Marijuana Taxes

Sunday, April 19th, 2015

Colorado’s marijuana tax collections are not as high as expected:

In February 2014, Gov. John Hickenlooper’s office projected Colorado would take in $118 million in taxes on recreational marijuana in its first full year after legalization. With seven months of revenue data in, his office has cut that projection and believes it will collect just $69 million through the end of the fiscal year in June, a miss of 42 percent.

That figure is consequential in two ways. First, it’s a wide miss. Second, compared with Colorado’s all-funds budget of $27 billion, neither $69 million nor $118 million is a large number.

There are lessons for other states:

Because of low public support for marijuana prohibition, many jurisdictions have intentionally lax enforcement around illegal marijuana markets. This often shows up as a wink-wink culture around medical access. (See, for example, “Medical Kush Doctor” signs that once adorned storefronts in Venice, Calif.) After legalization, that culture of lax enforcement can be a barrier to tax collection.

Another lesson is that marijuana taxes should be “specific excise” taxes per unit of intoxicant. In most states, cigarettes are taxed by the pack and alcohol by the liter. Marijuana could similarly be taxed by the gram (either of plant or of T.H.C.), which would protect states from revenue declines if pretax prices fall.

Taxes on intoxicants are meant to offset the negative social effects of intoxicant use; the size of those effects should not be expected to vary with market price.

But even if Colorado got all this right, improved revenues would not be among the most important effects that marijuana legalization has on the state.

“Tax revenue is nice to have, but in most states is not going to be enough to change the budget picture significantly,” Mr. Kleiman says. “The stakes in reducing criminal activity and incarceration and protecting public health are way higher than the stakes in generating revenue.”


  1. Bob Sykes says:

    One first has to note that marijuana is illegal in every jurisdiction of the US because federal law bans it. Colorado’s so-called legalization depends on a federal government that will not enforce its own laws. But that can change in a single election.

    More to the point, Europe’s experience shows that legalization of various things and services does not eliminate the black market in them. Black market profits are usually higher than legal markets because the black marketeers do not pay taxes or minimum wages or health insurance and use direct action to settle disputes rather than lawyers. The whole Colorado, San Francisco thingy is based on delusion.

  2. Frank Brown says:

    In Washington State, the legalization of marijuana and the refusal of the federally-controlled banking system to work with marijuana businesses has led to a huge increase in money laundering. In my small town, there are 5 e-cigarette (“vape”) shops that do not themselves sell marijuana, all within a downtown where most large buildings have been out of commerce for a generation. I doubt there is enough business for even one of those shops to make a profit doing what they claim to do. This gives rise to the inference that they’re doing something else.

    Combine this with the nearby casinos, and you have a perfect storm of money laundering from God knows what regional organized crime activities. If I were a mob strategist, I’d have my illegal cash proceeds first run through marijuana retailers, who then take their cash from “marijuana sales” to the casino which I control and bet it all on red. The house wins most of the time, which allows for accurate statistical projections (the exceptions are noise over the long term). That’s all any business needs. I report the cash income as gambling intake on the casino’s taxes, and issue a 1099 to any poor underling who occasionally wins. I have the bank come pick up my now squeaky clean money by the armored car load.

    I used to support marijuana legalization until I looked at the Washington law and the effects it is having. It hands even more power to organized crime and has a corrupting effect on everything it touches.

  3. Ripper says:

    Prohibition was done via constitutional amendment. There is no amendment in place for marijuana, therefore the current federal laws are obviously illegal.

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