Marijuana's boost to tax revenue still tough to pin down

By Jim Davis
The (Everett) Herald Business Journal

Pot smokers will begin legally buying recreational marijuana as soon as this summer, paying taxes with every purchase.

Just how much revenue this will generate is a little, umm, hazy.

“There’s no other blueprint to look at across the world,” said Brian Smith, Washington Liquor Control Board spokesman.

The only analysis conducted on pot taxes in Washington was done in 2011 when voters were still considering whether to legalize recreational marijuana for adults ages 21 and older.

At the time, the Office of Financial Management said the state could make up to $2.14 billion in the first five years of taxing marijuana. Those analysts relied on a national profile of marijuana users and statistics of their consumption to come up with an estimate of 363,000 marijuana users in Washington if the law passes.

A consultant, BOTEC Analysis Corp., hired by the state to help understand the new industry figured that was about right — if the counting started when the stores open.

“They said it was achievable,” Smith said. “Let’s put it that way.”

But the analysis was based on stores opening across the state, Smith said. In January, the state Attorney General’s Office issued an opinion that cities and counties could ban pot businesses outright.

Depending on how it plays out, there could be far fewer pot businesses than originally forecast.

Marijuana is already being bought and sold legally in Colorado, the only other state to legalize pot for adults. That state started in January and they won’t have any estimate on taxes generated until early March, said Daria Serna, Colorado Department of Revenue spokeswoman.

In Washington, the state will collect taxes on the new industry in several ways.

The state received more than 7,000 applications from people who want to grow, process and sell marijuana. With licensing fees costing $250 a pop, that’s more than $1.75 million.

And people who don’t have their applications rejected will have to pay additional fees, said Kim Schmanke, Washington Department of Revenue spokeswoman.

The state will also collect a 25 percent excise tax at each stage of growing, processing and selling marijuana. So $100 of marijuana grown at a pot farm would cost $195.31 by the time it reaches the consumer, if all the taxes are added at each step without any other mark ups. Growers who process their own marijuana don’t have to pay the excise tax twice.

The state will also collect sales taxes on each purchase and business-and-occupation taxes for all the new businesses.

Last year, the state collected about $2.5 million from medical marijuana dispensaries from sales and business-and-occupation taxes.

Initiative 502 passed by voters in 2012 to make pot legal spelled out how the excise tax and licensing fee revenues would be spent. About $6 million a year would be distributed to the Liquor Control Board and other agencies for administration and other costs.

The rest of the money from those taxes would be split between mainly health and education programs including a marijuana hotline, media campaigns and a drop-out prevention program. The University of Washington and Washington State University will get 1 percent of that tax money to research marijuana.

About 9.7 percent would go to the state’s general fund.

The state — as well as cities, counties, school districts and other local agencies — will get to keep the sales taxes from the purchases. The state will also get to keep the business-and-occupation taxes for the general fund.

So far, lawmakers haven’t decided how to use the money.

“The Legislature has not booked revenue from marijuana, because there’s a lot of unknowns,” Smith said.

Jim Davis is the editor of The Herald Business Journal in Everett, Wash., a partner publication of The Bellingham Business Journal.

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