Tax Estimates Drop for Legal Weed in Washington

Washington State will likely fall short of predictions for tax revenue from the legal marijuana industry, according to the Moody’s credit rating agency.

Washington Marijuana LeafWith the first shops opening months behind schedule, the state levying a steep tax on weed purchases, and the medical and black markets offering a cheaper alternative, Washington’s tax take will probably be smaller than anticipated, Moody’s said in a report released in July.

“The tax structure in Washington State is likely to be a major deterrent for consumers who do not see the value in obtaining the product from a storefront as opposed to a medical dispensary,” analyst Andrea Unsworth wrote.

Getting a recommendation for medical pot is almost as simple in Washington as it is in California, and attempts to crack down on the MMJ industry have repeatedly evaporated in the legislature. The ease of buying medicinal pot and the fact that it’s cheaper make it more appealing than legal weed to many customers.

“The state’s recreational marijuana market has a burdensome tax structure for consumers,” Moody’s said. “Many patients have reported that obtaining this annually renewable [medical marijuana] recommendation is fairly easy.”

In their last estimate for the legal market, released in June, state officials predicted the industry would generate $51.2 million in tax revenue and fees between 2015 and 2017, followed by more than twice that amount between 2017 and 2019.

Many consumers are apparently sticking with the medical market in Colorado as well. There, officials revised early estimates, which initially predicted $67 million in yearly revenue, lowering that amount to $54 million in March and again to $30 million in June.

“One reason that revenue has lagged behind earlier estimates is that medical marijuana users have not converted to the adult-use market,” Colorado officials wrote in a June report.

Washington’s first pot shops opened July 8, months later than expected. And just 24 shops were given licenses, with 310 more still to be issued. That’s less than 8 percent of the total market. Making the problem worse, few growers have been licensed.

MarijuanaWhat’s more, some shops ran out of product in a matter of days because cultivators didn’t have time to produce enough weed to stock shelves. Seattle’s first pot shops ran out of pot just three days after opening.

The Moody’s report doesn’t necessarily mean legalization is in trouble in Washington. The reduction in tax revenue is probably temporary, and as more shops open and prices drop, demand for legal marijuana should increase, according to the report.

And since Washington hasn’t made cannabis tax revenue a critical part of its budget, the shortfall shouldn’t cause major problems, Unsworth wrote.

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