Monday, May 13, 2024

New MPP report reviews "Cannabis Tax Revenue in States that Regulate Cannabis for Adult Use"

56154b75-92e7-402c-9346-7513b42e537f_1920x1080The Marijuana Policy Project has recently released this new report titled "Cannabis Tax Revenue in States that Regulate Cannabis for Adult Use." The report has lots of state-ny-state tax data, and here is how it gets startd:

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 first quarter of 2024, states have reported a combined total of more than $20 billion in tax revenue from legal, adult-use cannabis sales.  In 2023 alone, legalization states generated more than $4 billion in cannabis tax revenue from adult-use sales, which is the most revenue generated by cannabis sales in a single year.  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-four states have legalized cannabis possession for adults 21 and older.  All but one of them — Virginia — have also legalized, regulated, and taxed cannabis sales. In two legalization states — Delaware and Ohio — sales have not begun yet.

In many states with legal, adult-use cannabis sales, tax revenues are allocated for social services and programs. This includes funding education, school construction, early literacy, public libraries, bullying prevention, behavioral health, alcohol and drug treatment, veterans’ services, conservation, job training, conviction expungement expenses, and reinvestment in communities that have been disproportionately affected by the war on cannabis, among many others.

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 are 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 13, 2024 in Recreational Marijuana Commentary and Debate, Recreational Marijuana Data and Research, Taxation information and issues | Permalink | Comments (0)

Sunday, April 7, 2024

Student presentation examines impact of taxation schemes on medical marijuana

Images (6)As we come down the homestretch in my Marijuana Law, Policy & Reform seminar, students continue to cover terrific issues in their research and class presentations.  This week in my class, the third scheduled presentation has been given this title: "Getting Too Into the Weeds?: An Analysis of the Impact of Different Taxation Schemes on Medical Marijuana Programs and the Potential Impacts of H.B. 86 in Ohio."    Here is how the student describes her topic (along with background readings):

Medical marijuana programs are at risk of ceasing to exist to any meaningful extent in many states that have legalized recreational marijuana.  There has been a consistent trend of declining registered medical marijuana patient numbers in those states post-legalization.  While there are potentially many causes of this decline, there is one policy decision each of these states has had to make that could have a large impact on the magnitude of this decline: taxation structure.  There are three common taxation structures selected by these states: sales tax, tax exemptions, and excise tax.  All three structures are supported by reasonable policy rationales.

At the end of 2023, Ohio joined the group of states that have legalized both medical and recreational marijuana use via an initiated statute.  The Ohio Legislature, in turn, has been left with the obligation to make any changes it deems necessary to Ohio’s recreational program before it becomes fully effective.  One of the proposals that is most likely to pass is House Bill 86 (H.B. 86).  Under H.B. 86, the excise tax on recreational marijuana would increase from ten percent to fifteen percent.  This may not seem like it will impact patient registration rates in Ohio, however, the language of H.B. 86 may open the door to application of this excise tax to medical marijuana sales in Ohio if it is passed as written.

To attempt to predict what will occur to Ohio’s medical marijuana program post-legalization of recreational marijuana under the ambiguous language of H.B. 86, this paper aims to determine if there is any correlation between the type of taxation scheme a state has for medical marijuana and the likelihood of its medical marijuana program surviving.

Background Materials:

Ohio House Bill 86 (specifically Section § 5739.27(A)).

Jenn Jarecki, Bob Kinzel, & Nathaniel Wilson, "Vermont Lawmakers Consider Changing Medical Cannabis Program, Retail Potency Limits"

Carol Kokinis-Graves, "State by State Sales Tax on Cannabis"

Kevin F. Boehnke, Owen Dean, Rebecca Haffajee, & Avinash Hosanagar, "U.S. Trends in Registration for Medical Cannabis and Reasons for Use from 2016-2020: an Observational Study"

April 7, 2024 in Assembled readings on specific topics, Medical Marijuana Commentary and Debate, Medical Marijuana State Laws and Reforms, Taxation information and issues | Permalink | Comments (0)

Wednesday, February 28, 2024

Student presentation exploring how states tax marijuana and allocate the revenues

TAXThis time of year, I get excited about all sorts of March activities: the NCAA tournament, the shift to Daylight Savings Time, the approach of MLB opening day and my own golf season.  But, as long-time readers of this blog may know, March is also when students in my Marijuana Law, Policy & Reform seminar "take over" 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 taking place in class next week 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):

In addition to creating a healthy market, all adult-use legal states seem to share a few common goals when it comes to regulating adult-use marijuana: (1) prevent substance abuse; (2) restrict minors from using marijuana; (3) stifle the development of illicit markets; and (4) prevent persons from operating motor vehicles while under the influence of marijuana.

All states try in some form or another to incorporate these goals into their marijuana taxation schemes. That is, to use revenue collected from marijuana taxes and put it towards funds that help accomplish the state’s goals. But which revenue allocation schemes seem to best accomplish those goals? For example, to accomplish the goals of preventing substance abuse and restricting minors from using marijuana, is it better to allocate revenue to a general law enforcement fund, or to allocate that revenue to a social equity fund with the stated purpose of investing in substance abuse prevention and youth development? And can we learn anything from the history of the taxation of other products, such as alcohol, tobacco, or gambling?

This presentation provides a brief outline of my paper which analyzes what marijuana taxation schemes seem to best accomplish the shared goals of states.

Sources (Categorized) 

State Tax Allocation Schemes

Risks of Overfunding Law Enforcement; Risks of Underfunding Marijuana Enforcement Training 

Substance Abuse and Youth Development  

Learning from Sin Taxes (Westlaw links)

February 28, 2024 in Assembled readings on specific topics, Taxation information and issues | Permalink | Comments (0)

Sunday, February 18, 2024

A pitch for how the Buckeye State should plan to use marijuana green

CannabisblogWhen Ohio voters approved full legalization of marijuana in November 2023 through passage of Issue 2, the initiative included a specific tax rate and a defined allocation for marijuana tax revenues.  Perhaps unsurprisingly, as members of the Ohio General Assembly have discussed further marijuana reforms, both the tax rates and allocation of revenues have been a subject of debate. Bailey Williams of Policy Matters Ohio has authored this helpful new blogpost on this topic titled "Cannabis tax revenue can help communities. Legislators have other ideas." I recommend the full piece, and here is an excerpt:

Over two million Ohioans voted to legalize marijuana sales and use tax revenue from those sales to benefit communities where dispensaries are located (called “host communities”), fund substance-abuse research, and create restorative justice programs to remediate some of the harm done by the war on drugs.  Changes by the legislature should focus on regulating the market to ensure product safety or improving the collection and use of tax revenue to redress racial disparities created by the discriminatory enforcement of recreational marijuana prohibition.  Any other changes to the statute risk subverting the will of the voters.

Ohio lawmakers have floated two such changes, both of which should be rejected: Tax revenues from legal marijuana sales should not be used to fund broad rate cuts to the state income tax, nor should they be earmarked for policing.  Either change would divert funding that should be used to help those harmed by the failed war on drugs, and clear the criminal records of Ohioans being punished for actions that are no longer crimes....

The Ohio Senate has already passed changes to state marijuana laws. These changes include raising the tax levied in addition to the state sales tax on legal sales from 10% to 15%; diverting hundreds of millions of dollars away from restorative justice programs and communities that host dispensaries and into policing and jails; tighter restrictions on home growth of marijuana; and piecemeal funding for expungement efforts for marijuana-related offenses that are no longer illegal.

The Ohio House has not yet proposed its version of the changes, but representatives have expressed some priorities.  At least one has proposed using a portion of the tax revenue raised from marijuana sales to finance broad income tax rate cuts.  This policy choice should be rejected now and in the future.  Broad cuts to income tax rates typically result in the wealthiest taxpayers receiving most of the value of the cut....

Similarly ill-conceived is the idea — recommended by members of both chambers and included in the Senate bill — of earmarking marijuana tax revenue specifically for policing.  The Senate would divert over $200 million a year in tax revenue from marijuana sales into investigative unit and drug task force operations, police officer training, and the construction of new jails.  This ignores the fact that Issue 2 already takes into consideration any increase in policing needs that may arise from the end of recreational marijuana prohibition.  Localities that host marijuana dispensaries will receive tax revenue from that business; this revenue can be spent on policing if need be. It also could be used on other public goods, such as parks and public transit.  Communities should be able to decide for themselves how that funding is used....

Clearing criminal records for what is now legal marijuana possession is an important step toward restorative justice.  Issue 2 required and funded research on expungement and record sealing but did nothing to simplify the often cumbersome process.  Ohioans seeking to expunge or seal their marijuana convictions face a waiting period and possible prosecutorial objections, and may be required to pay expensive legal fees and court costs.  They must also prove they are rehabilitated before they can have their records officially expunged.  These Ohioans are often subject to collateral sanctions, which limit an individual’s earning potential and increase the likelihood of recidivism....

When Ohioans overwhelmingly passed Issue 2, we sent a clear message to our representatives in Columbus: Legalize the sale of recreational cannabis, and use the revenue it generates to help the people and communities harmed by the failed war on drugs.  Some representatives appear poised to disregard those explicit instructions — as they have done with increasing frequency.  There are better options available; our representatives should listen to the voters.

February 18, 2024 in Recreational Marijuana Commentary and Debate, Recreational Marijuana State Laws and Reforms, Taxation information and issues | Permalink | Comments (0)

Monday, August 14, 2023

"What Tax Revenues Should Ohioans Expect If Ohio Legalizes Adult-Use Cannabis? (2023 Report)"

TAXThe title of this post is the title of this updated data analysis now available via SSRN and authored by Jana Hrdinova and Dexter Ridgway with the Drug Enforcement and Policy Center.  This report builds off a prior effective effort to estimate likely state revenues if Ohio legalizes marijuana,  Here is this latest report's 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 were to reach the November 2023 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 updated 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 using three different scenarios for 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 updated 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 $403 million in year five of operations.

August 14, 2023 in Recreational Marijuana Data and Research, Recreational Marijuana State Laws and Reforms, Taxation information and issues | Permalink | Comments (0)

Saturday, August 5, 2023

"Marijuana Tax Revenues and Distributions in Recreationally Legal States"

I continue to enjoy the timely and informative work being published in the on-going series of student papers supported by the Drug Enforcement and Policy Center.  The latest paper in this series, by OSU law students and recent graduates on many important and cutting-edge topics, share the title of this post.  Specifically, this new paper is authored by Aaron Larson, who is about to start his final year as a student at The Ohio State University Moritz College of Law.  Here is its abstract:

An area of the law often forgotten regarding marijuana legalization is the tax and revenue portion of the statutory or constitutional legalization.  Each state that has legalized recreational use marijuana generates profit for their state. How much profit are these states making?  More importantly, how are the tax revenues being distributed?  Many Americans' wonder where their tax money goes.  For marijuana revenues, the majority of states divide their tax revenues through a required statutory scheme.  While if may be tough to find out where your income tax is divided, marijuana tax revenues are much easier to see, legally.

August 5, 2023 in Recreational Marijuana Data and Research, Taxation information and issues | Permalink | Comments (0)

Friday, June 2, 2023

"Where does the revenue from Missouri marijuana sales and license fees go?"

Revenue-go-300x300The title of this post is the headline of this interesting new Missouri Independent article that shows everyone where marijuana revenue is going in the Show Me State. Here are excerpts:

Since Missouri’s marijuana sales began in 2019, the state has collected nearly $100 million in revenue from taxes and program fees, according to state authorities. Etched in the state’s constitution is a road map for where the revenue can go.

The first stop is operational costs. By law, any expense it takes to run both medical and recreational marijuana programs — like salaries or professional services — all must be paid for through marijuana revenues.  That means the salaries for cannabis inspectors will never compete with that of school teachers, which come out of the state’s main pot of money, the general revenue fund. The agency that regulates the program, the Missouri Department of Health and Senior Services, told the Independent last week that their expenses have been $38.4 million to date....

After expenses, the revenue can go towards supporting veterans, funding drug addiction treatment programs and adding to the Missouri Public Defenders System’s budget.... As of April 30, there was $22.7 million in the state’s medical marijuana fund and $10.9 million in the recreational marijuana fund, according to the state treasurer’s records and DHSS.

Medical marijuana first went on the market in 2019. Since then, the medical marijuana program has brought in $85.2 million in total — $57.7 million has come from fees, including for new license applications and annual license fees, according to DHSS. And $27.4 million has come from sales tax revenue.

The constitutional amendment that legalized medical marijuana in 2018, which appeared on the ballot as Amendment 2, mandated that revenues after operational expenses go towards the Missouri Veterans Commission. So far, $27 million has gone to support veterans....

The revenue road map is a bit different for the adult-use recreational marijuana program, and it’s defined in Amendment 3 that was approved by voters in November. By law, direct revenues first go towards operational costs and then to expenses incurred by the court system for expunging certain marijuana offenses from people’s criminal records. After that, revenues will be split in three ways: Public defenders, drug addiction treatment and veterans.

Since recreational marijuana sales opened in February, the revenue collected is already at $13.8 million, and almost all is from sales taxes, according to DHSS. Marijuana monthly sales in Missouri have tripled since February, but so has the workload for DHSS. For the past two years, DHSS has had 50 full-time employees to regulate the medical marijuana program. The total employees will now be just over 170 employees — 23 for medical marijuana and 148 for recreational, Cox told The Independent.

Between the medical and recreational program, lawmakers appropriated about $32 million for operational expenses. That’s a little more than double what it’s appropriated in past years. However, DHSS has yet to ever use the full appropriated amount, though there was plenty in the fund to cover it, according to budget documents. In the fiscal year 2020, lawmakers appropriated $13.5 million for DHSS’ personal services, expenses and equipment. But the department only spent $6.3 million. In fiscal year 2021, DHSS was appropriated $13.5 million and spent $9.4 million. In fiscal year 2022, DHSS was appropriated $13.8 million and spent $8.4 million....

This year lawmakers signed off on $4.5 million for state courts to pay their employees overtime or to hire temp workers to complete the massive number of expungements required by law. They approved an additional $2.5 million in a supplemental budget on May 5. After that, $1.3 million was appropriated for each public defenders, treatment programs and veterans. And out of the medical revenues, $13 million will go towards the Veterans Commission again this year, as it did last year.

June 2, 2023 in Medical Marijuana State Laws and Reforms, Recreational Marijuana State Laws and Reforms, Taxation information and issues | Permalink | Comments (1)

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

TAXVia 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

Cannabis-taxes-1030x386As 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"

Cannabis-taxes-1030x386The 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"

50cc0d18-1205-438e-bb42-b08f8e390214The 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.

Panelists

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

Moderator

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"

Taxes051816The 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.

KEY TAKEAWAYS

  • 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

Tax-revenueIn 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"

DownloadThe 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"

6a00d83451574769e20224df387165200bI 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)