It appears that Colorado has come up $21.5 million short in taxes on marijuana. The state was expecting $33.5 million. The reason is an interesting reflection of the market and the means for marijuana users.
The state officials assumed that people would naturally prefer official suppliers for pot as did drinkers when they turned away from bathtub gin after prohibition. Some 60 percent do buy from official sources. However, the black market for pot is still doing well and there are other complications.
First, and here is an incredible figure in itself, some 23% of the estimated marijuana users in Colorado (or 2% of the state population) have medical cards. They can buy medical marijuana cheaper than retail marijuana due to the high taxes placed on pot. Rational actors are not going to pay the tax if it is cheaper through a medical card. States have faced the same phenomenon with cigarettes where over half of the money does not go to tobacco companies but to states and the federal government. The result is a rising black market for cigarettes. The difference is that pot can simply be grown and dried by citizens and sold more easily.
Second, people in Colorado are allowed to have up to six marijuana plants for their private use. This allows for a steady supply of privately grown pot to be exchanged or sold.
With privately grown pot available and medical pot going for $200 rather than $220, the state is likely to continue to experience lower than anticipated tax revenues. However, this is not a complete picture in my view of the relative economics in favor of marijuana legalization.
One way to increase retail sales is for the state to give retailers a break on the high taxes which stand at an astounding 27%. So long as the state is adding over 25% to the purchase price, it will be fueling a black market.
Putting aside the issue of individual choice in the use of pot like alcohol, there are economic savings.
First, there is the reduced costs to the criminal justice system in the investigation and prosecution of marijuana offenses.
Second, there is the avoided costs to citizens who are pulled into the criminal justice system to face criminal charges.
Third, there are the collateral taxes for equipment and resources used for growing marijuana within the state.
Finally, there is the tourism revenue associated with people who consider the fact that Colorado (which is already a top spot for skiers and tourists) has legalized pot (as opposed to other ski locations like Utah or California).
A full revenue picture would need to incorporate those areas of revenue (as well as added costs associated with any increase in driving accidents, arrests for DUI, and other collateral harm associated with increased marijuana use).
What is clear is that marijuana has some but not all of the revenue characteristics of post-prohibition alcohol sales. How that will affect other states looking at legalization will be itself quite interesting. Critics will likely use the revenue figures in Colorado to reduce enthusiasm for pot sales as a financial boon for states. Working for legalization is a huge emerging market (and a rising number of companies) involved in pot sales — both retail and medical. Those sales remain a key impetus for legalization.
13 thoughts on “Colorado Sees Tax Shortfall In Pot Sales”
There’s always a little shrinkage in drying out…or skimming or kief….
I think it’s actually because a lot of the cities voted against allowing retail pot establishments, and there are no provisions in the law to protect people who do smoke from being fired.
The biggest problem is the lack of enforcement. When sheriffs announce that they are unilaterally dedicating resources to enforcing ‘other’ laws what do you think happens to the ‘black’ market? Every jackass in Colorado is driving around with 50 pounds of weed in their trunk.
The power to tax is the power to destroy. I know of no better example than http://en.wikipedia.org/wiki/Marihuana_Tax_Act_of_1937. It was a prohibition masquerading as a tax. So tax-n-regulate is how we got in this mess in the first place. Don’t empower bureaucrats.
bo, You’re actually preachin’ to the choir. I mean cannabis is like booze in that it should be taxed like booze. They are both escapists, mind altering substances. Cannabis does not have nearly the bad societal effects as booze.
The high taxes will be it’s undoing. But getting the politicians to agree to lowering the tax will be difficult despite how obviously doing so will be beneficial.
Nick, pot is not just like booze. How many toilet hugging pot smokers have you seen. Booze is one of the most debilitating drugs used.
If people could freely grow pot in there own backyard it would be as hard to get rid of as zucchinis in September.
The state will doubtless form an agency, headed by Elliott Ness, to track down balck market sellers of untaxed marijuana, and the whole law enforcement savings of making it legal will be eaten up by trying to enforce the sales tax on it. Swat teams will be busting into homes, not searching for marijuans, but demanding to see the sales tax receipts for it.
Nick, you are correct. The high tax guaranteed that the already extensive black market would flourish. Ignorant people incorrectly assumed that once it was legal, everyone would instantly become legal in their purchase. This is hardly the case.
I have found the govt. being in the position of managing cannabis sales hilarious. It shows why private business is efficient and govt. clueless on how to manage anything. If they taxed it like booze, the tax revenues would skyrocket. But no, they tax it like tobacco, something they are trying to DISCOURAGE. If the govt. comes to realize cannabis is just like booze, tax it like booze, then the medical and black markets will dry up. But, the booze, pharma and govt. unions don’t want it legal. Stupid and insane. But, that’s govt.!!
Smoke some weed and go skiing in Aspen Colorado. Accidents do happen on the slopes.
Michael Kennedy, a Massachusetts resident and father of three. The Aspen Ski Company, which runs the Aspen Mountain resort where Kennedy died, said he collided with a tree.
New Jersey Sen. Frank Lautenberg. The 79-year-old multimillionaire politician suffered a head injury in an Aspen, Colo., skiing accident.
I’m pretty sure these 2 were straight when they had the skiing accidents. But I could be wrong.
Does Obamacare cover medical marijuana? And what is the co-pay?
I wonder how much the price is going to go up when the tort lawsuits start??? For examples, people suing because they got lung cancer from the smoke, or because somebody who was impaired caused a car wreck.
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