Marijuana Law, Policy & Reform

Editor: Douglas A. Berman
Moritz College of Law

Monday, June 6, 2016

"Tax Benefits of Government-Owned Marijuana Stores"

The title of this post is the title of this notable new article authored by Benjamin Leff and now available via SSRN. Here is the abstract:

Over a year ago (March 7, 2015), a little store called the Cannabis Corner opened up in the small town of North Bonneville, Washington, about an hour by car from Portland, Oregon.  The Cannabis Corner is the first marijuana store to be operated by a “public development authority,” an independent entity created by a state or local government.  Public development authorities are generally exempt from federal income taxes under section 115 of the Internal Revenue Code.  For a marijuana business, this exemption is especially valuable because section 280E of the Code currently prevents marijuana businesses from deducting many of the ordinary expenses other businesses regularly deduct, resulting in extremely high federal income taxes.

This Article is the first to address whether independent governmental affiliates that sell marijuana are exempt from federal income tax under section 115 of the Internal Revenue Code.  It argues that such entities should easily pass the IRS’s current interpretation of the three requirements for tax-exemption under section 115: (i) that exempt income be derived from “the exercise of any essential governmental function;” (ii) that such income “accru[e] to a State or any political subdivision thereof;” and (iii) that the income “not serve private interests[.]” In addition, this Article argues that the fact that selling marijuana is illegal under federal law is not a bar to exemption under section 115 of the Code the way it is under section 501(c)(3).

Tax exemption for public development authorities that sell marijuana is important because of the non-tax benefits of a marijuana market dominated by government sellers.  Some of these benefits exist when governments are participants in a marijuana market that is open to private sellers as well, such as is the case in North Bonneville, Washington.  This Article also explores the benefits that might accrue if a state chose to create a regulatory regime for legalizing marijuana in which all marijuana selling took place in government-owned stores. Many states have experimented for years with state control of liquor sales, but there are reasons to believe that marijuana may be significantly more suited to a state-controlled market than alcohol, at least for a transitional period.  The question of whether an independent governmental affiliate is exempt from federal income tax, including section 280E, is especially important to governments contemplating the contours of their legal marijuana markets.

June 6, 2016 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)

Friday, May 27, 2016

Detailing the big and small positives of marijuana tax revenues for big and small towns in Colorado

Images (14)This new Denver Post piece, headlined "Marijuana sales tax revenue huge boon for Colorado cities," highlights some notable community benefits in those Colorado towns allowing regulated and taxed marijuana sales. Here are excerpts:

From small towns that barely dot the map to the state’s largest urban areas, revenue from retail marijuana sales is helping communities address homelessness, send children to college, patch potholes, secure water rights and fund an array of projects.

Aurora is using $1.5 million of its revenue from pot sales and fees to address its homeless issue. Money also is going to road improvements and a new recreation center. Adams County has earmarked more than $500,000 for scholarships for low-income students. Wheat Ridge keeps its revenue in the city’s general fund, and it’s used in a variety of areas. The same goes for Northglenn, where five marijuana stores generated $730,000 in 2015. The money will go toward water purchases and capital improvements to infrastructure and city facilities.

Although many cities stash the cash in their general funds, Aurora City Councilman Bob Roth, who led a committee that drafted retail marijuana regulations, said it was important to show residents exactly how the money is being spent — especially those who opposed marijuana legalization. “One thing I felt very strongly about was that it not just to go the general fund but kept in a separate bucket so we could show the community what specifically we were doing with it,” Roth said. T

here are 62 cities and 22 counties in Colorado that allow retail marijuana sales, according to the state. Marijuana sales this year are expected to reach $1 billion in Colorado, and local government entities are cashing in. “A lot of communities have struggled to have enough revenue to fill potholes and to keep the street lights on,” said Mike Elliott, executive director of the Marijuana Industry Group. “What we’ve seen out of Aurora is that money going to address homelessness. It’s a great use for the money.”

Henny Lasley, project director for Smart Colorado, a group that advocates for protections for children from marijuana, noted that about 70 percent of communities in the state have opted out of retail marijuana. Lasley said pot proceeds should go toward marijuana education and other efforts to enlighten the public on pot. “We believe that if you are going to collect money from marijuana, let’s do something with marijuana from those taxes,” she said.

In Aurora, the money earmarked to help the homeless will be used to purchase two vans for local nonprofit outreach groups to use to transport people to shelters and for other needs, said Nancy Sheffield, project manager for Aurora’s neighborhood service department. Two outreach workers will be funded with the money for the Comitis Crisis Center and the Aurora Mental Health program. “Our City Council has been very wise in how they’re allocating the revenue,” Sheffield said.

By the end of this year, Aurora expects to see $8.1 million in sales taxes and fees since the first pot shop opened in Aurora in October 2014, city spokeswoman Julie Patterson said. Aside from the $1.5 million for the homeless, about $3.8 million is earmarked for improvements to the East Alameda Avenue and Interstate 225 intersection. Another $2.8 million will go toward bonds for a new recreation center in the growing southeast part of Aurora. And $680,000 will be put in reserve to help outreach programs that work with the city’s needy. Because the number of pot shops is capped at 24 in Aurora, revenue is expected to stabilize going forward, with about $6.4 million in 2017, 2018 and 2019.

Even Pueblo West, which isn’t a town or city but a special district west of Pueblo, is seeing marijuana revenue. Pueblo West received about $200,000 from the county, and it plans to use that to fill pot holes and fix roads. For a district of roughly 28,000 residents that is funded primarily through property taxes, it has a limited revenue source. The money from marijuana sales is a “big deal,” district officials said. Wheat Ridge has five locations that sell recreational marijuana, and four of them also sell medical pot, said city spokeswoman Maureen Harper. She said the city saw a total of $530,105 in sales taxes and fees associated with marijuana sales last year.

That revenue goes directly into Wheat Ridge’s general fund and is not earmarked for any one program. “We treat revenue generated by marijuana like we treat other general fund revenue, and it helps support city operations,” Wheat Ridge Mayor Joyce Jay said. “At this point, I don’t see the number of establishments increasing here in Wheat Ridge.”

In Denver, which has the state’s most extensive recreational and medical marijuana markets, the city took in $29 million last year from all sales by taxes and licensing fees. That money goes into the general fund, and Denver devotes some to ramped-up regulation, enforcement, public health and education efforts — budgeted at $9.1 million this year. It also has dipped into pot taxes to cover higher costs on a recreation center project.

In Northglenn, five recreational marijuana stores generated $730,000 in 2015, spokeswoman Margo Aldrich said. The city also has medical marijuana shops. Northglenn has seen about $3.6 million in total revenue since 2009. The money is used for capital projects, and some is used for purchasing water rights, she said. Elliott said part of the money cities and counties receive is used to properly regulate and license the industry — and that makes communities safer. “There’s a lot of money left over to address safety issues that come up or really take on projects that these local communities do not necessarily have the funds to deal with,” he said. “For some communities, this tax revenue has made a huge difference.”

No matter the size of the community, retail marijuana has been, well, a big hit. For Mountain View, a 12-block enclave nestled among Wheat Ridge, Lakeside and Denver, the extra revenue has been a godsend. Known more for funding its budget through speeding tickets, which Mayor Jeff Kiddie said is not true, the influx of cash is much needed.

The town has two pot shops that both sell recreational and medical marijuana. It uses that revenue to take care of streets, alleys and other improvements. “We have such as small tax base,” said Kiddie, who opposed allowing pot stores in Mountain View. “Medical and retail marijuana have definitely helped the town’s bottom line. I’d be lying if I said it didn’t.”

May 27, 2016 in Business laws and regulatory issues, Recreational Marijuana Commentary and Debate, Recreational Marijuana State Laws and Reforms, Taxation information and issues , Who decides | Permalink | Comments (0)

Tuesday, May 24, 2016

"Marijuana Legalization & Taxation: Positive Revenue Implications for New Jersey"

AOiGwZE3The title of this post is the title of this new report produced by Gargen State public policy groups. This ACLU of New Jersey press release, which is subtitled "NJ Policy Perspective & NJ United for Marijuana Reform analysis projects $300 million in annual sales tax revenue to come with legalization for adults," provides this context and highlights:

New Jersey would bring in hundreds of millions of dollars in new revenue by legalizing marijuana, a new report released by New Jersey Policy Perspective and New Jersey United for Marijuana Reform has found. Legalization, taxation, and regulation of marijuana for use by adults aged 21 and older would ultimately add an estimated $300 million in sales tax to state coffers rather than divert consumers to the illegal market, the two policy-focused groups said at a Trenton press conference.

"The lessons from around the country are loud and clear: marijuana legalization makes fiscal sense, and it makes practical sense," said New Jersey Policy Perspective Policy Analyst Brandon McKoy, a co-author of the report. "Expanding economic opportunities and addressing our persistent budget deficit aren't the only reasons to legalize and regulate marijuana, but they are extremely persuasive ones."

The report estimates that New Jersey would bring in at least $300 million annually if marijuana legalization were fully implemented, using graduated tax increases over a three-year period, going from 5 percent, to 15 percent, to the final rate of 25 percent. The first-of-its-kind report in New Jersey relies on conservative estimates, predicting the tax revenue only from marijuana sales. The report's projections are based on the experiences of other states, current information on marijuana users in New Jersey and the surrounding area, current pricing, and the tax structure of other states as they relate to New Jersey's interests.

Including a small percentage of New Yorkers and Pennsylvanians from counties neighboring New Jersey who are expected to participate in the legal, regulated market, the state could take in approximately $305.4 million once the sales tax is fully scaled to 25 percent, the report said. The report estimates that approximately 343,100 New Jerseyans would participate in a legal marketplace, spending $1.2 billion each year. Currently, New Jerseyans spend more than $850 million on marijuana each year. The calculation of tax revenue was based on a price of $350 per ounce, similar to the current estimated price of $343 per ounce in New Jersey.

Legalization would bring other economic benefits not covered in the report, such as job creation, growth in business, research and development, and boosts in property, agricultural, business, and income taxes. In addition, it would increase public safety, protect young people, save resources, advance racial justice, bolster public health, and reduce the strain on the police, corrections, and the criminal justice system, the report argues. New Jersey arrests more people for marijuana possession each year than for any other crime. A June 2015 Rutgers-Eagleton poll found that 58 percent of New Jerseyans support legalizing, taxing and regulating marijuana for use by adults aged 21 and older.

May 24, 2016 in Recreational Marijuana Commentary and Debate, Recreational Marijuana Data and Research, Taxation information and issues , Who decides | Permalink | Comments (0)

Tuesday, May 17, 2016

Even among skeptics, benefits of marijuana reform seem to eclipse drawbacks in Colorado

Colorado.first_.to_.legalize.250-1I am a fairly strong proponent of marijuana reforms in large part because there seem to be a number of tangible immediate benefits from legalizating, regulating and taxing the marijuana marketplace, while significant drawbacks rarely prove to be as dire as predicted by opponents of reform.   Two new stories in major newspapers today discussing developments in Colorado reinforce my views. Here are headlines, links and exceepts:

From USA Today here, "These kids are going to college on pot": 

Colorado pot smokers are helping send 25 students to college, the first scholarships in the U.S. funded with taxes on legal marijuana.  The awards offered by Pueblo County, in southern Colorado, are the latest windfall from legal Colorado marijuana sales that are also helping build schools and aid the homeless — and in one county, providing 8% raises to municipal workers.

Pueblo County is granting $1,000 each to the students, with recipients to be announced later this month.  “It’s incredible,” said Beverly Duran, the executive director of the Pueblo Hispanic Education Foundation, which is overseeing the scholarships.  "Every year we get a nice pool of students … but we can always only award to a small percentage.  This for us expands that to extraordinary lengths.”...

Further south in Colorado, Huerfano County expects to collect an extra $500,000 in cannabis taxes this year. That’s bankrolling an 8% raise for almost all of the county's 96 municipal employees, a big deal in an area where a county road worker earns $12 an hour and most employees haven’t had a raise in more than five years....

In Aurora, the state’s third-largest city, marijuana taxes are helping improve roads, pay off a municipal recreation center, and provide direct services for homeless men and women.  Aurora has nearly 20 pot shops and five grow sites, generating a projected $5.4 million in new taxes this year.

From the Los Angeles Times here, "Governor who called legalization 'reckless' now says Colorado's pot industry is working":

“The predictions of fire and brimstone have failed to materialize,” said Mason Tvert, spokesman for the Marijuana Policy Project, a national group working to reform pot laws.  “Most Coloradoans, including the governor, recognize that the law is working.”

From the start, [Colorado Gov] Hickenlooper saw the legalization of marijuana as a great national experiment, something utterly new in this country and fraught with potential public health and safety issues.  He fretted about a potential rise in drug use among children and was clearly uncomfortable with an amendment directly conflicting with federal law, which considers pot an illegal drug on par with cocaine.

There were plenty of snags at first.  Marijuana edibles proved especially problematic because few people had experience with them. High-profile overdoses made national news.  Just last week a lawsuit was filed against the maker of a marijuana-laced candy, alleging the product triggered a "psychotic episode" that caused a man to kill his wife in 2014.  Still, none of Hickenlooper’s worst fears were realized.

Colorado is booming.  The state has a 4.2% unemployment rate, one of the best in the country.  High-tech companies are moving in.  Small towns across the state, some once teetering on the brink of bankruptcy, have been saved by tax revenues from pot dispensaries.  And the $1-billion-a-year cannabis business will pump $100 million in taxes into state coffers this year.

Andrew Freedman, director of marijuana coordination for Colorado, said the governor’s views reflect a growing sense of optimism about how the industry is regulated.  “In the short run, there have been a lot fewer public safety and health issues than the governor feared in the beginning,” said Freedman, who is often referred to as the state’s marijuana czar.  “In the beginning, we had problems with edibles and hash oil fires but now, for the most part, Colorado looks a lot like it did before legalization.”

Marijuana consumption has not changed much from pre-legalization levels and there has been no significant increase in public health and safety problems, he said.  As for the $100 million in tax revenue, Freedman noted, that's out of a $27-billion state budget.  Some 70% of the money is earmarked for school construction, public health initiatives and other projects.  The rest goes back into regulating the industry.  

“The governor has called this a grand experiment from the beginning.  He looks at data points as he goes along and I think he’s pleasantly surprised that there were not as many challenges as he thought,” Freedman said. “He would say the jury is still out on this experiment but he’s optimistic.”

Some are less circumspect.  “The state’s image is actually rising.  We were just ranked as the best place to live in America,” Tvert said.  “The idea that businesses would not relocate here or conferences wouldn’t be held here was untrue.  In fact, attendees at conferences are now offered pot tours as day trips.”

May 17, 2016 in 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 , Who decides | Permalink | Comments (0)

Saturday, May 14, 2016

Two great new reports on marijuana reform and taxes from The Tax Foundation

The Tax Foundation describes itself as the "nation’s leading independent tax policy research organization," and it claims that "since 1937, [its] principled research, insightful analysis, and engaged experts have informed smarter tax policy at the federal, state, and local levels." Helpfully, it has recently turned its attention to marijuana reform via these two new publications:

Here are the "Key Findings" from these two reader-friendly reports (which overlap a bit):

  • Marijuana tax collections in Colorado and Washington have exceeded initial estimates.
  • A mature marijuana industry could generate up to $28 billion in tax revenues for federal, state, and local governments, including $7 billion in federal revenue: $5.5 billion from business taxes and $1.5 billion from income and payroll taxes.
  • A federal tax of $23 per pound of product, similar to the federal tax on tobacco, could generate $500 million per year. Alternatively, a 10 percent sales surtax could generate $5.3 billion per year, with higher tax rates collecting proportionately more.
  • The reduction of societal risk in being engaged in the marijuana trade, as well as the inclusion of taxes, will combine to reduce profits (and tax collections) somewhat from an initial level after national legalization.
  • Society pays all the costs regardless of legality but tax revenues help offset those costs.

  

  • Marijuana tax collections in Colorado and Washington have exceeded initial estimates, and a nationwide legalization-and-tax regime could see states raise billions of dollars per year in marijuana tax revenue.
  • Colorado, Washington, and Oregon have all taken steps to reduce their marijuana tax rates, with Alaska considering it, after initial rates of 30 percent or more did not reduce the black market sufficiently. More recent ballot initiative proposals across the country propose rates between 10 and 25 percent.
  • Tax rates on final retail sales have proven the most workable form of taxation. Other forms of taxation that have been proposed, such as taxing marijuana flowers at a certain dollar amount, taxing at the processor or producer level rather than the retail level, or taxing products by their level of THC, have faced practical implementation difficulties.
  • Medical marijuana is usually more loosely regulated and less taxed than recreational marijuana. In Washington, moving non-medical sales to the retail market has proven difficult given the enormous differentials in tax rates and regulatory structure, and officials there wish the two systems had been tackled simultaneously.
  • While the revenue can be in the tens or even hundreds of millions of dollars, it takes a lead time to develop. Revenues started out slowly in Colorado and Washington, as consumers became familiar with the new system and after state and local authorities spent time and money setting up new frameworks and regulatory infrastructure.
  • Significant attention must be given to health, agricultural, zoning, local enforcement, and criminal penalty issues. These important issues have generally been unaddressed in ballot initiatives and left for resolution in the implementation process.

May 14, 2016 in Business laws and regulatory issues, Medical Marijuana State Laws and Reforms, Recreational Marijuana State Laws and Reforms, Taxation information and issues | Permalink | Comments (0)

Thursday, May 12, 2016

Marijuana sales and tax revenues keep going up and up in Colorado ... while tangible new serious problems seem still not to have (yet?) materialized

This new Denver Post piece, headlined "Colorado pot shops have already sold $270 million of marijuana in 2016," reports that "in the first three months of 2016, Colorado's pot shops sold more than $270 million of marijuana and related products." Here is more:

The state’s latest data shows that its marijuana shops sold nearly $90 million of cannabis in March 2016. The licensed stores sold more than $55 million in recreational marijuana and more than $33 million in medical cannabis in March, the latest month for which the department has released tax data for the industry. Totals for retail and medical marijuana dipped slightly in March after a bustling February, which was the state’s fifth most lucrative month for sales since they began in January 2014, according to Cannabist calculations and state data.

March 2016 totals for recreational pot sales are up 30 percent from March 2015, which shows that “marijuana sales remain strong,” said Christian Sederberg, an attorney for the cannabis industry. “As the regulated system continues to work, we’re also on pace to have over $40 million in excise taxes, meaning there could be additional taxes available from the excise tax to be used for something beyond the public school construction fund.”

Among the taxes collected on retail pot sales is the school-funding 15 percent excise tax on wholesale marijuana transfers, which amounted to $3.5 million in March. One of the cornerstones of the campaign that successfully ran Colorado’s pot-legalizing Amendment 64 says that the first $40 million raised by that excise tax will go toward school construction projects. That specific tax totaled $13.3 million in 2014 and $35 million in 2015, and industry analysts — Sederberg included — say they are confident it will top $40 million in 2016.

Colorado marijuana outlets sold more than $699 million of product in 2014 and more than $996 million in 2015. Year-over-year totals for taxes and license fees grew too, from $76 million in 2014 to $135 million in 2015. There are three types of state taxes on recreational marijuana: the standard 2.9 percent sales tax; a 10 percent special marijuana sales tax; and a 15 percent excise tax on wholesale marijuana transfers. For March, Colorado collected more than $11.3 million in recreational taxes and fees and more than $1.7 million in medical taxes and fees.

Intriguingly, this notable new Atlantic piece, headlined "The Failed Promise of Legal Pot: New laws on marijuana were supposed to boost tax revenues and free up cops to go after “real” criminals. But underground sales — and arrests — are still thriving," details that marijuana legalization in Colorado and other states has not yet completely eliminated the historic black-market realities of marijuana distribution.   Though I find useful this article's reminder that, even after legalization, there can be many persistent black market and prohibition problems, I also think the article highights reasons why we may expect marijuana sales and tax revenues to keep on increasing over time as more and more local marijuana consumers come to prefer engaging with the newer-and-always-innovating legal market over their older-and-surely-less-dynamic black market.

In addition to noting these sales and tax revenue trends, the headline of my post here is meant to flag the reality that we do not seem to have yet seen evidence of increasing serious new problems in Colorado to parallel the evidence of increasing sales and tax revenue.  If there were significant tangible short-terms harms that follow directly from legalizing recreational  marijuana and having robust retail sales, I think those harm would now start to become very obvious now nearly 45 months since Colorado voters enacted full legalization and 30 months into having retail outlets selling lots of this product.  Moreover, if there were  significant tangible short-terms harms that follow directly from legalizing recreational  marijuana, not only should they be evident by now, but they should be contining to grow and become even more evidence as legal sales continue to increase.

Critically, it is certainly possible that there are significant long-term harms for Colorado and elsewhere that can be linked directly to marijuana legalization and increasing legal sales, especially with respect to health concerns.  (The parallel here to tobacco should be clear: having lots of people smoke lots of cigarettes does not produce a lot of obvious short-term harms, but the long-term harms we now know are quite significant.)  But if sales and tax revenues keep going up and evidence of major problems are not yet materializing, it is going to be difficult to effectively campaign in other states against marijuana reform when the tangible cost-benefit realities in Colorado so far seem pretty darn good.

May 12, 2016 in History of Marijuana Laws in the United States, Recreational Marijuana Data and Research, Recreational Marijuana State Laws and Reforms, Taxation information and issues | Permalink | Comments (0)

Monday, April 18, 2016

Colorado Department of Public Safety releases "Marijuana Legalization in Colorado: Early Findings"

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

Oregon tax coffers already getting extra stuffed one month into recreational marijuana sales

Oregon-potAs 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.

March 18, 2016 in Recreational Marijuana Data and Research, Recreational Marijuana State Laws and Reforms, Taxation information and issues | Permalink | Comments (0)

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

Effective general overview of the state of US marijuana reforms as of Fall 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

Pueblo County voters in Colorado approve local marijuana tax to fund college scholarship

Images (4)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

"Marijuana, Ohio, and Esau"

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.

October 22, 2015 in Initiative reforms in states, Recreational Marijuana Commentary and Debate, Taxation information and issues , Who decides | Permalink | Comments (0)

Sunday, September 20, 2015

Colorado tax revenues from marijuana now clearly exceeding those from alcohol

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.”

September 20, 2015 in Recreational Marijuana Data and Research, Taxation information and issues | Permalink | Comments (0)

Tuesday, September 1, 2015

"Legal Marijuana in Arizona Would Generate $72M Yearly in Tax Revenue, New Report Says"

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.

September 1, 2015 in Initiative reforms in states, Recreational Marijuana Data and Research, Recreational Marijuana State Laws and Reforms, Taxation information and issues | Permalink | Comments (0)

Thursday, August 27, 2015

"Pioneer Pot States Have Collected More Than $200 Million In Marijuana Taxes"

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.

August 27, 2015 in Recreational Marijuana Data and Research, Recreational Marijuana State Laws and Reforms, Taxation information and issues | Permalink | Comments (0)

Wednesday, August 19, 2015

"Colorado Marijuana Tax Revenue Nearly Doubles in One Year"

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.

August 19, 2015 in Recreational Marijuana Data and Research, Taxation information and issues | Permalink | Comments (0)

Tuesday, July 14, 2015

Ninth Circuit affirms federal Tax Court approach to (over)taxing marijuana businesses

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.

July 14, 2015 in Federal court rulings, Federal Marijuana Laws, Policies and Practices, Taxation information and issues , Who decides | Permalink | Comments (0)

Sunday, June 21, 2015

Noticing significant tax revenues now flowing from marijuana legalization

How-colorado-allocates-marijuana-taxes_largeThe 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

Highlighting the high taxes facing those in the legal business of marijuana highs

DownloadThis 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.

May 10, 2015 in Federal Marijuana Laws, Policies and Practices, Taxation information and issues | Permalink | Comments (0)