Monday, April 18, 2016
This new Denver Post piece, headlined "Fewer Coloradans seek treatment for pot use, but heavier use seen," reports on this notable new official state government report from Colorado (which I believe was just released today, but bears a cover date of March 2016). Here is a basic summary via the Denver Post piece:
Colorado's treatment centers have seen a trend toward heavier marijuana use among patients in the years after the state legalized the drug, according to a new report from the Colorado Department of Public Safety. The 143-page report released Monday is the state's first comprehensive attempt at measuring and tracking the consequences of legalization.
In 2014, more than a third of patients in treatment reported near-daily use of marijuana, according to the report. In 2007, less than a quarter of patients reported such frequency of use. Overall, though, the number of people seeking treatment for marijuana has dropped since Colorado voters made it legal to use and possess small amounts of marijuana. The decrease is likely due to fewer people being court ordered to undergo treatment as part of a conviction for a marijuana-related crime.
The finding is among a growing body of evidence that marijuana legalization has led to a shift in use patterns for at least some marijuana consumers. And that is just one insight from the new report, which looks at everything from tax revenue to impacts on public health to effects on youth. Among its findings is a steady increase in marijuana use in Colorado since 2006, well before the late-2000s boom in medical marijuana dispensaries. The report documents a sharp rise in emergency room visits related to marijuana. It notes a dramatic decline in arrests or citations for marijuana-related crimes, though there remains a racial disparity in arrest rates.
But the report, which was written by statistical analyst Jack Reed, also isn't meant as a final statement on legalization's impact. Because Colorado's data-tracking efforts have been so haphazard in the past, the report is more of a starting point. "[I]t is too early to draw any conclusions about the potential effects of marijuana legalization or commercialization on public safety, public health, or youth outcomes," Reed writes, "and this may always be difficult due to the lack of historical data."
It's not just the lack of data from past years that complicates the report. Reed also notes that legalization may have changed people's willingness to admit to marijuana use — leading to what appear to be jumps in use or hospital visits that are really just increases in truth-telling. State and local agencies are also still struggling to standardize their marijuana data-collection systems. For instance, Reed's original report noted an explosive increase in marijuana arrests and citations in Denver, up 404 percent from 2012 to 2014. That increase, however, was due to inconsistent data reporting by Denver in the official numbers given to the state.
Intriguingly, though this lengthy report comes from the Colorado Department of Public Safety, not very much of the report discusses general crimes rates at much length. But what is reported in this report is generally encouraging:
Colorado’s property crime rate decreased 3%, from 2,580 (per 100,000 population) in 2009 to 2,503 in 2014.
Colorado’s violent crime rate decreased 6%, from 327 (per 100,000 population) in 2009 to 306 in 2014.
April 18, 2016 in History of Marijuana Laws in the United States, Initiative reforms in states, Medical Marijuana Data and Research, Recreational Marijuana Data and Research, Taxation information and issues | Permalink | Comments (0)
Friday, March 18, 2016
As reported in this local article, headlined "Oregon collects three times expected amount of recreational marijuana taxes in first month," Oregon voters' decision to embrace full marijuana legalization is already producing much-more-than-expected tax revenues for the state. Here are the details:
Oregon brought in more than three times the expected amount of recreational marijuana tax money in the first month it was collected from dispensaries, potentially moving up when the state distributes revenue to cities and counties. Officials estimated that January might bring in about $1 million in taxes, said Derrick Gasperini, communications manager for the state Department of Revenue. Figures released Wednesday by the department showed that the state collected $3.48 million in taxes for recreational marijuana sales in January. “It does exceed projections,” he said.
As part of a startup year for a recreational marijuana industry in Oregon, dispensaries selling medical marijuana that registered with the department were allowed to sell to recreational buyers. The state requires those dispensaries to charge a 25 percent tax on recreational sales. Medical marijuana sales in Oregon remain untaxed.
That could mean that the tax figures indicate that dispensaries around Oregon sold nearly $14 million worth of recreational marijuana in the first month of taxed sales, but Gasperini cautioned that the estimation could be incorrect. “The Department of Revenue is not going to make any statements on sales until we have some (tax) returns,” he said. The returns will be submitted by dispensaries later this year.
Dispensaries around the state that sell recreational marijuana collected the taxes in January and gave them into the state between Feb. 1 and March 4, according to the Department of Revenue. The department received 253 tax payments from the 309 registered to sell recreational marijuana that month in Oregon. Gasperini explained that not all those registered turned in tax payments because “they may not have made any (recreational) sales,” he said....
A better financial picture of marijuana sales in the state should come after the end of the quarter, the first three months of the year, when he said the department will have more precise figures. For now, he also did not have a breakdown of how much in recreational pot tax money was collected by each county....
Eventually, tax money brought in from recreational marijuana sales will be divided among a variety of accounts: 40 percent for the common school fund, 20 percent for mental health, 15 percent for state police, 10 percent for cities, 10 percent for counties, and 5 percent for the state Health Authority. But that is only after the cost of running the state recreational marijuana program is taken out of the tax revenue. Before even reaching the point of distributing the tax money, the Department of Revenue and the Oregon Liquor Control Commission first must recoup their costs of starting up the program Gasperini said....
More taxes coming in than expected could accelerate the state’s move to dolling out the money. Department officials had expected the first distributions to come in July 2017. Gasperini said now they very likely will come sooner.
The current tax model for recreational pot is only set to be in effect this year in Oregon. At the start of next year, retail outlets selling solely recreational marijuana can open. The state plans to tax them at 17 percent, with local governments able to add another 3 percent in taxes.
Thursday, February 11, 2016
An international perspective on the marijuana reform momentum (and its regulatory challenges) via The Economist
A terrific student in my marijuana seminar alerted me to this lengthy new article in The Economist headlined "Reeferegulatory challenge: A growing number of countries are deciding to ditch prohibition. What comes next?". The article merits a full read, and here are excerpts:
Since California’s voters legalised the sale of marijuana for medical use in 1996, 22 more states, plus the District of Columbia, have followed suit; in a year’s time the number is likely to be nearer 30. Sales to cannabis “patients” whose conditions range from the serious to the notional are also legal elsewhere in the Americas (Colombia is among the latest to license the drug) and in much of Europe. On February 10th Australia announced similar plans.
Now a growing number of jurisdictions are legalising the sale of cannabis for pure pleasure—or impure, if you prefer. In 2014 the American states of Colorado and Washington began sales of recreational weed; Oregon followed suit last October and Alaska will soon join them. They are all places where the drug is already popular (see chart 1). Jamaica has legalised ganja for broadly defined religious purposes. Spain allows users to grow and buy weed through small collectives. Uruguay expects to begin non-medicinal sales through pharmacies by August.
Canada’s government plans to legalise cannabis next year, making it the first G7 country to do so. But it may not be the largest pot economy for long; California is one of several states where ballot initiatives to legalise cannabis could well pass in America’s November elections....
Setting the right level for the tax ... is challenging. Go too low and you encourage use. Aim too high and you lose one of the other benefits of legalisation: closing down a criminal black market.
Comparing Colorado and Washington illustrates the trade-off. Colorado has set its pot taxes fairly low, at 28% (including an existing sales tax). It has also taken a relaxed approach to licensing sellers; marijuana dispensaries outnumber Starbucks. Washington initially set its taxes higher, at an effective rate of 44%, and was much more conservative with licences for growers and vendors. That meant that when its legalisation effort got under way in 2014, the average retail price was about $25 per gram, compared with Colorado’s $15. The price of black-market weed (mostly an inferior product) in both states was around $10.
The effect on crime seems to have been as one would predict. Colorado’s authorities reckon licensed sales—about 90 tonnes a year—now meet 70% of total estimated demand, with much of the rest covered by a “grey” market of legally home-grown pot illegally sold. In Washington licensed sales accounted for only about 30% of the market in 2014, according to Roger Roffman of the University of Washington. Washington’s large, untaxed and rather wild-west “medical” marijuana market accounts for a lot of the rest. Still, most agree that Colorado’s lower prices have done more to make life hard for organised crime.
Uruguay also plans to set prices comparable to those that illegal dealers offer. “We intend to compete with the illicit market in price, quality and safety,” says Milton Romani, secretary-general of the National Drug Board. To avoid this competitively priced supply encouraging more use, the country will limit the amount that can be sold to any particular person over a month. In America, where such restrictions (along with the register of consumers needed to police them) would probably be rejected, it will be harder to stop prices for legal grass low enough to shut down the black market from also encouraging greater use. Indeed, since legalisation consumption in Colorado appears to have edged up a few percentage points among both adults and under-21s, who in theory shouldn’t be able to get hold of it at all; that said, a similar trend was apparent before legalisation, and the data are sparse....
Different places will legalise in different ways; some may never legalise at all; some will make mistakes they later think better of. But those that legalise early may prove to have a lasting influence well beyond their borders, establishing norms that last for a long while. It behoves them to think through what needs regulating, and what does not, with care. Over-regulation risks losing some of the main benefits of liberalisation. But as alcohol and tobacco show, tightening regimes at a later date can be very difficult indeed.
February 11, 2016 in Business laws and regulatory issues, History of Marijuana Laws in the United States, International Marijuana Laws and Policies, Medical Marijuana Commentary and Debate, Recreational Marijuana Commentary and Debate, Taxation information and issues , Who decides | Permalink | Comments (0)
Monday, February 8, 2016
Oregon Health Authority report calls for "the creation of an independent, free‐standing Oregon Institute for Cannabis"
I was intrigued and pleased to see this notable new press story out of Oregon reporting on this notable new public health task force report titled "Researching the medical and public health properties of cannabis." Here are the basics via the press coverage:
Oregon should fund an independent marijuana institute to support and conduct world-class research into the drug's medical and public health benefits, says a task force that includes state officials, scientists and leading physicians.
Tax dollars generated through recreational marijuana sales would supplement private funding to underwrite the quasi-public Oregon Institute for Cannabis Research. The center would hire research scientists, as well as staff to help academic researchers navigate the complexities of federally sanctioned cannabis research.
The recommendation, included in a report submitted Monday to the Legislature by the task force, calls for Oregon to break new ground by providing a sustained source of state money to support marijuana research. Among the proposals: the institute itself would grow and handle marijuana for research purposes. "This institute will position Oregon as a leader in cannabis research and serve as an international hub for what will soon be a rapidly accelerating scientific field," states the report, prepared by the Oregon Health Authority. "No other single initiative could do as much to strengthen the Oregon cannabis industry and to support the needs of Oregon medical marijuana patients."
The proposal represents the latest effort by states to fill gaps in marijuana research created by the federal prohibition of the drug. The government allows research on cannabis, but the approval process is especially complicated and involves marijuana produced at a government-run facility based at the University of Mississippi. The recommendation came out of a law passed last year by the Legislature that called for the creation of a governor-appointed task force to study ways to support a medical marijuana industry geared toward patients. The report doesn't include estimates for what it would cost to fund the center, but makes clear that financial support from the state would be essential. Other states have set aside money for research, but not on an ongoing basis.
Sen. Chris Edwards, D-Eugene, the lawmaker behind the provision that created the task force, said paying for the institute with revenue from the state's marijuana tax is a politically viable idea, but said it isn't likely to gain traction during the Legislature's 35-day session, which began last week. Under current law, marijuana tax revenue goes to the common school fund, mental health, alcoholism and drug services, the Oregon State Police, local and the health authority. "One thing I heard consistently is that people want to understand better the health effects and the health and safety issues -- the potential effects of pesticides and also the potential for medical uses of cannabis," he said. "I think there is broad support for those pieces."...
Colorado and Washington, the first states to legalize marijuana for recreational use, also have plans for research. Colorado lawmakers in 2014 approved a one-time $9 million expenditure for marijuana-related studies, including three that will require federal approval, said Ken Gershman, medical marijuana research grant program manager for the Colorado Department of Public Health and Environment. Six involve "observational studies" of people already consuming marijuana. University researchers in Colorado plan to examine whether young adults and adolescents with inflammatory bowel disease benefit from marijuana, and the effect of cannabidiol, a component of the marijuana plant known as CBD, on Parkinson's-related tremors. Other studies will examine the effect of high-CBD oil extracts on epilepsy, as well as the drug's impact on sleep and post-traumatic stress disorder.
Washington, which offers a marijuana research license, carved out a percentage of its marijuana tax revenue for cannabis research. The law calls for some of that work to look at ways of measuring marijuana intoxication and impairment.
California was the first state to fund research into marijuana's medicinal benefits. In 2000, the state set aside $10 million to fund the Center for Medicinal Cannabis Research at the University of California, San Diego. The center oversaw multiple research projects, most of them looking at marijuana's effect on neuropathic pain. Like Colorado, California's funding was a one-time expenditure.
Dr. J.H. Atkinson, a co-director of the center and a professor of psychiatry at the University of California, San Diego School of Medicine, said the research was "relatively small in scope and duration" but offered a potential model for other states. He said the studies showed a promising connection between cannabis and pain relief. "Without too much chest thumping," he said, "it was the most comprehensive body of research on the potential (of cannabis) ever conducted in this country."...
Research into marijuana is complicated by the drug's longtime status as a Schedule 1 drug. That category of drugs, which includes heroin, is defined as substances that have a "high potential for abuse" and "no currently accepted medical use." Federal research proposals involving involving Schedule 1 drugs must undergo review by the National Institute on Drug Abuse and must use cannabis produced by the University of Mississippi, which holds the lone government contract to grow pot for research purposes. The agency in 2014 said it planned to increase production of marijuana to support more research....
Paul Armentano, deputy director of the National Organization for the Reform of Marijuana Laws, said "ample research" and "an extensive history of human use" provide more than enough evidence to contradict marijuana's status under federal law as a drug that lacks medical benefit. Armentano said he welcomes more research from states like Oregon but is skeptical it will make a difference in the debate about marijuana's Schedule 1 status. "Unfortunately science has never driven marijuana policy," he said. "If it did, the United States would already have a very different policy in place."
February 8, 2016 in Federal Marijuana Laws, Policies and Practices, Medical community perspectives, Medical Marijuana Commentary and Debate, Medical Marijuana Data and Research, Medical Marijuana State Laws and Reforms, Taxation information and issues , Who decides | Permalink | Comments (0)
Wednesday, November 18, 2015
I am giving a lecture this afternoon to a local bar association about the state of marijana reform in Ohio and throughout the United States as of Fall 2015. Helpfully, this recent article from BloombergBNA provides a useful national overview with a number of state-level specifics. The piece is titled "Marijuana in America, 2015: A Survey of Federal And States' Responses to Marijuana Legalization and Taxation," and I recommend it for those looking to get up to speed on a lot of the legal and tax basics ASAP.
November 18, 2015 in Medical Marijuana Commentary and Debate, Medical Marijuana State Laws and Reforms, Recreational Marijuana Commentary and Debate, Recreational Marijuana State Laws and Reforms, Taxation information and issues | Permalink | Comments (0)
Thursday, November 5, 2015
This local story from Colorado, which is headlined "New in Colorado: College scholarships funded by weed" (and amazingly does not make any jokes about higher education), discusses an interesting local tax initiativ that looks to reinvestment marijuana revenues to a very sound cause. Here are the details:
A Colorado county that boasts the world's largest outdoor marijuana farm and has been actively courting the new pot industry has approved the world s first marijuana-funded college scholarship.
Pueblo County voters approved the pot tax by a 20-point margin Tuesday. The 5 percent excise tax on marijuana growers is expected to raise about $3.5 million a year by 2020, with the money available for any high school senior in the county who attends one of two public colleges in the county.
The scholarship awards will depend on how many students apply, but county planners are projecting about 400 students a year will get scholarships of about $1,000 each per year. The awards are the world's first scholarships funded entirely by pot taxes. "It's a landmark vote," said Brian Vicente, a Denver-based marijuana attorney who wrote Colorado's 2012 legalization measure. "This is the first time you have marijuana tax money being used directly for scholarships, and that's pretty remarkable." Pueblo's booming pot industry didn't oppose the measure, which brings their tax rate from 15 percent to 20 percent, phased in over five year....
Scholarship backers insist the fund isn't any different than the scholarships already funded by alcohol companies. "Adding a scholarship that comes from an industry we are fostering is a logical method to address several of our community issues, including an unemployment rate that lags the statewide average," said Chris Markuson, Pueblo's economic development director.
Through aggressive recruitment efforts and financial incentives, the southern Colorado county has attracted a booming industry of marijuana growers fleeing higher costs in the Denver area....
Pueblo also has taken the unusual step of putting marijuana growers on equal footing with traditional farmers when it comes to water rights — something it's able to do because its water supply in the Arkansas River Basin is controlled locally, not by the federal government. "We are aggressive, trying to build the Silicon Valley of the marijuana industry," Markuson said.
Just last week Pueblo officials announced an $8 million incentives package to lure pot growers to convert a defunct Boeing rocket plant into a production facility for hemp oil that will eventually employ 163 people. Pueblo County now accounts for about 3 percent of Colorado's recreational marijuana sales, but about 20 percent of the state's recreational pot production. The county has about 65 commercial pot growers, including the 36-acre Los Suenos farm, which is believed to be the world's largest pot cultivation site.
The two colleges eligible for scholarship spending — Pueblo Community College and Colorado State University-Pueblo — did not immediately return calls about the new weed scholarships.
Sal Pace, a county commissioner who pushed the scholarship ballot measure, called the pot industry a natural source of funds. "For years we ve been floating the idea of a special funding source in Pueblo to help kids afford college," Pace said. "This seemed like a natural fit."
November 5, 2015 in Business laws and regulatory issues, Campaigns, elections and public officials concerning reforms, Initiative reforms in states, Recreational Marijuana Commentary and Debate, Taxation information and issues , Who decides | Permalink | Comments (0)
Thursday, October 22, 2015
Te title of this post is the headline of this lovely and astute new Huffington Post commentary authored by Pat Oglesby. Here are excerpts from its start and end:
"Politics is always the lesser of two evils," Federal Fifth Circuit Judge John Minor Wisdom told me when I was one of his law clerks. I didn't quite understand that then, in the late 1970s, but I get it now.
Marijuana legalization is gaining steam, and the question is becoming not "whether to legalize" but "how." And it's about the money. A recent RAND report put it this way: "A state that legalizes marijuana by allowing limited private sales creates a privilege to sell it. T hat privilege is worth money, maybe lots of money."
So the money is up for grabs. And a small group plans to grab all the money in Ohio. The "Responsible Ohio" ballot initiative, to be voted on in November, lets medical and adult-use marijuana be grown and processed only in "ten designated sites," all owned by wealthy funders of the initiative. Sites like a "40.44 acre area in Butler County, Ohio, identified by the Butler County Auditor, as of February 2, 2015, as tax parcel numbers Q6542084000008 and Q6542084000041." And the initiative caps taxes permanently. All by Constitutional amendment.
The Responsible Ohio initiative sets up, for some of my friends in the cannabis community, a choice between two evils: prohibition and what NORML's Keith Stroup calls "a bitter pill to swallow" and "a perversion of the voter initiative process." But he points out that, for now, the Responsible Ohio initiative "is the only option available to stop the senseless and destructive practice of arresting marijuana smokers in Ohio. Each year nearly 20,000 Ohio residents are arrested on marijuana charges. That's an enormous price to pay when we have the ability to end prohibition now, albeit with some undesirable provisions."...
And look -- Responsible Ohio doesn't have a monopoly on grabbing marijuana money. But it is the first marijuana consortium to limit its taxes permanently in a State Constitution. That's outrageous. There are at least six better ways to divide the new wealth and income from marijuana commerce than to give it all to the first self-nominated grabbers. But that brings me back to Judge Wisdom's point about the lesser of two evils. Different people have different views about which evil is lesser. Where you stand depends on where you sit. That's why we vote.
Polls seem to be saying Responsible Ohio may win. If it does, much of the blame will be on elected officials who should have seen this coming and figured out a way to handle it. Combined with possible legalization of marijuana in Canada, a win for Responsible Ohio would shake the windows and rattle the walls in Legislatures across the country. Sure, figuring out how to share the newly-created wealth from marijuana legalization fairly is not easy. But it's not impossible.
Sunday, September 20, 2015
As highlighted by this recent Forbes article, headlined "Colorado Now Reaping More Tax Revenue From Pot Than From Alcohol," the Centennial State now seems to be reaping more public revenue benefits from the wicked weed than from the golden grape. Here are the details:
The tipping point has finally occurred in Colorado: The state is raising more revenue from marijuana taxes than from alcohol.
According to the Colorado Department of Revenue, the state has received nearly $70 million in tax revenue from marijuana from July 1, 2014 through June 30, 2015, easily beating the nearly $42 million in taxes on alcohol....
Colorado is having record recreational sales this summer. In June, recreational marijuana sales hit $50 million for the first time, then in July sales rose over $55 million. If you add in medical marijuana sales, the total comes to $96 million for July, also higher than June’s total of $85 million. The portion of these sales in July that is earmarked for school construction projects is $3 million....
“It’s crazy how much revenue our state used to flush down the drain by forcing marijuana sales into the underground market,” said [Mason] Tvert [of the Marijuana Policy Project] in a statement. “It’s even crazier that so many states are still doing it. Tax revenue is just one of many good reasons to replace marijuana prohibition with a system of regulation.”
Tuesday, September 1, 2015
The title of this post is the headline of this notable Phoenix New Times article reporting on a notable new policy report emerging in Arizona. Here are the details (with links from the original article):
Previous marijuana tax-revenue estimates were far too low, states a new report by the nonpartisan Grand Canyon Institute.
Arizona would raise about $72 million in revenue annually beginning in 2019 if voters make recreational marijuana legal in Arizona with an anticipated ballot initiative in 2016, says the report, published on the group's website.
Backers of the Campaign to Regulate Marijuana Like Alcohol announced August 19 that their planned ballot measure would raise at least $40 million a year for Arizona schools. The campaign, sponsored in part by the Marijuana Policy Project, claims to have gathered about 65,000 signatures already toward a citizens' initiative expected to appear on the ballot in November 2016.
The institute "finds that the revenue projections were conservative as proponents claimed," the GCI report states. If the program were in effect now, sales of marijuana products would produce about $64 million annually, it says.
"If the initiative were to make the ballot and be passed by voters," the report goes on, "the GCI expects 2019 to be the first year with a full rollout of retailers and at that point, due to inflation and population growth, the expected totals would be $72 million: with almost $29 million each to K-12 education and helping fund all-day Kindergarten, plus $14 million to the Dept. of Health Services."
The report begins by stating that the GCI, which has a 12-member board of directors made up of local leaders on both sides of the political aisle, neither supports nor opposes marijuana legalization. "Our estimate was done conservatively so, if anything, it understates [total] revenue a bit — enough to give some wiggle room for administrative costs," Dave Wells, GCI research director and author of the report, tells New Times.
Thursday, August 27, 2015
The title of this post is the headline of this notable new Huffington Post article. Here is how it gets started:
The first two states to legalize recreational marijuana have collectively raked in at least $200 million in marijuana tax revenue, according to the latest tax data -- and they're putting those dollars to good use.
In Colorado, after about a year and a half of legal recreational marijuana sales, the state has collected more than $117 million in excise taxes from both the recreational and medical marijuana markets, according to the most recent data from the Colorado Department of Revenue.
Washington state got a slower start. Its retail shops didn't begin selling recreational marijuana until July of last year, but they are keeping pace with Colorado's. About $83 million in excise taxes have already been collected in the year since sales first began, according to the most recent tax data from the Washington State Liquor and Cannabis Board.
And the total haul for both states is several million higher if all additional revenue from marijuana -- such as sales taxes, jurisdictional taxes, fees and licensing costs -- is included.
Wednesday, August 19, 2015
The title of this post is the headline of this new Time piece, which includes these passages:
It’s been a year and a half since the legalization of marijuana went into effect in Colorado. Business for purveyors of marijuana was good from the beginning, but has soared in the past year, according to data collected by the Colorado Department of Revenue.
The state collected $9.7 million in taxes related to marijuana sales in June 2015, up nearly $5 million from the same month last year. By May, the state had collected more than $88 million in marijuana taxes in 2015.
Revenue from marijuana sales has been used to fund improvements to the state’s public schools. “The people who were smoking marijuana before legalization still are. Now, they’re paying taxes,” Gov. John Hickenlooper told USA Today in February.
Tuesday, July 14, 2015
As reviewed by this recent Forbes article, headlined "Big Court Defeat For Marijuana Despite Record Tax Harvests," the Ninth Circuit late last week in Olive v. CIR, No. 13-70510 (9th Cir. July 10, 2015) (available here), affirmed the basic approach that federal authorities have adopted to determining the tax obligations of state-legal marijuana businesses. The Forbes piece provides this overview of the issues and the ruling:
Should marijuana businesses pay tax on gross profits or net profits? It sounds like a silly question. Virtually every business in every country pays tax only on net profits, after expenses. But the topsy-turvy rules for marijuana seem to defy logic. And taxes are clearly a big topic these days under both federal and burgeoning state law.
Many observers and legislators suggested that legalizing marijuana would mean huge tax revenues. With legalized medical marijuana now giving way to more and more states legalizing recreational use, the cash hauls look ever more alluring. Washington state regulators say the state collected $65 million in first-year taxes from recreational marijuana sales in just 12 months on cannabis sales of over $260 million from June 2014 to June 2015. In Colorado, the governor’s office estimated that it would collect $100 million in taxes from the first year of recreational marijuana....
Now ... the IRS has convinced the influential Ninth Circuit Court of Appeals that marijuana dispensaries cannot deduct business expenses, must pay taxes on 100% of their gross income. The case, Olive v. Commissioner, was an appeal from a U.S. Tax Court decision. Martin Olive sold medical marijuana at the Vapor Room, using vaporizers so patients do not even have to smoke.
But even good records won’t make vaporizers or drug paraphernalia deductible. The Ninth Circuit upheld the Tax Court ruling that § 280E prevents legal medical marijuana dispensaries from deducting ordinary and necessary business expenses. Under federal tax law, the Vapor Room is a trade or business that is trafficking in controlled substances prohibited by federal law....
On the question whether marijuana businesses should pay tax on their net or gross profits, the tax code says the latter. Indeed, Section 280E of the tax code denies even legal dispensaries tax deductions, because marijuana remains a federal controlled substance. The IRS says it has no choice but to enforce the tax code.
One common answer to this dilemma is for dispensaries to deduct expenses from other businesses distinct from dispensing marijuana. If a dispensary sells marijuana and is in the separate business of care-giving, for example, the care-giving expenses are deductible. If only 10% of the premises is used to dispense marijuana, most of the rent is deductible. Good record-keeping is essential, but there is only so far one can go. For example, in the case of the Vapor Room and Martin Olive, with only one business, the courts ruled that Section 280E precluded Mr. Olive’s deductions....
The IRS is clear that you can deduct only what the tax law allows you to deduct. The trouble started in 1982, when Congress enacted § 280E. It prohibits deductions, but not for cost of goods sold. Most businesses don’t want to capitalize costs, since claiming an immediate deduction is easier and faster. In the case of marijuana businesses, the incentive is the reverse. So the IRS says it is policing the line between the costs that are part of selling the drugs and others.
Sure, deduct wages, rents, and repair expenses attributable to production activities. They are part of the cost of goods sold. But don’t deduct wages, rents, or repair expenses attributable to general business activities or marketing activities that are not part of cost of goods sold.
2013′s proposed Marijuana Tax Equity Act would end the federal prohibition on marijuana and allow it to be taxed – at a whopping 50%. The bill would impose a 50% excise tax on cannabis sales, plus an annual occupational tax on workers in the field of legal marijuana. Incredibly, though, with what currently amounts to a tax on gross revenues with deductions being disallowed by Section 280E, perhaps it would be an improvement. More recently, Rep. Jared Polis (D-Co.) and Rep. Earl Blumenauer (D-Or.) have suggested a phased 10% rate here, ramping up to 25% in five years.
Sunday, June 21, 2015
The Motley Fool folks have been keeping an eye on the modern marijuana industry, and this recent article highlights why these folks reasonably think the industry is likely to continue to grow. The article is headlined "These 3 Charts Show Why More States Will Soon Legalize Marijuana," and here are excerpts (along with a reprinting of one of the referenced charts):
Want to know why states are legalizing recreational marijuana? Let me give you a hint: It has something to do with the color green. Not the color of the plant, but the color of money.
Because recreational marijuana has now been legal in Colorado and Washington for 18 months and 11 months, respectively, we're finally starting to see just how lucrative the recreational-marijuana business is.... In March alone, consumers in Washington purchased $21.9 million worth of recreational cannabis through legal channels. That was more than twice the amount of the $8.3 million spent on medical marijuana that month.
The rapid ascent of recreational-marijuana sales is nothing short of extraordinary. In July 2014 -- i.e., the inaugural month of recreational sales in Washington -- the handful of stores open at the time sold a mere $2.8 million worth of weed. Over the next eight months, this figure climbed by a factor of 10....
The upshot for the state is a rapidly expanding tax roll. If you add together the taxes that Washington receives from both recreational- and medical-marijuana sales, it's creeping up on $4 million a month. And for the record, it may have eclipsed that mark already, given that the latest available data covers just the month of March.
Colorado is experiencing a similar windfall, as it generates even more tax revenue from legal marijuana sales than Washington does. Last month, taxes from the industry came in at $9.6 million. And if you include the $1.1 million in revenue it received from licensing and other types of fees, you get more than $10.6 million....
In short, say what you will about the legalization of marijuana, particularly for recreational sales, but one thing seems certain: As sales and taxes from the industry continue their sharp ascent, it's going to be hard for other states to stand by idly and watch their neighbors get rich.
June 21, 2015 in Recreational Marijuana Commentary and Debate, Recreational Marijuana Data and Research, Recreational Marijuana State Laws and Reforms, Taxation information and issues | Permalink | Comments (0)
Sunday, May 10, 2015
This New York Times article, headlined "Legal Marijuana Faces Another Federal Hurdle: Taxes," highlights the headaches that tax realities pose for state-legal marijuana regimes. Here are excerpts:
The country’s rapidly growing marijuana industry has a tax problem. Even as more states embrace legal marijuana, shops say they are being forced to pay crippling federal income taxes because of a decades-old law aimed at preventing drug dealers from claiming their smuggling costs and couriers as business expenses on their tax returns.
Congress passed that law in 1982 after a cocaine and methamphetamine dealer in Minneapolis who had been jailed on drug charges went to tax court to argue that the money he spent on travel, phone calls, packaging and even a small scale should be considered tax write-offs. The provision, still enforced by the I.R.S., bans all tax credits and deductions from “the illegal trafficking in drugs.”
Marijuana business owners say it prevents them from deducting their rent, employee salaries or utility bills, forcing them to pay taxes on a far larger amount of income than non-marijuana businesses with the same earnings and costs. They also say the taxes, which apply to medical and recreational sellers alike, are stunting their hiring, or even threatening to drive them out of business.
The issue reveals a growing chasm between the 23 states, plus the District of Columbia, that allow medical or recreational marijuana and the federal bureaucracy, which includes national forests in Colorado where possession is a federal crime, federally regulated banks that turn away marijuana businesses and the halls of the I.R.S.
While President Obama and top federal officials have allowed states to pursue legalization, marijuana advocates say the dissonance between increasingly permissive state laws and federal prohibitions is creating a morass of complications and uncertainty. The tax rule, an obscure provision referred to as 280E, catches many marijuana entrepreneurs by surprise, often in the form of an audit notice from the I.R.S. Some marijuana businesses in Colorado, California and other marijuana-friendly states have challenged the I.R.S. in tax court....
A normal business, for example, might pay a 30 percent federal rate on its taxable income, which would represent its gross income minus deductible business expenses. A marijuana business, on the other hand, might pay the same federal rate on all of its gross income because it cannot take these deductions. The difference can raise the rate on a marijuana business to 70 percent or more of its profits....
Colorado and a handful of other states have changed their tax laws to let legal marijuana businesses take deductions on their state returns. And this month, Senator Ron Wyden and Representative Earl Blumenauer, both Democrats of Oregon, which legalized recreational marijuana last year, introduced legislation that would allow marijuana businesses that are following their states’ legalization laws to take regular deductions on their federal returns. “It’s affecting thousands of businesses, and it’s doubling, tripling, quadrupling their taxes,” Mr. Blumenauer said. “It just cripples them.” The current system, he said, encourages marijuana sellers to file tax returns that do not follow the law and simply hope the I.R.S. does not spot them....
Accountants and tax lawyers, who are inundated with calls from marijuana shops these days, say the rules are murky and make little sense. If marijuana retailers dedicate parts of their stores to yoga, drug education or selling non-drug merchandise, can they deduct part of their rent? If employees split their time between cleaning the store and selling marijuana, are their salaries partly deductible?
“There’s no clear direction,” said Scott Levy, an accountant in Arizona who said that marijuana sellers made up about one-fifth of his business. “You find all these weird little strategies that people use to try to parse the definitions.”
Oddly, accountants said, one expense that marijuana retailers can easily take off their taxes is the marijuana itself. The wording of the tax laws and their interpretation since states began to legalize medical marijuana has allowed businesses to deduct the expenses of wholesale marijuana or growing the plant, from the price of the seeds or baby plants to the water and growing lights needed to produce it. Only when retailers go to sell those buds, brownies or marijuana-infused drinks do the tax restrictions kick in.
Friday, May 8, 2015
The title of this post is the title of this notable new report from The Institute on Taxation & Economic Policy that a helpful reader highlighted for me. Here is how it substantively gets started:
Since 1996, when California voters enacted the nation’s first medical marijuana law, twenty-two states and the District of Columbia have followed suit with laws allowing production and use of marijuana for medicinal purposes.
In 2014, Colorado and Washington took legalization efforts one step further by implementing systems that allow regulated production and retail sale of marijuana. Oregon, Alaska and the District of Columbia are currently creating their own legalization regimes aft er the passage of ballot initiatives legalizing marijuana in each jurisdiction last November. Given the current political momentum, more states may consider marijuana legalization in the future.
While much of the debate around marijuana legalization rightly focuses on health and criminal justice effects, legalization also has revenue implications for state and local governments that choose to tax newly legal purchases of marijuana. This report examines issues surrounding the design and implementation of taxes on marijuana at the state and local level.
Forty-five states levy general sales taxes which, in theory, should apply broadly to most or all retail transactions. Until recently, however, the illegal and unregulated nature of marijuana has resulted in it being sold entirely outside of state sales tax structures. Twenty states have laws requiring illegal marijuana sellers to purchase and place tax stamps on their marijuana, but virtually no one buys the stamps since selling marijuana is illegal even with the stamps attached.
Now that an increasing number of states are legalizing medical and retail marijuana, the de facto sales tax exemption enjoyed by marijuana is becoming somewhat less common. Eleven states with legalized medical marijuana apply their sales taxes to the product, and the only two states with functioning, legal markets for retail marijuana (Colorado and Washington) each apply their general sales taxes to marijuana as well. Bringing marijuana out of the black market allows state and local governments to include the product in their sales tax bases in the same manner as most other goods and services.
But appropriate marijuana tax policy could go beyond simply adjusting existing sales tax bases to include the product. Another potential reason to tax marijuana is to mitigate the negative impact of its use by both discouraging its consumption and raising revenue that can be used to off set its social costs. In other words, the tax treatment of legalized marijuana could be similar to that of tobacco and alcohol, both of which face significant excise taxes at the federal, state and local levels.
Wednesday, April 15, 2015
The question in the title of this post is the focal point for discussion by a student this week in my marijuana law seminar. Here are some key materials that provide background professional normal on this interesting issue:
2010 Rand Working Paper, "Estimated Cost of Production for Legalized Cannabis"
2005 MPP/Miron Report, "The Budgetary Implications of Marijuana Prohibition"
The Price of Weed website/resource
As highlighted in many prior posts, students in my marijuana law school seminar are in the midst of assembling readings and leading discussions concerning the research topic(s) that are the focal point for class project(s). This week, besides the prior topics noted here and here that still on the agenda, is for review of the impact of a federal tax code provision that creates unique problems for state-legal marijuana businesses. Cribbing from this on-point commentary, my student provides this introduction to this issue:
Friday, April 10, 2015
This notable new New York Times article about Colorado's tax revenues and marijuana markets details some important fiscal lessons from the first few years of marijuana legalization. Here are excerpts:
Colorado’s marijuana tax collections are not as high as expected. In February 2014, Gov. John Hickenlooper’s office projected Colorado would take in $118 million in taxes on recreational marijuana in its first full year after legalization. With seven months of revenue data in, his office has cut that projection and believes it will collect just $69 million through the end of the fiscal year in June, a miss of 42 percent.
That figure is consequential in two ways. First, it’s a wide miss. Second, compared with Colorado’s all-funds budget of $27 billion, neither $69 million nor $118 million is a large number. “It’s a distraction,” Andrew Freedman, Colorado’s director of marijuana coordination, says of the tax issue. And despite the marijuana tax miss, overall state revenues are exceeding projections, which may force the state to rebate some marijuana tax receipts to taxpayers.
In the political debate over marijuana policy, fiscal benefits — bringing marijuana into the legal economy and taxing it — have loomed large. The summary of the marijuana legalization question put before voters in 2012 stipulated the first $40 million raised by one of the three taxes on recreational marijuana would be put toward school construction each year. In practice, Colorado is likely to receive just $20 million from that tax this year.
But it’s not just Colorado. When Scott Pattison, the executive director of the National Association of State Budget Officers, appeared on C-Span’s Washington Journal call-in show to discuss state finances in December, callers repeatedly suggested that legal marijuana could fix budget gaps in other states. One asserted, incorrectly, that legal marijuana had increased Colorado’s tax revenues by a billion dollars.
Colorado’s marijuana taxes are part of a broader trend in recent years: States, looking for ways to close budget shortfalls without raising broad-based taxes, have leaned on “sin” revenues: higher taxes on cigarettes, higher fees and fines and higher revenue from gambling. And as they have sought to squeeze more revenue from these sources, they have often been disappointed....
In the case of marijuana, Colorado’s revenue has disappointed because legal recreational marijuana sales have been lower than expected. State officials thought many customers of medical marijuana dispensaries would migrate to the recreational market. But this process has been slow, in part because there is a financial disincentive to switch: Medical marijuana is subject only to general sales tax, while a 15 percent tax is imposed on recreational marijuana at wholesale and a further 10 percent at retail, in additional to the general sales tax.
But Mr. Freedman says the biggest drag on revenue is that so much of Colorado’s marijuana market remains unregulated. A 2014 report commissioned by the state’s Department of Revenue estimated 130 metric tons of marijuana was consumed in the state that year, while just 77 metric tons was sold through medical dispensaries and recreational marijuana retailers. The rest was untaxed: a combination of home growing, production by untaxed medical “caregivers” whose lightly regulated status is protected in the state constitution and plain old black-market production and trafficking....
But even if Colorado got all this right, improved revenues would not be among the most important effects that marijuana legalization has on the state. “Tax revenue is nice to have, but in most states is not going to be enough to change the budget picture significantly,” Mr. Kleiman says. “The stakes in reducing criminal activity and incarceration and protecting public health are way higher than the stakes in generating revenue.”
Wednesday, February 11, 2015
This new AP article, headlined "Colorado collected about $76 million in recreational and marijuana pot revenue in 2014," reports on the latest official reporting of tax revenues collected on legal marijuana sales in Colorado for last year. Here are some of the details and some context for what they mean:
Marijuana makes money. But legalizing it doesn't eliminate the black market or solve a state's budget problems. Those are the lessons from Colorado's first full year of tax collections on recreational pot. The year-end report, released Tuesday, tallied about $44 million in new sales taxes and excise taxes from recreational pot.
Add fees and pre-existing taxes from medical pot, which has been legal since 2000, and Colorado's total 2014 pot haul was about $76 million....
Colorado started selling recreational weed on Jan. 1, 2014. But its first month of sales resulted in only $1.6 million for the state. By December, that figure was $5.4 million. The reason for the increase? Regulatory delays. Red tape meant stores opened slowly, with many municipalities waiting months before allowing pot shops to open....
But legal weed isn't an overnight flood of tax money. "Everyone who thinks Colorado's rollin' in the dough because of marijuana? That's not true," said state Sen. Pat Steadman, a Denver Democrat and one of the Legislature's main budget-writers....
Colorado's pot regulators have struggled to establish a wholesale pot price to collect excise taxes. "Taxing a percentage of price may simply not work," said Pat Oglesby, a former congressional tax staffer who now studies marijuana's tax potential at the Chapel Hill, N.C., Center for New Revenue. He pointed out that the two latest legal weed states -- Alaska and Oregon, both still working on retail regulations -- will tax marijuana by weight, similar to how tobacco is taxed.
Every state in the union, liberal to conservative, has a market for marijuana. And making pot legal doesn't guarantee those consumers will leave the black market and happily sign up to start paying taxes. In Washington state, medical marijuana isn't taxed. It is in Colorado, but all adults are allowed to grow up to six plants on their own. That means the states' new marijuana markets had legal competition from Day One. And that doesn't account for the black market, which of course is completely free of taxes and regulations.
Lawmakers in both Colorado and Washington are looking for ways to drive pot smokers out of the lower-taxed medical pot market and into the recreational one. But obstacles are stiff. "If there is untaxed medical pot, the taxes are voluntary. When you make it voluntary, people won't necessarily pay," Oglesby said.
The marijuana market is far from settled. Colorado benefited from first-in-the-nation curiosity and marijuana tourism. As more states legalize, Colorado and Washington will face competition. "Colorado is probably kind of a best-case scenario" for pot tax collections, said Jeffrey Miron, a Harvard University economist who studies the drug market. "If a number of other states legalize -- and two of them already have -- then bit by bit, Colorado revenue is likely to decline."
There's an even bigger uncertainty looming for states considering legal weed -- a new president in 2016. "The huge unknown is still federal policy," Miron said. "A new president can radically change state policies toward legalization."
I believe that Colorado's official year-end accounting can be found in this link/document, and I notice that there appears to be no column for state (or federal) income taxes paid by persons now working legally in the state-legalized marijuana market. Though certainly direct taxes on marijuana manufacturing and sales is the most tangible and measurable consequences of marijuana reform, I tend to think the biggest long-term economic impact for a state comes from creating a (huge?) industry with collateral businesses all of which will provide lots of jobs for individuals who will pay (lots of?) income tax on what they make in this new industry.
February 11, 2015 in 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 (2)
Friday, February 6, 2015
The title of this post is the headline of this notable new article in the Christian Science Monitor. Here are excerpts:
Recreational marijuana use has been legal for more than 13 months in Colorado. In that time, sales have raised over $50 million for the state, according to Complex.com. Amendment 64, which legalized recreational marijuana in the state stipulated the first $40 million would be set aside to for schools.
However, according to Rolling Stone, the surplus tax revenue from the sale of marijuana is roughly $30 million. Under state law this means that adult Coloradans are now entitled to a refund, which will be in the form of a check for a whopping $7.63.
The state of Colorado has a law on the books titled the Taxpayers' Bill of Rights, which was a voter-sponsored amendment that passed back in 1992, according to the state's treasurer's office. The law mandates that the state treasurer's office must return excess tax revenue to the taxpayers if the amount exceeds a figure that is calculated with a formula that accounts for inflation and population growth. The law has returned some $2.2 billion to the people of Colorado, according to the Associated Press.
Rolling Stone reports that state lawmakers are now left grasping for ways to put the excess tax revenue genie back in the bottle. This would include introducing a bill that would leave marijuana revenue exempt from taxpayer refunds. Back in 1992, few in the state would have expected Colorado would lead America’s pot revolution and therefore lawmakers left so-called sin tax revenue in the Taxpayers’ Bill of Rights....
Colorado’s windfall hasn't gone unnoticed by other states. After Colorado and Washington state, Oregon and Alaska became the next two states to legalize marijuana with ballot measures succeeding back on November 4, of last year. In Alaska the law goes into effect on February 24 and Oregonians can buy legal pot on July 15, according to the Marijuana Policy Project. Oregon stands to earn $50 to $100 million in annual tax revenue and Alaska could bring in up to $20 million, according to NerdWallet, who calculated what each state could potentially earn if they were to legalize marijuana.
February 6, 2015 in Initiative reforms in states, Recreational Marijuana Commentary and Debate, Recreational Marijuana State Laws and Reforms, Taxation information and issues | Permalink | Comments (1)