Tuesday, May 2, 2023
New MPP report calculates states have collected over $15 billion in tax revenue from recreational marijuana sales by end of 2022
Via this Marijuana Moment article, I see that the Marijuana Policy Project (MPP) has a new report detailing that, from 2014 to 2022, states that have legalized adult-use recreational marijuana sales have together generated more than $15 billion in tax revenue from marijuana sales. This MPP report, titled "Cannabis Tax Revenue in States that Regulate Cannabis for Adult Use," gets started this way:
Legalizing cannabis for adults has been a wise investment. Since 2014 when sales began in Colorado and Washington, legalization policies have provided states a new revenue stream to bolster budgets and fund important services and programs. Through the end of 2022, states have reported a combined total of more than $15 billion in tax revenue from legal, adult-use cannabis sales. In 2022, legalization states generated more than $3.77 billion in cannabis tax revenue from adult-use sales. In addition to revenue generated for statewide budgets, cities and towns have also generated hundreds of thousands of dollars in new revenue from local adult-use cannabis taxes.
Twenty-two states have legalized cannabis possession for adults 21 and older. All but two of them — Maryland and Virginia — have also legalized, regulated, and taxed cannabis sales, and Maryland’s governor plans to sign twin bills that are on his desk to do so.
Although cannabis sales have continued to generate billions in annual tax revenue, 2022 marked the first year with a decrease in tax revenues compared to the prior year. Even as new states came online, we saw a slight decrease in total state cannabis tax revenue — from over $3.86 billion in 2021 compared to $3.77 billion in 2022. Prior to 2022, every legalization state had seen annual increases in cannabis tax revenue. In 2022, however, six states with the most mature legalization laws experienced decreases in cannabis tax revenue, while newer legalization states generated more cannabis tax revenue in 2022 than in 2021.
Reasons for declining tax revenue include the widespread availability of intoxicating synthetic cannabinoids made from hemp, which are largely unregulated and not subjected to cannabis excise taxes; lower prices in several states due to oversupply; sales beginning in additional states — reducing demand from visitors in more mature states; consumers having less disposable income due to inflation; and — in California — the state reducing the tax rate to make legal cannabis more competitive. Cannabis businesses also face significant challenges due to ongoing federal prohibition, which drives up costs of rent, banking, and almost everything else, and results in an enormous federal tax burden. Those burdens do not apply to intoxicating cannabinoids derived from hemp.
As Vicente LLP Director of Economics and Research Andrew Livingston explained, 2022’s revenue decreases were “due to a multitude of factors,” and that one of them is likely COVID-related. “While 2022 cannabis taxes are lower in some established markets than they were in 2021, it's important to know how COVID-19 and pandemic initiated lockdown orders increased cannabis demand. People could not spend their money going to concerts, going out to dinner, or vacation travel. So many people increased their consumption of consumer packaged goods. Cannabis was a product that could still be purchased and made the difficulty of staying at home for months on end watching TV shows and movies a bit more enjoyable.”
In every state where cannabis tax revenue decreased in 2022, tax proceeds still outperformed every year prior to the COVID-19 pandemic and related shutdowns.
This document reviews each legalization state’s adult-use cannabis tax structure, population, and year-by-year adult-use cannabis tax revenue. States are listed in chronological order, based on when state-legal cannabis sales began, with the most mature markets first. These figures include cannabis excise taxes and states’ standard sales taxes that applied to cannabis. They do not include medical cannabis tax revenue, application and licensing fees paid by cannabis businesses, additional income taxes generated by workers in the cannabis industry, or taxes paid to the federal government.
May 2, 2023 in Recreational Marijuana Commentary and Debate, Recreational Marijuana Data and Research, Taxation information and issues | Permalink | Comments (0)
Friday, March 3, 2023
Student presentation exploring tax revenues raised and revenues spent after marijuana reform
As long-time readers know of this blog should know, students in my Marijuana Law, Policy & Reform seminar "take over" the second half of my class through presentations on the research topics of their choice. Before their presentations, students are expected to provide in this space some background on their topic and links to some readings or relevant materials. The first of our presentations take place next week and will be looking at state tax issues. Here is how my student has described his topic along with background readings he has provided for classmates (and the rest of us):
Marijuana is business. Marijuana is revenue. Even though recreational marijuana has only been legal for a handful of years, the United States Bureau of Economic Activity has been tracking illegal market activity in relation to generally legal market activity. This required the BEA to attempt to track how drugs such as marijuana was impacting the economic activity within the United States. The outcome? The National nominal gross domestic product was raised by 0.2 percentage points.
It is clear that marijuana has had an effect on the national economy even though it is illegal. The question now turns to; how have states who have legalized recreational use made their money through marijuana? How much tax revenue are these states bringing in? And, how is that money being spent in those states?
Many Americans wonder how their tax money is being spent on a day-to-day basis. Where does the sales tax go when I go to the grocery store? Where does twenty percent of my income go every paycheck? Where does the tax money go after I spend money at an adult use dispensary? Questions one and two are hard to answer. Question three, on the other hand, is actually very easy to find out. Many states have set up stringent tax structures relating to their adult use industry. This may be laid out initially in their statutory plan, or the states may wait and see how much they actual earn to see how they should dispense those funds.
Either way, almost every state has a very strict dispense program. Each state uses their marijuana tax revenue differently. Many states add some of the revenue to their general state fund. Many divide the revenue between counties and municipalities who have a dispensary in their jurisdiction. Many use the tax revenue for social justice programs. A few give the money to public schools. A few more give the money to their Department of Health for drug misuse education and programs. One is using the money to offset the now decades long decrease in tobacco tax revenue.
Marijuana has been a very profitable industry for those states who have legalized adult recreational use. The amount of data on how states have shifted on the national pre- and post-legalization is very small. It is quite hard to see how well states are doing compared to how they could have been. Despite this, many states have found that the illegal drug trade is not going away, so they might as well profit on the activity. Alaska Reported more than 3% of their state revenue for fiscal year 2021 was from cannabis sales. Colorado, Nevada, Oregon, and Washington also reported at least 1% of their total state revenue was from cannabis sales. What does this mean? Marijuana IS BUSINESS. The question that remains, and is quite hard to answer, states who have yet to legalize recreational use have obviously seen these profits . . . how have they not legalized?
Interesting websites and articles for background
The Motley Fool, "Marijuana Tax Revenue: A State-by-State Breakdown"
Urban Institute, "State and Local Backgrounders: Cannabis Taxes"
Bureau of Economic Analysis, "Tracking Marijuana in the National Accounts"
March 3, 2023 in Assembled readings on specific topics, Recreational Marijuana Data and Research, Recreational Marijuana State Laws and Reforms, Taxation information and issues | Permalink | Comments (1)
Saturday, February 25, 2023
"Tax Issues Affecting Marijuana Businesses"
The title of this post is the title of this new article recently posted to SSRN authored by Erik M. Jensen. Here is its abstract:
This article considers several issues affecting Internal Revenue Code section 280E, which denies income-tax deductions and credits to businesses trafficking in controlled substances. Even though marijuana is legal in an increasing number of states, it remains a controlled substance under federal law and section 280E therefore applies to marijuana businesses. As a result, investing in a marijuana business is much less attractive than it would otherwise be. The article discusses issues of statutory interpretation but, more important, considers whether an almost complete denial of deductions and credits converts what is in form an income tax into something else. If the “income” tax as applied to a marijuana business is not on income, within the meaning of the Sixteenth Amendment, it may have to be apportioned among the states on the basis of population to be constitutional (the so-called direct tax apportionment rule). The article also argues, however, based on a 1911 Supreme Court decision, that the Sixteenth Amendment issues might go away if the business is conducted using a taxable corporation. Finally, the article includes a brief discussion about marijuana businesses conducted either directly by American Indian nations or through tribally created corporations. Those entities are not subject to the federal income tax; the limitations of section 280E therefore are irrelevant; and tribal businesses have a competitive advantage in the marijuana market. Because of section 280E’s application to businesses that are legal under state law but illegal under federal law — an untenable situation — federalism issues underlie all of the discussion.
February 25, 2023 in Business laws and regulatory issues, Federal Marijuana Laws, Policies and Practices, Taxation information and issues | Permalink | Comments (0)
Saturday, October 1, 2022
Notable new report explores "The Pros and Cons of Cannabis Taxes"
The Urban-Brookings Tax Policy Center this past week released this notable extended report titled "The Pros and Cons of Cannabis Taxes" authored by Richard Auxier and Nikhita Airi. Here is the report's abstract:
While 19 states have enacted a tax on recreational marijuana, there is no standard cannabis tax in the US the way there is an alcohol tax, cigarette tax, and gas tax. Instead, governments use three different types of cannabis taxes: a percentage-of-price tax, a weight-based tax, and a potency-based tax. Different states use different taxes and some states levy multiple taxes. Additionally, some state and local governments levy their general sales tax on the purchase of marijuana. This report is a guide for policymakers, journalists, and engaged community members hoping to better understand cannabis tax debates. It details each state’s cannabis tax system, provides data on cannabis tax revenue, explains the pros and cons of different cannabis taxes, and discusses the various goals of those taxes.
And here is part of the report's conclusion:
After nearly a decade of legal and taxable sales, it is clear that cannabis taxes can generate hundreds of millions of dollars in annual revenue for state and local governments. However, recent revenue declines in five states, each with a distinct cannabis tax system, underscore that revenue growth is not limitless and that various factors can affect what governments collect from year to year.
We know that overly complex and burdensome tax systems, like the pre-reform taxes in California, can depress the evolution of legal marijuana markets. However, we also know that some states, like Washington, can create highly effective markets even with relatively high tax rates.
We know that taxes based on weight and potency could possibly help policymakers achieve important goals like producing more consistent tax revenue and discouraging the use of possibly dangerously potent products. However, we also know that these taxes can drive up costs and create significant burdens for legal sellers....
Ultimately, as new states enact taxes on marijuana and states with existing tax systems consider reforms, policymakers should use existing evidence to make informed choices that align their goals with their taxes. But state and local cannabis tax policy remains anything but simple and predictable. Policymakers across the country should also prepare to monitor, study, and reform these taxes as events develop and we learn more.
October 1, 2022 in Recreational Marijuana Commentary and Debate, Recreational Marijuana Data and Research, Recreational Marijuana State Laws and Reforms, Taxation information and issues | Permalink | Comments (0)
Monday, April 18, 2022
"What Tax Revenues Should Ohioans Expect If Ohio Legalizes Adult-Use Cannabis?"
The title of this post is the title of this new report available via SSRN and produced by the Drug Enforcement and Policy Center and authored by Jana Hrdinova and Dexter Ridgway. Here is its abstract:
Advocates for cannabis reform in Ohio and in other states often stress the tax revenue that can be raised through legalization. If a citizen-initiated statute currently under consideration in the Ohio General Assembly were to reach the ballot, Ohio voters are likely to hear from reform advocates about the potential tax revenue a new cannabis industry could bring to the Buckeye State. The purpose of this policy paper is to provide an initial estimate of potential cannabis tax revenue in Ohio that is informed by tax revenue data and trends from a select group of other adult-use states.
Based on our analysis, we are using Michigan FY 2021 data on cannabis tax revenue as our focal point for Ohio cannabis tax revenue estimates given the demographic and tax structure similarities; we are assuming a conservative rate of diminishing retail sales growth through year five of an operational legal adult-use program; we are using state population figures as our basis for calculating per capita cannabis tax revenue rates; and we are modeling for three different Ohio pricing scenarios. Given these assumptions, the potential annual tax revenue from adult-use cannabis in the state of Ohio ranges from $276 million in year five of an operational cannabis market to $374 million in year five of operations.
April 18, 2022 in Recreational Marijuana Data and Research, Recreational Marijuana State Laws and Reforms, Taxation information and issues | Permalink | Comments (0)
Wednesday, January 12, 2022
"Solving the Cannabis Tax Puzzle: Approaches for an Emergent Industry"
The title of this post is the title of this exciting event taking place online two weeks from today put on by the Drug Enforcement and Policy Center and The Center for New Revenue. As detailed at this registration page, the event will take place on Wednesday, Jan. 26, 2022 from Noon - 1:30pm. Here are the basics with the list of confirmed speakers:
States that legalize adult-use cannabis face many decisions as they set up a regulatory structure for the new industry. As all states impose excise taxes on recreational cannabis, the questions of how much to tax and how to tax come into focus.
Join the Drug Enforcement and Policy Center and the Center for New Revenue for a panel that will explore the evolving theory and practice of cannabis tax policy. Panelists will delve into a range of issues including the choice of an effective tax base (weight of flower and trim, THC amount, percentage of price) and the appropriate tax burden.
Ulrik Boesen, senior policy analyst, Tax Foundation
Hilary Bricken, attorney, Harris & Bricken
Benjamin Leff, professor, American University Law School
Pat Oglesby, founder, The Center for New Revenue
Shaleen Title, distinguished cannabis policy practitioner in residence, Drug Enforcement and Policy Center
January 12, 2022 in Business laws and regulatory issues, Taxation information and issues | Permalink | Comments (1)
Thursday, January 6, 2022
MPP provides new accounting of "Cannabis Tax Revenue in States that Regulate Cannabis for Adult Use"
The Marijuana Policy Project has this notable new online report under the heading "Cannabis Tax Revenue in States that Regulate Cannabis for Adult Use." The report provides a state-by-state accounting of public tax revenue data, and it sets up the discussion this way:
Legalizing cannabis for adults has been a wise investment. Since 2014 when sales began in Colorado and Washington, legalization policies have provided states a new revenue stream to bolster budgets and fund important services and programs. As of December 2021, states reported a combined total of $10.4 billion in tax revenue from legal, adult-use cannabis sales. In addition to revenue generated for statewide budgets, cities and towns have also generated hundreds of thousands of dollars in new revenue from local adult-use cannabis taxes.
Eighteen states have laws that legalize, tax, and regulate cannabis for adults 21 and older (the 2020 voter-approved adult-use legalization law in South Dakota was overturned by the state’s Supreme Court in November 2021). Eight of the laws were approved in 2020 or 2021, and in seven of those states, sales and tax collections have not yet begun. This document reviews each state’s adult-use cannabis tax structure, population, and revenue from legalization. These figures do not include medical cannabis tax revenue, application and licensing fees paid by cannabis businesses, additional income taxes generated by workers in the cannabis industry, or corporate taxes paid to the federal government.
The last line of this introduction highlights why this review in necessarily an under-reporting of state revenues generated by legalization regimes.
January 6, 2022 in Recreational Marijuana Data and Research, Taxation information and issues | Permalink | Comments (1)
Thursday, December 16, 2021
"The Effects of Marijuana Legalization in Colorado: More Neutral than Expected"
The title of this post is the title of this paper recently posted to SSRN and authored by Jesse Plaksa, a student at The Ohio State University Moritz College of Law. (This paper is yet another in the on-going series of student papers supported by the Drug Enforcement and Policy Center.) Here is this latest paper's abstract:
In 2012, Colorado was among the first states to legalize marijuana for recreational use, coming only second to Washington by four days. However, Colorado was the first state to begin selling recreationally. Thus, interested parties immediately began looking to Colorado’s experiment to help determine what exactly happens when a state begins regulating marijuana like alcohol. Any major policy change will have many wide-ranging effects.
This paper will examine a variety of those effects, including the effects on crime, use of other illicit drugs, policing, health, and economic effects. The effects on crime are not clear because there are conflicting reports showing crime has gone down, but others show a neutral effect on crime. Legalization does not seem to affect clearance rates of crimes, as proponents often argue it would. It is not yet clear whether marijuana legalization lowers opioid overdose deaths, though researchers would expect that some opioid users would use marijuana instead. Additionally, legalization appears to have little to no effect on traffic accidents and fatalities. Legalization also added a substantial amount of new jobs to Colorado’s economy and brings in substantial revenue with Colorado’s high tax rate on marijuana sales.
Marijuana is still federally illegal, being a schedule I drug along with heroin, but states have pushed forward with little to no interference from the federal government. Colorado has paved the way by showing that legalization can, at the very least, bring in much-needed revenue via taxes. By being aware of the possible effects of legalization, state lawmakers and citizens can be better informed to make decisions for their own states. Additionally, the federal government can look to Colorado as an experiment that it can then learn from to better decide whether to make any changes at the federal level. Given that Pew polls show around two thirds of Americans favor legalization, a close look at the consequences of such a policy is warranted.
December 16, 2021 in History of Marijuana Laws in the United States, Recreational Marijuana Commentary and Debate, Recreational Marijuana Data and Research, Taxation information and issues | Permalink | Comments (0)
Thursday, September 23, 2021
"The Cannabis Conundrum: Constitutional & Policy Concerns in Taxation of the Marijuana Industry"
The title of this post is the title of this notable paper that I just saw via SSRN which is authored by Beckett Cantley and Geoffrey Dietrich. Here is its abstract:
The cannabis industry has greatly expanded over the last few years, with a majority of states legalizing cannabis in some form. However, despite the growing popularity of the cannabis industry and more companies entering the market, the Internal Revenue Service (“IRS”) has remained steadfast in denying business deductions for cannabis companies. Under Internal Revenue Code (“IRC”) § 280E, the IRS can disallow all ordinary and necessary business expenses by companies trafficking in illegal drugs. The disallowance of ordinary and necessary business expenses greatly hinders cannabis companies, especially for companies legally operating under state law. Several cannabis companies have also attacked the harsh effects of IRC § 280E on constitutional and public policy grounds. Despite a general shift in medical, legal, and public opinion supporting the full legalization of marijuana, legislation still lags far behind. There is currently pending legislation to address the deductions allowed for marijuana companies and reflects a shift in public policy.
One recent attack on IRC § 280E is that the provision violates the Sixteenth Amendment. Under this theory, cannabis companies argue the definition of income under the Sixteenth Amendment requires gain, and thus the disallowance of ordinary and necessary business expenses imposes a tax on more than a company’s income. For example, the Sixteenth Amendment permits a taxpayer to reduce gross receipts by cost of goods sold before a tax may be imposed. The correct method in calculating cost of goods sold also provides another point of contention between the IRS and cannabis companies. Courts continue to classify cannabis companies as “resellers” instead of “producers,” which reduces the amount that cannabis companies can deduct as cost of goods sold.
Despite the growing popularity of cannabis companies and a growing number of states legalizing marijuana, courts are unlikely to invalidate IRC § 280E as unconstitutional until a sufficient groundswell of support for the policy benefits such a change would permit arises. This article will discuss: (I) a brief evolution of the public support, policies, and rationales behind marijuana legalization and the conflicts arising under the Sixteenth Amendment; (II) competing state and federal laws concerning cannabis regulation; (III) and the constitutionality of IRC § 280E under both the Sixteenth Amendment and the Eighth Amendment; and conclude with (IV) a public policy argument for legislation removing marijuana from the purview of IRC § 280E.
September 23, 2021 in Business laws and regulatory issues, Federal Marijuana Laws, Policies and Practices, Taxation information and issues | Permalink | Comments (0)
Tuesday, July 13, 2021
Interesting look into marijuana reform and home values
I just came across this interesting new online report from the realtor website Clever Real Estate under the heading "2021 Study: How Legalizing Recreational Marijuana Impacts Home Values." Here are excerpts:
To learn how marijuana legalization may impact real estate, we used publicly available data from Zillow and the U.S. Census, among other sources, to explore the relationships between home values, marijuana legalization, dispensaries, and tax revenue. We used multiple regression analyses to model current trends and predict future patterns.
Overall, we found marijuana legalization leads to higher property values and millions of dollars in new tax revenue. In fact, states that legalize recreational marijuana and add new retail dispensaries see far greater property value and tax revenue gains than states that block dispensaries or limit marijuana to medicinal use.
From 2017 to 2019, home values increased $6,338 more in states where marijuana is legal in some form, compared to states that haven’t legalized marijuana.
As states tax marijuana sales for the first time, the increased revenue drives new investment in things such as public services and infrastructure — which in turn drives higher demand in real estate, higher property values, and greater revenue from property taxes.
On average, home values increase by $470 for every $1 million increase in tax revenue. In 2020, the eight states that reported a full year of marijuana tax revenue earned $2.3 billion — including $1 billion in California alone. The seven states (and Washington, D.C.) that have yet to collect a full year of marijuana taxes are predicted to collectively bring in $601 million in new annual tax revenue.
States that have legalized and allowed sales of recreational marijuana see the biggest increases in home values: Between April 2017 and April 2021, property values rose $17,113 more in states where recreational marijuana is legal, compared to states where marijuana is illegal or limited to medicinal use.
In the five states that have legalized recreational marijuana but have yet to begin sales, home values are predicted to increase by an average of $61,343 when sales go into effect. Among states that have legalized recreational marijuana, California has seen the biggest increase in home values — up by $128,341 since 2017, after we controlled for other variables.
We found that cities with more dispensaries are positively correlated with higher home values, suggesting legalization boosts jobs and economic growth. Home values increased $22,090 more in cities with recreational dispensaries, compared to home values in cities where recreational marijuana is legal but dispensaries are not available. With each new dispensary a city adds, property values increase by $519.
July 13, 2021 in Medical Marijuana State Laws and Reforms, Recreational Marijuana Data and Research, Taxation information and issues | Permalink | Comments (0)
Thursday, June 10, 2021
Another notable accounting of marijuana tax revenues
In this prior post, I flagged of this recent report and accounting from folks at the Marijuana Policy Project titled "Marijuana Tax Revenue in States that Regulate Marijuana for Adult Use." While that report focused on cumulative tax revenue in various states, this recent MJBiz Daily article, headlined "Marijuana legalization efforts get boost from billions in MJ tax dollars," drills into some more tax specifics while also discussing the MPP report. I recommend the piece in full, and here are excerpts:
Adult-use marijuana programs are generating billions of dollars in tax revenues for state governments each year – bolstering the economic and equity case for legalization in other markets across the country as well as at the federal level. The economic argument might particularly resonate among reluctant Republican lawmakers on Capitol Hill, experts say....MPP’s tax revenue report comes as the organization is involved in adult-use legalization advocacy efforts in Connecticut, Delaware and Rhode Island – and in the wake of successful recreational marijuana legalization across the country in the past few months from New York to New Mexico. Maryland is on MPP’s radar for next year ... as are potentially several other states....
Social equity and racial justice issues have become critical pieces in adult-use legalization negotiations, and tax revenues are important because they help fund those programs. In New York, state tax revenues will be directed toward community reinvestment grants (40%), public schools (20%) and drug-treatment and public-health programs (40%).
Other states also are using portions of the tax revenues for such areas as childcare services (California), conservation (Montana), environment (California), law enforcement (Oregon and Maine), mental-health services (Illinois), public transportation (Michigan) and reentry programs for those imprisoned with drug convictions (Alaska)....
The report doesn’t detail the hundreds of thousands of dollars of revenue generated for cities and towns from local cannabis taxes or the various economic development impacts such as job creation. But other studies have. The newly published MJBizFactbook, for example, estimates that the total U.S. economic impact from marijuana sales in 2021 is expected to reach $92 billion – up more than 30% from last year – and upwards of $160 billion in 2025.
June 10, 2021 in Recreational Marijuana Data and Research, Recreational Marijuana State Laws and Reforms, Taxation information and issues | Permalink | Comments (0)
Friday, May 28, 2021
"Marijuana Tax Revenue in States that Regulate Marijuana for Adult Use"
The title of this post is the title of this notable new report and accounting from folks at the Marijuana Policy Project. Here is how it gets started (with my highlight):
Legalizing marijuana for adults has been a wise investment. Since 2014 when sales began in Colorado and Washington, legalization policies have provided states a new revenue stream to bolster budgets and fund important services and programs. As of May 2021, states reported a combined total of $7.9 billion in tax revenue from legal, adult-use marijuana sales. In addition to revenue generated for statewide budgets, cities and towns have also generated hundreds of thousands of dollars in new revenue from local adult-use cannabis taxes.
Eighteen states have enacted laws legalizing, taxing, and regulating cannabis for adults 21 and older. Eight of the laws passed in 2020 or 2021, and in seven of those states, licensing and tax collections have not yet begun. This document reviews each state’s adult-use cannabis tax structure, population, and revenue from legalization. It does not include medical cannabis tax revenue, application and licensing fees paid by cannabis businesses, additional income taxes generated by workers in the cannabis industry, or corporate taxes paid to the federal government.
The report provides a helpful overview of all the basic tax structures in place for adult-use marijuana as of May 2021, as well as reports on total collections in these states to date. Notably, while Colorado is often thought about as the first legalization state and California is rightly seen as the biggest legalization state, this report details that Washington is as of now the richest state in tax revenues with over $2.5 billion collected. (But California's tax revenue in 2020 was nearly twice that of Washington's according to this report, so by 2022 we should expect the Golden State to have collected the most tax gold from adult-use marijuana legalization.)
May 28, 2021 in Business laws and regulatory issues, 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, May 10, 2021
Guest-post: "Tax Provisions in State Constitutions May Hinder Marijuana Legalization Efforts"
I was very pleased to have received the following guest post content from Professor Andrew D. Appleby of Stetson University College of Law:
Although the recreational marijuana movement has gained momentum at the state level, several states may be unable to legalize recreational marijuana because of tax limitations in their state constitutions. A primary motivation for legalization is increased tax revenue, and every state that has legalized recreational marijuana also taxes it. Many states, however, have broad constitutional provisions designed to make tax increases more difficult, most notably provisions that require supermajority approval to create or increase any tax. There appears to be a third wave of these tax supermajority provisions proliferating. Florida voters approved a constitutional provision in 2018 and several other states, including New York in 2021, have considered supermajority approval provisions. These provisions have several unintended consequences, as discussed in my forthcoming article, "Designing the Tax Supermajority Requirement."
These provisions impact recreational marijuana in several ways. Most state tax supermajority provisions apply only to the legislative process, so many states are forced to use the voter approval process for marijuana legalization efforts. Prior to 2021, only two states had legalized recreational marijuana through the legislative process. Neither state has a tax supermajority requirement, and neither state would have satisfied the requirement. Vermont was unable to include a tax provision in its initial legalization bill and needed to enact a separate tax statute two years later. Three states legalized recreational marijuana through the legislative process in 2021. None of the legislation passed with two-thirds supermajority approval.
Recreational marijuana is still divisive in many states for many reasons, particularly as it remains illegal federally, so achieving supermajority approval is difficult. Even in politically liberal states, recreational marijuana legalization voter initiatives have passed by narrow margins. In the 2016 election year, for example, the Massachusetts initiative passed with 53% of the vote and the California initiative garnered only 57% approval. Four states legalized recreational marijuana through ballot initiatives in 2020. Only New Jersey achieved supermajority approval, and just barely, with 67% voting in favor. South Dakota, which has a tax supermajority provision and “one subject” provision in its constitution, had its legalization initiative declared unconstitutional, with the South Dakota Supreme Court currently considering the appeal.
Florida is also grappling with constitutional hurdles in its marijuana legalization efforts, as the Florida Supreme Court struck down a proposed ballot measure because of misleading language. Even if the measure were to appear on the ballot, Florida has an additional tax supermajority provision that requires two-thirds supermajority approval for voters to amend the constitution to create or increase a tax. The experiences in South Dakota and Florida illustrate how tax supermajority provisions have the unintended consequence of impeding recreational marijuana efforts.
May 10, 2021 in Business laws and regulatory issues, Political perspective on reforms, Recreational Marijuana Commentary and Debate, Taxation information and issues , Who decides | Permalink | Comments (1)
Thursday, March 25, 2021
Spotlighting that marijuana tax revenues hit new high in 2020 at over $3 billion
I have been recently thinking about metrics used to assess marijuana reform, and this recent post at the Just Taxes blog from the Institute on Taxation and Economic Policy flags a new benchmark in a notable metric. The piece by Carl is titled "State and Local Cannabis Tax Revenue Jumps 58%, Surpassing $3 Billion in 2020," and here are excerpts:
Cannabis taxes are a small part of state and local budgets, clocking in at less than 2 percent of tax revenue in the states with legal adult-use sales. But they’re also one of states’ fastest-growing revenue sources.
Powered by an expanding legal market and a pandemic-driven boost in cannabis use, excise and sales taxes on cannabis jumped by more than $1 billion in 2020, or 58 percent, compared to a year earlier. In total, these taxes raised more than $3 billion last year, including $1 billion in California alone. These are the findings of an ITEP analysis of newly released tax revenue data from the 10 states where legal sales of adult–use cannabis took place last year.
About a third (36 percent) of the nation’s cannabis tax revenue growth occurred in California as the state’s relatively new adult-use market continued to gain its footing after a somewhat sluggish start. The next most significant source of new revenue was Illinois, which started legal retail cannabis sales on Jan. 1, 2020.
States with more established markets such as Washington, Colorado, Oregon, and Alaska also saw significant growth in revenue, likely driven in part by an increase in cannabis use during a time of stay-at-home orders and self-quarantining. The slowest year-over-year growth, by contrast, occurred in Nevada as would-be tourists wary of COVID steered clear of Las Vegas. Nevada’s economy and state budget have been among the hardest hit in the nation during the pandemic. Even so, Nevada’s cannabis tax revenues rose 14 percent compared to a year earlier.
While the pandemic has taken a significant toll on state and local budgets overall, its impact on cannabis taxes (and alcohol taxes, for that matter) appears to have mostly been a positive one. Total excise and sales tax revenue from cannabis during the first six months of the pandemic (March through August 2020) shot up by 44 percent compared to the previous six-month period. That’s compared to 17 percent growth in the six months prior. The spike in revenue is clearly visible in the figure below. Notably, it occurred not just in the states with new markets like Illinois and Michigan where rapid growth would have been expected even under normal circumstances, but also across the five states with more established legal markets that launched between 2014 and 2017.
March 25, 2021 in History of Marijuana Laws in the United States, Medical Marijuana Data and Research, Recreational Marijuana Data and Research, Taxation information and issues | Permalink | Comments (0)
Tuesday, December 15, 2020
"Marijuana Businesses, Section 280E, and the Sixteenth Amendment"
The title of this post is the title of this recent article authored by Erik M. Jensen that I just saw on SSRN. Here is its abstract:
Quite a few judicial opinions in recent years have discussed the constitutionality of Internal Revenue Code section 280E, which denies income-tax deductions and credits to taxpayers for any trade or business that involves “trafficking in controlled substances,” as the section is applied to cannabis businesses. Since marijuana is a controlled substance under federal law, section 280E comes into play for those in the cannabis industry even though that industry has been legalized in many states. This article makes two main points. One is that, even though courts have consistently rejected taxpayers’ arguments that Congress may not impose limits on business-related deductions, that shouldn’t mean that Congress can deny all deductions from gross income for trafficking individuals and still have a “tax on incomes” exempted from the direct-tax apportionment rule by the Sixteenth Amendment. The second is that the Sixteenth Amendment isn’t even arguably relevant if the taxpayer engaged in the cannabis business is a C corporation, a taxable entity. The Supreme Court concluded, before the 1913 ratification of the amendment, that a corporate income tax is not a direct tax that has to be apportioned to be valid. Denial of significant deductions to a corporate taxpayer may be an important policy issue, but it’s not a constitutional one.
December 15, 2020 in Business laws and regulatory issues, Taxation information and issues | Permalink | Comments (0)
Thursday, December 10, 2020
"Can Revenue From Legalized Recreational Marijuana Help States Close Budget Gaps?"
The question in the title of this post is the headline of this new piece from folks at Pew. Here are excerpts:
Voters in Arizona, Montana, New Jersey, and South Dakota on Nov. 3 legalized recreational marijuana in their states, joining 11 others that already allow regulated use and sale of the drug.
Policymakers in these states pitched legal cannabis in part to bring in much-needed revenue. For example, in New Jersey, Governor Phil Murphy (D) said the money would “help fund critical priorities like education and infrastructure.” But tax revenue from marijuana has proved uncertain in normal times, and pandemic-driven economic disruptions and consumer behavior shifts may only add to that uncertainty....
One of the challenges of legalized recreational marijuana is that the tax revenue is difficult to forecast because of the lack of historical data. Even Colorado and Washington, the first states to begin legal marijuana sales in 2014, have only a few years of data on which to base projections. (See Figure 1 for details on which states have legalized marijuana and when.)
This uncertainty may be compounded by the recession, the first to hit since the sale and use of recreational marijuana has been legal in any state. Although revenue forecasters have historical data on sales and excise taxes for other goods over the business cycle, this is not true for recreational marijuana, which was first legalized well after the official end of the Great Recession more than a decade ago. The 2020 downturn — driven by a disease that has prompted significant shifts in individual behavior — could prove especially difficult for forecasters trying to predict how much states could collect in marijuana taxes.
In addition, states’ experiences so far suggest that the initial years may be the most volatile as supply tries to meet demand. Recreational marijuana may provide a burst of revenue upon introduction, but policymakers should not expect consistent growth over the long term. In Colorado, for example, revenue has been volatile in recent months, in large part because of the disruption to the state economy caused by the pandemic. April usually brings an uptick in marijuana revenue, but this year tax collections were down 2% over the previous month. In the following months, however, the state has seen record-breaking revenue. It is unclear whether this spike is temporary and related to the recession or part of a longer-term trend.
Policymakers can hedge against the uncertainty and volatility of marijuana revenue by budgeting it cautiously. They can put the money toward savings, for example, or spend it after it is collected. If states are considering using the funds for ongoing spending priorities that require sustainable revenue streams, they should be careful about relying too heavily on marijuana taxes. Understanding the short- and long-term effects of budget balancing actions such as these can help officials make decisions that put their states on sound fiscal footing for years to come.
December 10, 2020 in Business laws and regulatory issues, Taxation information and issues | Permalink | Comments (0)
Monday, December 7, 2020
Congressional Budget Office reports MORE Act would generate over $13 billion in net federal revenue over next 10 years
As reported in this new Marijuana Moment article, the MORE Act "passed in a historic vote last week by the U.S. House of Representatives would generate about $13.7 billion in net revenue for the U.S. treasury over the next decade, according to a new report by the Congressional Budget Office (CBO)." Here is more:
Most of the new funds — roughly $8 billion — would come from business taxes on the legal marijuana industry, such as income and payroll taxes. A separate excise tax, initially based on the price of cannabis products, is estimated to yield another $5.7 billion.
“CBO and the staff of the Joint Committee on Taxation estimate that H.R. 3884 would increase revenues, on net, by about $13.7 billion over the 2021-2030 period,” says the nonpartisan report, published Friday....
Legalization would also bring additional government costs, the CBO report says, though all spending would be entirely offset by new revenue. The expected reduction in the federal prison population, for example, would lead to an estimated $636 million in new spending on federal benefits programs, such as Medicare and Medicaid.
“Federal prisoners generally are not eligible for these benefits,” says the report. “By reducing the prison population, CBO estimates, H.R. 3884 would increase the number of federal beneficiaries, compared with current law, and thus increase direct spending for federal benefit programs.”
The $5.7 billion in expected revenue from the marijuana excise tax, meanwhile, would go into the so-called Opportunity Trust Fund. From that, an estimated $3 billion would be spent by the Department of Justice over the 10-year period to provide job training, legal aid and other services to disproportionately impacted communities. The remaining $2.7 billion would go to the Small Business Administration to be used on state and local grants to cannabis-related small businesses that help develop licensing rules.
It wasn’t immediately clear whether the CBO report analyzed the bill as originally introduced last year or included the impacts of new changes made to the legislation last week that would adjust cannabis excise taxes as the market matures. Under the amendment, the excise tax would initially start at 5 percent of a product’s cost, then increase over time to 8 percent and later shift to a weight-based tax.
The new CBO report was a long time coming. The office is supposed to assess the financial impact of most bills that advance out of congressional committees, but it’s been more than a year since the MORE Act won approval from the House Judiciary Committee....
While the MORE Act faces an uphill battle in the Senate — some have called the issue a nonstarter unless Democrats gain control of the chamber — legalization proponents have nevertheless cheered the bill’s House passage as a major milestone.
December 7, 2020 in Business laws and regulatory issues, Federal Marijuana Laws, Policies and Practices, Taxation information and issues | Permalink | Comments (1)
Tuesday, September 8, 2020
"Building a Better Marijuana Tax"
The title of this post is the title of this new paper recently posted to SSRN and authored by Carl Crow, a recent graduate of The Ohio State University Moritz College of Law. (This paper is yet another in the on-going series of student papers supported by the Drug Enforcement and Policy Center.) Here is this latest paper's abstract:
Eleven states and the District of Columbia have passed legislation legalizing adult possession and use of marijuana. Of those twelve jurisdictions, only eight of those jurisdictions have active markets where the substance can be legally bought and sold, and each imposes a different taxation scheme on the flow of marijuana goods in the marketplace. This paper analyzes each tax base and then proposes a bifurcated recreational marijuana tax scheme for states that are currently thinking about legalization: (i) tax flower, bud, and trim based on weight; and (ii) tax concentrates, edibles, oils, and other “distilled” marijuana products based on potency, currently measured by THC content.
The idea behind taxing by potency is two-fold: first, the state may pursue public health goals by nudging consumers away from high-potency forms of marijuana – and prevent producers from gravitating even more strongly toward high-potency goods; second, taxing by potency may help normalize the recreational use of marijuana by encouraging society to treat marijuana more like other legal drugs such as alcohol and cigarettes. While no tax scheme is perfect, a hybrid weight/potency base combined with a sunset provision to allow further research on the area appears to be the ideal way to regulate marijuana at this moment in time.
September 8, 2020 in Business laws and regulatory issues, Recreational Marijuana Commentary and Debate, Taxation information and issues , Who decides | Permalink | Comments (0)
Monday, June 29, 2020
"California cities begin embracing cannabis in desperate search for cash"
The title of this post is the title of this recent notable Politico article. Here are excerpts:
California local governments scrambling to find tax revenues during the coronavirus pandemic are turning toward an industry they had considered taboo until now: cannabis.
It has been almost four years since voters legalized recreational marijuana in California, and nearly 70 percent of cities and counties have yet to embrace pot businesses because they see regulatory problems or have concerns about public safety and negative publicity.
But some, facing insurmountable budget gaps as unemployment rises to its worst level since the Great Depression, would now rather open their doors to cannabis than lay off more workers or cut services. So far, a handful of cities have begun developing cannabis tax measures for the November ballot since voter approval is required to add local taxes. It's a trend many in the industry expect to continue over the next month absent approval of a federal bailout for state and local governments....
San Bruno, a Bay Area city that two years ago banned marijuana businesses, is among the governments with a change of heart. Last week, city council members voted unanimously to fund a tax measure and public education campaign, while voicing support for the idea of exploring an ordinance that would allow a dispensary or delivery service to open sometime next year.
According to projections from city officials, an operational cannabis shop could reduce San Bruno’s projected $8.2 million deficit in the upcoming fiscal year by around $300,000. “It's not gonna solve our problems, but it's going to keep $300,000 that we desperately need to hire whomever it is to make our city better,” Councilmember Marty Medina said at the meeting.
The city of Montclair in San Bernardino County is facing a similar budget crunch as sales tax revenue has cratered following the temporary closure of its mall. There, city officials are considering proposals to repeal a marijuana ban and create regulations for commercial activity. The plan could raise up to $2 million annually, according to City Manager Edward Starr.
While both San Bruno and Montclair are left-leaning cities where a majority of residents voted to approve the Prop. 64 legalization initiative in 2016, Republican-led jurisdictions where voters rejected the statewide measure are also starting to consider cannabis — to the surprise of industry observers. Last month, councilmembers in Yucaipa asked city staff to begin looking into alternative revenue streams, including marijuana businesses, amid a 15 percent decline in sales tax revenue and increasing public safety costs. Republicans hold a 20-point registration advantage over Democrats in the San Bernardino County jurisdiction, where a majority voted against Prop. 64....
Calls for jurisdictions to dive into the legal market have even come from some of the highest levels of state leadership, with Treasurer Fiona Ma calling the tax revenues a potential “game changer” during a virtual round table last month....
Among the other jurisdictions that have already begun developing cannabis tax measures or have shown interest in doing so are Sonoma, Signal Hill, Wildomar, Lemon Grove and Yountville. As in Yucaipa, one of the prevailing themes in council meetings elsewhere has been that their residents are sending tax dollars to neighboring jurisdictions by purchasing marijuana products from other cities with licensed stores or from the state’s robust illicit market.
Industry research firms BDS Analytics and Arcview Market Research estimate that unlicensed operations brought in $8.7 billion in untaxed revenue in 2019, compared to the legal market's $3.1 billion.
According to Jackie McGowan, founder of Green Street Consulting, local leaders are also looking at nearby jurisdictions that have developed their cannabis markets and don’t want to be left behind. Among those that have already allowed marijuana businesses, Monterey County is counting on $10.2 million in projected cannabis tax revenues to cover general fund shortfalls and avoid layoffs in the upcoming fiscal year and Santa Barbara County leaders believe $10.6 million in marijuana revenue will help offset coronavirus losses.
June 29, 2020 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 (1)
Tuesday, June 9, 2020
"A Road Map to Recreational Marijuana Taxation"
The title of this post is the title of this great new 39-page report from the Tax Foundation authored by Ulrik Boesen. Here are the "Key Points" that are set forth at the start of the document:
• Legal recreational marijuana sales are ongoing in nine states, covering 27 percent of the U.S. population. In 2018, 10.5 percent of adult Americans had used marijuana products in the last 30 days.
• States have designed different excise tax systems for recreational marijuana. While most tax based on price, states also tax marijuana based on weight or THC content.
• An excise tax on recreational marijuana should target the externality and raise sufficient revenue to fund marijuana-related spending while simultaneously outcompeting illicit operators. Excise taxes should not be implemented in an effort to raise general fund revenue.
• Changes to federal law would have implications for the tax revenue in states with legalized marijuana. If businesses had better access to banking, federal tax deductions, or interstate trading, prices would most likely fall.
• High taxes may limit adoption by minors and non-users but could hurt the competitiveness of the legal market. Low taxes may allow easy conversion from the illicit market but could increase consumption among non-users and minors. Taxing by price may not be stable, taxing by weight could encourage use of high potency products, and taxing by potency could complicate tax collection and add significant costs to both tax collectors and industry.
• A potency- and weight-based tax defined by THC levels may be the best short-term solution for lawmakers assuming that THC is an appropriate proxy for the externalities associated with consuming marijuana
June 9, 2020 in Recreational Marijuana Commentary and Debate, Recreational Marijuana Data and Research, Recreational Marijuana State Laws and Reforms, Taxation information and issues | Permalink | Comments (0)