of five dispensaries in Henderson.
Segerblom also heaped the praise onto the industry as well as the state regulators for ensuring the market got off to a smooth start. “Everyone’s just been really been working perfectly together,” he said.
Monday, October 16, 2017
I am excited to realize and report that, after spending the first half the current semester preparing various presentations for the students in my Marijuana Law, Policy & Reform seminar, this week begins the part of the class in which students are to begin making presentations to each other. The first of the student presentation planned for this this coming week is exploring "tax liability." Here are the links the presenting student has assembled in preparation for his presentation this coming week:
Relevant Internal Revenue Code Provisions:
Three Short Articles on the Economic Impact of Marijuana
October 16, 2017 in Assembled readings on specific topics, Business laws and regulatory issues, Federal Marijuana Laws, Policies and Practices, Taxation information and issues | Permalink | Comments (0)
Monday, October 9, 2017
Effective use of marijuana reform revenues, in my view, is essential to both the arguments supporting reform and to the sustainability of those arguments over time. For that reason and others, I always find interesting and important any accounting of reform revenues, and this local article from Oregon provides just that. The piece is headlined "Oregon pays out $85 million in pot taxes to school fund, cops, other services," and here are excerpts (with a few comments to follow):
The checks are in the mail. That's the message the Oregon Department of Revenue sent Friday when it announced it will pay out $85 million in marijuana taxes for schools, public health, police and local governments by next week.
The payouts represent the first distributions of state marijuana tax revenues since Oregon opened its legal recreational cannabis market. Oregon collected a total of $108.6 million in state and local taxes between Jan. 4, 2016, and Aug. 31, 2017. The state put $9.56 million toward the Oregon Liquor Control Commission’s “start-up costs” for regulating the industry and toward the Department of Revenue's work to collect the taxes.
The rest was divvied up according to a formula spelled out by law: The state school fund gets 40 percent, or $34 million; mental health, alcoholism and drug services get 20 percent, or $17 million; Oregon State Police get 15 percent, or $12.75 million, and the Oregon Health Authority gets 5 percent, which comes to $4.25 million.
Anthony Johnson, the chief petitioner of Measure 91, which legalized recreational cannabis sales in Oregon, said the amount of tax revenue exceeded supporters’ early projections. He hopes the idea of marijuana taxes flowing into schools and public health and safety spur other states to legalize marijuana, he said. “I am glad to hear that the revenue is finally being distributed,” Johnson said. “This is what the voters intended. It shows that legalizing and regulating cannabis can help generate revenue for important governmental services.”
The largest share goes toward schools. The ballot measure said tax revenue would go to the Common School Fund, an endowment or trust fund of sorts for K-12 schools that makes distributions to districts twice a year. Lawmakers this year voted to move marijuana tax revenue to the State School Fund, which flows directly to school districts for costs such as teachers and textbooks. The fund has a budget of $8.2 billion for the biennium, the vast majority of which is made up of general fund and lottery dollars....
Otto Schell, legislative director for Oregon PTA, said while voters often assume marijuana tax revenue is providing major funding for schools, the reality is that it's among the "tiny fixes" the state has come up with to solve a major problem. To put the amount of pot taxes headed to schools in context, Schell said it's important to keep in mind how much it costs to operate the state's K12 system: roughly $30 million a day. "We keep using Band-Aids to fix something that is a systemic problem and challenge," he said.
A spokesman for the Oregon Health Authority said Friday that marijuana tax revenue will replace general fund dollars spent on existing programs, such as outpatient treatment, housing, transportation and detox. About $1 million will be spent on drug and alcohol abuse prevention, the state’s youth marijuana prevention campaign and drug and alcohol use data collection.....
Local governments may get marijuana tax revenue in two ways: Many levy their own sales tax or they are home to marijuana businesses, making them eligible for a slice of the revenue from the 17 percent state tax on pot sales. Ninety-five Oregon local governments impose a local sales tax of up to 3 percent; the Department of Revenue collects those taxes on behalf of 71 local communities, including Portland.
In the first quarter of this year, the state collected $1.2 million in local sales taxes. Scott Winkels, a lobbyist for the League of Oregon Cities, said pot tax dollars are welcome but dwarfed by revenue generated by local liquor sales. “It’s helpful, don’t get me wrong,” he said. “But we aren’t going to smoke our way to fiscal bliss.”
As this final quote highlights, even though many millions are being raised through marijuana reform, the amounts are still relatively small for a lot of "big ticket" items in the state budget like schools or municipal funding needs. That reality means, for good of for bad, the revenue from marijuana reform with have different impacts and different meaning to different recipients. I think advocates and opponents of reform will be well-advised to take a very close look at how these revenues are being utilized in order to have a refined understanding of some critical echo effects of modern reforms.
Monday, October 2, 2017
The title of this post is the headline of this notable recent AP article, which starts this way:
Scientists. Tax collectors. Typists. Analysts. Lawyers. And more scientists.
Recreational marijuana sales become legal in California in 2018, and one of the things to blossom in the emerging industry isn't green and leafy. It's government jobs.
The state is on a hiring binge to fill what eventually will be hundreds of new government positions by 2019 intended to bring order to the legal pot economy, from keeping watch on what's seeping into streams near cannabis grows to running background checks on storefront sellers who want government licenses. Thousands of additional jobs are expected to be added by local governments.
The swiftly expanding bureaucracy represents just one aspect of the complex challenge faced by California: Come January, the state will unite its longstanding medical cannabis industry with the newly legalized recreational one, creating what will be the United States' largest legal pot economy.
Last January, just 11 full-time workers were part of what's now known as the Bureau of Cannabis Control, the state's chief regulatory agency overseeing the pot market. Now, it's more than doubled, and by February the agency expects to have more than 100 staffers. The agency is moving into new offices later this year, having outgrown its original quarters. It's expected new satellite offices will eventually spread around the state.
There also will be scores of jobs added to issue licenses for sellers, growers, truck drivers, manufacturers and others working in the projected $7 billion industry. The state has taken to Facebook to lure applicants. The bureau is using a video snippet of actor Jim Carrey, hammering his fingers into a computer keyboard, to catch the eye of prospective applicants online. "Get those applications in ... before this guy beats you to it," it reads. "New job just ahead," reads another post. "We're hiring."
This year's state budget contained about $100 million to fund regulatory programs for marijuana, which includes personnel to review and issue licenses, watch over environmental conditions and carry out enforcement.
Planned hiring into 2018 covers a range of state agencies: Fifty people are bound for the Public Health Department, 65 are slated to join the Water Resources Control Board, and 60 new employees are expected at the Food and Agriculture Department, which will oversee licensing for cultivators.
Some of the work is highly specialized. Environmental scientists will be responsible for developing standards for pot grows near streams, to make sure fertilizer or pesticides do not taint the water or harm fish. An engineer will monitor groundwater and water being diverted to nourish plants. Lawyers are needed to help sort out complex issues involving the state's maze of environmental laws.
Pay varies with position but can be attractive, with some scientist posts paying over $100,000 annually. Special investigators with the Consumer Affairs Department could earn in the $80,000 range.
Though not mentioned in this article, most states have funding government jobs in the marijuana arena through the fees and taxes that the marijuana industry produces for state coffers. In a black marketplace, of course, there are no fees and taxes going to the government, though taxpayers are still paying for the costs of trying to enforce prohibition -- which, ironically, largely serves to drive up the tax-free profits that black market participants can secure. With legalization and regulation, the monies paid by marijuana consumers gets channeled to fund state regulatory jobs that should help ensure the consumer gets a safer product at a lower cost. From an economic perspective, it should be a win-win if all goes well (though all does not always go well, and there are other obvious concerns such as public health).
October 2, 2017 in Business laws and regulatory issues, Employment and labor law issues, Recreational Marijuana Commentary and Debate, Recreational Marijuana State Laws and Reforms, Taxation information and issues , Who decides | Permalink | Comments (1)
Friday, September 29, 2017
The title of this post is the headline of this local article reporting that "Nevada dispensaries raked in more than $27 million during the first month of recreational marijuana sales, generating more than $3.6 million in taxes, according to figures released Thursday by the Nevada Department of Taxation." Here is more:
How does that stack up against the other states with legal marijuana? It’s nearly double. Colorado and Oregon each sold about $14 million in marijuana during their respective first months of sales. Washington sold $3.8 million in its first month.
“We came out of the gate like a shotgun,” said Matt Morgan, CEO of Reef Dispensaries. Morgan said that, even three months into recreational sales, Reef’s dispensary located behind the Fashion Show Mall has a line inside the store at nearly all times and outside about 40 percent of the time.
Nevada’s market will only grow, he said. “I still don’t think everyone understands that it’s recreational in Nevada yet,” Morgan said.
For Nevada, $2.7 million in tax revenue came from the 10 percent special excise tax on recreational marijuana, all of which is destined for the state’s rainy day fund. That falls right in line with Nevada’s marijuana sales estimates even though there were no state projections for July because of uncertainty about when stores would begin sales. State officials have projected that special sales tax will generate $63.5 million over the first two years of sales....
Tax Department spokeswoman Stephanie Klapstein said the state expects that excise tax to grow over the next two years as more cultivators get licensed and begin to operate. The state has also pulled in $6.5 million for marijuana license and application fees. Those revenues will be used to cover the administrative costs to regulate the industry for the Tax Department and local governments, and all remaining funds go to the state’s public education fund.
Recreational sales started on July 1, and the state has issued 250 recreational marijuana licenses thus far, 53 of those to dispensaries.
Sunday, June 25, 2017
"The Golden State's ‘High’ Expectations: Will California Realize the Fiscal Benefits of Cannabis Legalization?"
The title of this post is the title of this notable new paper authored by George Theofanis now available via SSRN. Here is the abstract:
The federal government has been taking an increasingly relaxed approach to enforcing marijuana laws, allowing states that have legalized to realize the tax benefits of lawful marijuana. California is now seeking to realize those same benefits. In 2016, California voters legalized recreational marijuana with the passing of Proposition 64 (Prop. 64), also known as the Adult Use of Marijuana Act (AUMA).
With the country’s highest population and largest economy, California’s impact on the marijuana industry is expected to be massive. Some are predicting that California’s marijuana market will generate $1 billion in tax revenue alone. Nonetheless, successfully generating revenue from the recreational market largely depends on several unknowable and unpredictable variables. For example, high prices when legal sales begin could polarize consumers toward the illicit market and stall industry growth. On the other hand, low prices could undercut a state’s revenue goals. In addition, even with the general success of the recreational markets in Colorado and Washington, the unique circumstance’s present in California make revenue projections unpredictable. Complicating matters more, marijuana’s illegal status under federal law also has the potential to slow down market growth and decrease revenue, depending on unpredictable circumstances. Accordingly, a sound cannabis tax scheme must take these and other uncertainties into account.
This Article focuses on how a tax regime that strives for short term gains will be more susceptible to the unstable conditions of the market. It explores how California is able to minimize financial risk in the recreational market while facilitating its growth. This Article argues that California should adopt several mechanisms for adjusting the marijuana tax rate, as recommended in the Rand report, because the current tax scheme is too aspiring and will result in slower market growth over time. For instance, by scheduling future tax rate increases and exploiting untapped tax bases, California can cash in long-term without overburdening the market in its infancy. Indeed, a tax scheme that focuses on a short rate of return rather than long term gain will fail to optimize cannabis tax revenue. The marijuana industry will continue to develop in unpredictable ways, making flexibility to change important to the overall success of any marijuana tax regime. By minimizing risk and facilitating market growth, California can seek to become the golden standard of the cannabis industry.
June 25, 2017 in Business laws and regulatory issues, Initiative reforms in states, Recreational Marijuana Commentary and Debate, Recreational Marijuana State Laws and Reforms, Taxation information and issues | Permalink | Comments (1)
Thursday, June 22, 2017
The title of this post is the title of this terrific (and lengthy) article in National Affairs authored by Jonathan Caulkins. Every serious student of marijuana reform ought to read the whole piece, and here are excerpts that highlight just a fee of the many astute observations herein:
The concern with cheap marijuana is not that tens of millions more Americans might smoke marijuana once or twice a week. That would not matter much, because occasional use is, by and large, not terribly harmful. Rather, the concern is that millions more would become habitual users. Over the last decade or so of liberalizing policy, the number of people who report using marijuana at some point within the past year has increased moderately, but the number reporting heavy use has soared. In 1992, fewer than one million Americans self-reported daily or near-daily use of marijuana; by 2014, the figure had ballooned to 7.8 million. Half of the marijuana used in the U.S. is consumed by people who spend more than half their waking hours intoxicated.
Whatever one thinks about the long-term consequences of chronic heavy use, acute marijuana intoxication can interfere with the ability to perform useful and even necessary tasks. Marijuana is not a cognitive-performance enhancer. And while we welcome low prices for most consumer goods — if health care and rent were cheap, it would make life a lot easier for most people — that approach may not apply to "temptation goods." Suppose people could buy essentially unlimited candy and desserts for 50 cents a day. Would that be a good thing? Maybe not. Lots of Americans already struggle with their weight, and consumption tends to go up when prices fall.
Libertarians may want prices to be as low as possible even for temptation goods. But the internalities argument goes as follows: Marijuana is a dependence-inducing intoxicant that leads many users to systematically make bad decisions that harm themselves as well as third parties; more than four million Americans report suffering enough problems with chronic marijuana use to meet clinical criteria for a substance-use disorder.
Chronic drug use involves repeatedly ingesting chemicals that bind to one's neuro-receptors — literally altering the brain in ways that are visible in brain scans. Changes in the brain's reward circuitry can compromise the neural system that normally helps rational actors successfully negotiate free markets. Even if each dose considered on its own seems appealing, regular drug consumption can leave long-term users regretful. The phrase "drugs hijack the brain" is sensationalistic, but not altogether wrong. So there is nothing illogical about adopting a libertarian perspective toward conventional consumer goods but making an exception for temptation goods, particularly for artificially introduced neurotransmitters and their chemical cousins.
To be sure, taxing to protect the minority for whom cheap marijuana would trigger habitual use is paternalistic, and it sacrifices the interests of the majority whose use would not create such problems. But the sacrifice would not be large: A $5-per-gram tax would cost someone who smokes a half-gram joint every weekend only $125 a year. Furthermore, the taxes would not actually increase out-of-pocket costs, but merely lessen the decline in price that would inevitably accompany federal legalization. So even with high taxes, legalization would still save marijuana users money.
June 22, 2017 in Federal Marijuana Laws, Policies and Practices, History of Marijuana Laws in the United States, Recreational Marijuana Commentary and Debate, Taxation information and issues , Who decides | Permalink | Comments (1)
Thursday, May 11, 2017
In a post last month, I asked "Is the Trump Administration driving a 2017 spike in Colorado marijuana sales?" based on data showing increased marijuana sales in Colorado the first two months of this year. Now, via this new Cannabist piece, headlined "Colorado marijuana sales top $131M, set record in March 2017," we have additional data on ever-increasing sales, though there is no way to tell from basic sales data if the market is experiencing general growth or if folks in Colorado may be stocking up on marijuana in light of uncertainty concerning federal marijuana policies under a new administration. Speculations about reasons aside, here are the basic sales details along with some perspectives via The Cannabist:
The Colorado cannabis industry’s unbridled growth hasn’t waned — in fact, it’s still setting records. The state’s licensed marijuana shops captured nearly $132 million of recreational and medical cannabis sales in March, according to The Cannabist’s extrapolations of state sales tax data made public Tuesday.
The monthly sales haul of $131.7 million sets a new record for Colorado’s relatively young legal marijuana industry, besting the previous high of $127.8 million set last September, The Cannabist’s calculations show. It’s the tenth consecutive month that sales have topped $100 million.
Sales tax revenue generated for the state during March was $22.9 million, according to the Colorado Department of Revenue. March’s sales totals were 48 percent higher than those tallied in March 2016, according to The Cannabist’s calculations. The month closes out a quarter in which sales were up nearly 36 percent from the first three months of last year.
In 2016, the year-over-year quarterly growth rate ranged between 29 percent and 39.6 percent. The Cannabist also found that March 2017’s year-over-year percentage growth outpaced much of what was seen on a monthly basis last year. Monthly growth rates from calendar year 2015 to 2016 averaged nearly 34 percent.
It was this continued rate of growth that caught the attention of some analysts and economists contacted by The Cannabist. Andrew Livingston, director of economics and research for cannabis law firm Vicente Sederberg, separately calculated out the year-over-year monthly growth rate for Colorado cannabis sales and saw a trend emerge.
“The year-over-year rates of growth have continued at a steady pace, which to me indicates that we have not yet reached the point at which we are starting to cap out the market,” he said. At that point, he added, the growth rates would start to decline.
If the current growth rates keeps up, April 2017 should be another record month, and the summer of 2017 should set new highs, Livingston predicted. And by the end of the year, that could add up to an industry boasting $1.6 billion in sales, he said.
“We’re surprised that sales continue to grow so quickly,” said Miles Light, an economist with the Marijuana Policy Group, a Denver-based financial, policy, research and consulting firm focused on the marijuana industry. “We are not surprised that almost all of the sales growth is in the retail marijuana space.” Adult-use sales, which hit a new monthly high of $93.3 million, accounted for the lion’s share of the March totals. Medical cannabis transactions totaled $38.4 million.
Light and other economists have previously projected that Colorado’s marijuana market would eventually hit a ceiling as the draw from the black market becomes more complete, regular economic cycles take hold and other states implement adult-use sales. It’s hard to predict when that plateau may occur, but the license and application fees in the March 2017 report were telling, Light said.
Ten months into Colorado’s fiscal year (the latest report for March sales show tax revenue remitted in April), the license and application fees for medical marijuana businesses and retail marijuana businesses were down 25.4 percent and 8.5 percent, respectively, according to the Colorado Department of Revenue report. “This shows that fewer new firms are entering and, I believe, shows that … sales should be tapering off or declining,” he said.
Whatever the particular reasons for the strong and steady sales growth in Colorado, there numbers seem certain to keep investors and other business players "bullish" on the marijuana industry at least for the time being. And such business bullishness will likely continue to fuel various efforts in various jurisdictions to continue moving forward with or expand the reach of marijuana reform.
Prior related post:
May 11, 2017 in Business laws and regulatory issues, Medical Marijuana Data and Research, Medical Marijuana State Laws and Reforms, Recreational Marijuana Data and Research, Recreational Marijuana State Laws and Reforms, Taxation information and issues | Permalink | Comments (0)
Monday, May 1, 2017
The Colorado Springs Gazette, which has tended to take a skeptical/critical perspective on marijuana reform in Colorado, has this big new series of big new articles under the banner "State of Marijuana." Here are the headlines and links:
May 1, 2017 in Business laws and regulatory issues, Criminal justice developments and reforms, History of Marijuana Laws in the United States, Recreational Marijuana Commentary and Debate, Recreational Marijuana State Laws and Reforms, Taxation information and issues | Permalink | Comments (0)
Monday, March 20, 2017
As noted in recent posts, my Marijuana Law, Policy & Reform seminar students, after a well-deserved Spring Break, are hearing presentations this week about marijuana reform's intersection with immigration (background here) and education (background here). If these presentations (or other realities) end up inspiring my students to want to get into the marijuana industry in the Buckeye State, a third student presentation this week has them covered. Specifically, a student this coming week is presenting on "advising a marijuana dispensary in Ohio," and here are the materials this student has assembled for the planned presentation:
Article discussing 501(C)(4) tax emption (webpage includes link to a law review article for those interested)
Posting on taxation of marijuana dispensaries (includes text of 280E as well as a link to the IRS memo regarding taxation, Memo 201504011, for further optional reading)
---- For further reading on the taxation issue: "Tax Planning for Marijuana Dealers"
Memo summarizing Ohio dispensary rules (with changes after comment period)
---- For further reading, check out the “Dispensary Rules” section of OMMCP website
For more information (not Ohio specific) about industry activity as cultivator or processor and for more general business advice, see "Marijuana Business: How to Open and Successfully Run a Marijuana Dispensary and Grow Facility" (free on Amazon’s Kindle unlimited)
Monday, March 6, 2017
Pennsylvania's Auditor General suggests marijuana legalization could help state close budget deficit
A notable bean-counter is making a notable case for marijuana reform in the Keystone State. This official press release, headlined "Auditor General DePasquale Recommends Regulating, Taxing Marijuana as Right Move to Help Deal with Critical Issues: Result would bring in revenue, create jobs, reduce corrections costs," explains:
Auditor General Eugene DePasquale said today Pennsylvania should strongly consider regulating and taxing marijuana to benefit from a booming industry expected to be worth $20 billion and employ more than 280,000 in the next decade. “The regulation and taxation of the marijuana train has rumbled out of the station, and it is time to add a stop in the Commonwealth of Pennsylvania,” DePasquale said during a news conference at the state capitol.
“I make this recommendation because it is a more sane policy to deal with a critical issue facing the state. Other states are already taking advantage of the opportunity for massive job creation and savings from reduced arrests and criminal prosecutions. In addition, it would generate hundreds of millions of dollars each year that could help tackle Pennsylvania’s budget problems.”...
In 2012, Colorado voters approved legalizing, regulating and taxing marijuana. Last year, Colorado – which has less than half the population of Pennsylvania – brought in $129 million in tax revenue on $1 billion in marijuana sales from the new industry that had already created an estimated 18,000 jobs. “The revenue that could be generated would help address Pennsylvania’s revenue and spending issue. But there is more to this than simply tax dollars and jobs,” DePasquale said. “There is also social impact, specifically related to arrests, and the personal, emotional, and financial devastation that may result from such arrests.”
In Colorado’s experience, after regulation and taxation of marijuana, the total number of marijuana arrests decreased by nearly half between 2012 and 2014, from nearly 13,000 arrests to 7,000 arrests. Marijuana possession arrests, which make up the majority of all marijuana arrests, were nearly cut in half, down 47 percent, and marijuana sales arrests decreased by 24 percent. “All told, this decrease in arrest numbers represent thousands of people who would otherwise have blemished records that could prevent them from obtaining future employment or even housing,” DePasquale said. “Decriminalization also generates millions in savings from fewer arrests and prosecutions.”
DePasquale said Pennsylvania has already benefited by some cities decriminalizing marijuana. In Philadelphia, marijuana arrests went from 2,843 in 2014 to 969 in 2016. Based on a recent study, the RAND Corporation estimated the cost for each marijuana arrest and prosecution is approximately $2,200. Using those figures, that’s a savings of more than $4.1 million in one Pennsylvania city. Last year, York, Dauphin, Chester, Delaware, Bucks and Montgomery counties each had more arrests for small amounts of marijuana than Philadelphia. Those counties had between 800 and 1,400 arrests in 2015.
“Obviously, regulation and taxation of marijuana is not something that should be entered into lightly,” DePasquale said. “Should Pennsylvania join the growing number of states benefiting financially and socially from the taxation and regulation of marijuana; there are many things to consider, including details about age limits, regulatory oversight, licensing, grow policies, sale and use locations, and possession limitations.
“As I said earlier, the train has indeed left the station on the regulation and taxation of marijuana,” DePasquale said. “It is time for this commonwealth to seriously consider this opportunity to generate hundreds of millions of dollars in new revenue.”
March 6, 2017 in Business laws and regulatory issues, Criminal justice developments and reforms, Political perspective on reforms, Recreational Marijuana Commentary and Debate, Recreational Marijuana Data and Research, Recreational Marijuana State Laws and Reforms, Taxation information and issues , Who decides | Permalink | Comments (0)
Friday, February 10, 2017
This article from the Cannabist, headlined "Colorado sold $1.3 billion worth of marijuana in 2016," report on the latest notable sales numbers for the first state to have legalize recreational marijuana stores. Here are the details:
It’s a billion-dollar business — and then some. In 2016, Colorado’s dispensaries bagged $1.3 billion in recreational and medical cannabis sales, based on Colorado Department of Revenue tax data released Thursday.
To put the state’s third year of regulated recreational marijuana sales in perspective, Year One totaled $699.2 million (combined with medical sales) and Year Two jumped up to $996.2 million. The trend should continue in Year Four, but beyond that? It’s a murkier proposition.
“Colorado has had a really good run, being the first mover,” said Miles Light, an economist with the Marijuana Policy Group, which provides economic and market consulting services to legal cannabis markets. “Now, as other states legalize, some of these external benefits that are occurring are going to be eroded.”...
2016 was the year in which the $100-million-month became a baseline and heralded a record-breaking summer: The combined sales for July, August and September were $376.6 million. Monthly sales topped $100 million in eight of the 12 months. In December, which is typically a strong month for cannabis transactions, pot shops’ sales were a little more than $114.7 million, a 13 percent increase from the $101.3 million recorded in December 2015....
The Colorado Department of Revenue’s tax data don’t provide information about transactions, so it’s difficult to know the impact of price declines on the overall sales totals. The data do show that recreational marijuana accounted for an $875 million share of that haul while medical sales accounted for roughly $438 million.
They also show that Colorado brought in about $199 million in tax and fees revenue for the calendar year. Marijuana tax revenue is put toward areas such as school construction projects, public health and law enforcement.
It’s the visitor demand that drives a lot of this incremental growth in Colorado’s marijuana industry, Light said. That includes the tourist who buys an eighth for a ski trip here and that’s also the visitors who come into the state to purchase product to illegally supply to other markets, he said. The Denver Post reported in January that research commissioned by the Colorado Tourism Office found interest in legal weed waning among visitors. “2016 represented a return to the more usual Colorado traveler,” tourism director Cathy Ritter said.
February 10, 2017 in History of Marijuana Laws in the United States, Medical Marijuana Data and Research, Recreational Marijuana Data and Research, Taxation information and issues | Permalink | Comments (0)
Saturday, December 17, 2016
The question in the title of this post is my reaction to this recent Denver Post article headlined "Colorado researchers receive $2.35M to study marijuana use on driving, other impacts of legalization." Here are details:
In a groundbreaking effort to better understand what, exactly, happened after voters legalized recreational marijuana in Colorado, the state’s Health Department on Tuesday announced $2.35 million in grants to researchers who will help answer that question.
Most of the money — $1.68 million — will go toward two studies that look at the impacts of marijuana use on driving. The first will compare driving impairment for heavy marijuana consumers versus occasional consumers. The other will study dabbing — the smoking of highly potent marijuana extracts — to determine its effects on driving and cognitive functioning.
Other studies receiving grant funding will look at how long marijuana stays in the breast milk of nursing mothers, the adverse effects of edible cannabis products, the cardiovascular risks of marijuana use in people with heart problems, the impact of marijuana use on older adults and, lastly, an “analysis of data from before and after implementation of recreational marijuana in Colorado,” by a psychology professor specializing in addiction counseling at Colorado State University.
“This research will be invaluable in Colorado and across the country,” Dr. Larry Wolk, the executive director of the Colorado Department of Public Health and Environment, said in a statement. “The findings will inform our public education efforts and give people additional information they need to make decisions about marijuana use.”
The Health Department previously spent $9 million as part of a historic effort to fund the study of medical marijuana by a state government. Those research projects are still ongoing. Earlier this year, the state legislature approved funding for the new grants to study recreational marijuana. The Health Department received 58 preliminary applications, which were winnowed to a pool of 16 from which the final seven recipients were selected.
I am pleased to see that Colorado continues to invest substantial amounts into medical and recreational marijuana research, and the roughly $11.5 million spent to date is nothing to scoff at. Nevertheless, this article reports that Colorado "collected more than $135 million in marijuana taxes and fees in 2015," and increased sales data in 2016 would suggest that the state is on pace to collect at least another $165 million or more this year. Consequently, the tax monies raised in Colorado from marijuana reform in Colorado being "reinvested" in needed research is only about 4%.
Though my biases as a researcher is showing through, I think reinvesting only 4% of tax revenues into needed research is woefully inadequate given all the important and unanswered questions raised by marijuana reforms in Colorado. Though picking out numbers here, I think at this still-very-early stage of state-level marijuana reforms that states ought to be seriously considering putting 10% or more of revenues raised back into public health and public policy research on the impact of state-level reforms.
December 17, 2016 in History of Marijuana Laws in the United States, Medical Marijuana Data and Research, Recreational Marijuana Commentary and Debate, Recreational Marijuana Data and Research, Taxation information and issues | Permalink | Comments (0)
Tuesday, December 13, 2016
As this local article details, during "the first 10 months of 2016, Colorado marijuana shops reached a significant milestone they had barely missed in all of 2015: $1 billion in legal, regulated cannabis sales." Here is more:
When 2015’s year-end marijuana tax data was finally released in February, Cannabist calculations showed $996,184,788 in sales at Colorado marijuana shops that year — spurring a leading industry attorney to tell us at the time, “I think it’s ethical to round that up to a billion.”
That same lawyer, Vicente Sederberg partner Christian Sederberg, celebrated the billion-dollar news on Monday by also pointing to the Colorado cannabis industry’s increasing economic impact and skyrocketing tax revenues for the state as well as numerous cities and counties throughout Colorado.
“We think we’ll see $1.3 billion in sales revenue this year,” said Sederberg, “and so the economic impact of this industry — if we’re using the same multiplier from the Marijuana Policy Group’s recent report, which is totally reasonable — it suddenly eclipses a $3 billion economic impact for 2016.”
Nearly $82.8 million of retail cannabis and more than $35 million of medical pot was peddled at Colorado shops in October 2016; The totals are down from September 2016, when marijuana sales hit an all-time high in Colorado — but October’s sales are cumulatively up year over year by more than 46 percent.
Sederberg and his colleague Andrew Livingston, the law firm’s director of economics and research, also estimate that 2016’s overall tax totals will amount to more than 2014 and 2015 tax totals combined, “and that’s a conservative estimate,” Sederberg added.
Depending on November and December’s forthcoming pot tax totals, that scenario is possible. Not accounting for licensing fees imposed on cannabis businesses, $63.4 million in marijuana taxes were collected by the state in 2014 along with another $120.6 million in 2015. Since 2016 taxes through October sit at $151.4 million, each of the year’s final two months would have to top $16.3 million apiece to best the two previous years’ totals combined. Either way, it’s going to be close.
There are three different taxes on Colorado’s recreational cannabis — the standard 2.9 percent state sales tax, a special 10 percent sales tax and a 15 percent excise tax on wholesale transfers, which is earmarked for school construction projects. The $6 million collected in October excise tax brings the yearly total to $49.7 million — already well over the $40 million mark, which was a point of discussion in 2012’s Amendment 64 campaign. While the first $40 million will go toward school construction projects, any additional tax revenues from the excise tax will go directly to the state’s public school fund.
December 13, 2016 in Business laws and regulatory issues, Recreational Marijuana Commentary and Debate, Recreational Marijuana Data and Research, Taxation information and issues | Permalink | Comments (0)
Monday, November 7, 2016
The title of this post is the title of this recent report produced by the Marijuana Policy Group, which describes itself as a "non-affiliated entity dedicated to new market policy and analysis [seeking] to apply research methods rooted in economic theory and statistical applications to inform regulatory policy decisions in the rapidly growing legal medical and recreational marijuana markets." Here is part of the report's synopsis:
The Marijuana Policy Group (MPG) has constructed a new model that accurately integrates the legal marijuana industry into Colorado’s overall economy. It is called the “Marijuana Impact Model.”
Using this model, the MPG finds that legal marijuana activities generated $2.39 billion in state output, and created 18,005 new FullTime-Equivalent (FTE) positions in 2015. Because the industry is wholly confined within Colorado, spending on marijuana creates more output and employment per dollar spent than 90 percent of Colorado industries....
Legal marijuana demand is projected to grow by 11.3 percent per year through 2020. This growth is driven by a demand shift away from the black market and by cannabis-specific visitor demand. By 2020, the regulated market in Colorado will become saturated. Total sales value will peak near $1.52 billion dollars, and state demand will be 215.7 metric tons of flower equivalents by 2020. Market values are diminished somewhat by declining prices and “low-cost, high-THC” products.
In 2015, marijuana was the second largest excise revenue source, with $121 million in combined sales and excise tax revenues. Marijuana tax revenues were three times larger than alcohol, and 14 percent larger than casino revenues. The MPG projects marijuana tax revenues will eclipse cigarette revenues by 2020, as cigarette sales continue to decline. Marijuana tax revenues will likely continue increasing as more consumer demand shifts into the taxed adult-use market.
As a first-mover in legal marijuana, the Front Range has witnessed significant business formation and industry agglomeration in marijuana technology (cultivation, sales, manufacturing, and testing). This has inspired a moniker for Colorado’s Front Range as the “Silicon Valley of Cannabis.” Secondary marijuana industry activities quantified for the first time in this report include: warehousing, cash-management, security, testing, legal services, and climate engineering for indoor cultivations.
November 7, 2016 in Business laws and regulatory issues, Employment and labor law issues, History of Marijuana Laws in the United States, Recreational Marijuana Commentary and Debate, Recreational Marijuana Data and Research, Recreational Marijuana State Laws and Reforms, Taxation information and issues | Permalink | Comments (0)