Colorado MJ Tax Haul Smaller than Expected
Marijuana tax revenue in Colorado has fallen behind early projections, though demand is high and the industry itself continues to thrive.
The Colorado Department of Revenue reported just $12 million in tax payments between January and July, the end of the fiscal year. Early on, officials estimated the state would pull in at least $33.5 million for the 2013-2014 fiscal year, while Gov. John Hickenlooper at one point said tax revenue could reach $100 million.
The governor later lowered that estimate, but still predicted numbers far above the $12 million reported so far. The shortfall is a stumbling block for the program, but it hardly indicates things are falling apart.
For one thing, it was always likely demand would be strong on the first few days, then drop due to high prices, and eventually climb again as more stores opened across the state with cheaper weed.
For another, marijuana is still doing strong business in Colorado. Residents seem to be taking legalization in stride even as cannabis becomes more and more a part of the local culture. Most voters say they still approve of the 2012 vote to legalize, and many think it’s made the state a better place to live.
Some leaders hope to reform the tax on medical weed and the rules for that program. MMJ is currently taxed at only 2.9 percent in Colorado, compared with the 22 percent tax paid by consumers of recreational pot.
“There’s some real impact that the medical marijuana market is having on the recreational marijuana market,” said state Rep. Dan Pabon, Democrat of Denver. “I think it’s worth looking at the taxation on the recreational side but also looking at the rules and regulations on the medical side.”
A committee was empaneled to study how the state uses marijuana tax dollars. An official fiscal analysis of tax issues after the vote in 2012 predicted Colorado would net $33.5 million from two separate taxes on weed; those taxes add up to 25 percent, but consumers pay slightly less than that.
Cannabis opponents in particular scoffed at Hickenlooper’s first prediction of $100 million. It seemed unlikely the state could generate that much money in so short a period of time.
The Department of Revenue conducted market research that put the blame for the tax shortfall on the medical market. That industry is heavily patronized, it pays almost no taxes, and its dispensaries usually charge less than recreational pot shops.
Instead, most of the recreational users who buy from Colorado shops are coming from elsewhere. Pot tourism is a booming business for people attracted to the allure of a legal joint. But real Coloradans tend to stick with MMJ.
It’s not hard to see why. In addition to being more attractive than recreational weed, the medical stuff is quite easy to get. A toker who can quickly grab a physician recommendation at a cheap price simply has better options.
“I think our original assumption about the cannibalization was wrong,” said Larson Silbaugh, an economist with the Colorado Legislative Council, referring to the expectation that recreational laws would syphon off medical patients.
[…] a patient will always have benefits over being a recreational user. Medical weed is typically cheaper, especially when you factor in the steep taxes on recreational […]