Taxing legal pot could be good for states, but study says there’s little data to show it
The push to legalize recreational marijuana in Florida is alive and well.
A petition to put legal weed on the ballot in 2020 has triggered a Supreme Court review, a recent Quinnipiac University poll shows 65 percent of Florida voters support fully legalizing the drug and bill proposals are pitching legalization as a potential boon for Florida’s tourism economy, a step toward criminal justice reform and a way to boost local businesses in periphery markets.
One of the key selling points? Taxes.
“Other states are showing a windfall to both local and state governments depending on how the tax structure is set up,” said Michael Minardi, a Tampa attorney spearheading a ballot proposal to legalize recreational marijuana. “The economic revenue is huge.”
But as the chatter continues to grow around legalization, a recent report shows the state should tread lightly.
According to a new study by Pew Charitable Trust, there’s too much uncertainty and too little data for states to rely on recreational marijuana “sin” taxes for permanent fixes to budget shortfalls. The research found that states see high revenue growth in early years of legalization, but there is evidence that the growth slows as markets mature.
“It raises an important and larger point,” researcher Alexandria Zhang told reporters on a call Tuesday, “As states seek new revenue sources, lawmakers should consider how volatile the new revenue source is.”
Given how unpredictable recreational marijuana can be, states should instead treat it like any other nonrecurring source of dollars in order to reduce a budget imbalance, Zhang said. There are ways to ward off negative effects, however, like collecting money before spending it or using the revenue to shore up savings. Nevada, for example contributes proceeds from its retail tax toward a rainy day fund. Washington uses the revenue for some smaller healthcare programs.
Miami-Dade won’t prosecute minor pot cases. And cops can’t act on a sniff test alone
The time frame is still unknown for how long it takes for a state to maximize revenue potential for recreational marijuana sales.
The 11 states that currently have legal recreational marijuana either tax the companies with a general retail sales tax, a marijuana-specific excise tax or both. Zhang pointed out that states like Oregon experimented with different tax structures until they found one that brought in the most revenue.
The excise tax is usually levied on a per-unit basis, like per ounce, per seed or a percentage of the value of the sale. In California, for example, the state collects $9.25 in taxes for each ounce of marijuana flower purchased by a company to sell or process into a cannabis product. When the final product is purchased, the state collects the general sales tax plus an additional 15% excise tax. Washington state, on the other hand, has no per-unit excise tax, but taxes marijuana sales 37% on top of the general sales tax.
Some states like Massachusetts give power to local governments to add an additional tax to fund projects in their communities.
The trickiest part is keeping taxes low enough to capture converts from the black and largely untaxed medical market but high enough to bring dollars to the state. Washington captured more of the state’s black market for example, while Colorado was slower to convert.
However, there’s little research that shows which structures work best.
“This is an open question,” Zhang said. “In the states that were the first to legalize, neither price nor demand has stabilized yet. Only time will tell when markets will mature to full capacity.”
Want to be a cannabis connoisseur? Miami Dade College has a class for that.
What Tallahassee thinks
Last year, a bill to legalize adult-use marijuana was introduced by Democratic Reps. Michael Grieco of Miami and Carlos Guillermo Smith of Orlando. The bill, which both lawmakers say will be filed again this year, put a $50 per ounce excise tax on product at the distribution level.
Fifteen percent of the taxes would go toward the Alcoholic Beverage and Tobacco Trust Fund (to be renamed to include marijuana), and the rest would be transferred to the Legislature’s general revenue fund.
Grieco called the tax revenue an “added bonus” to the main goal of the proposal, which is criminal justice reform.
“It’s just the right thing to do,” he said.
Smith echoed the sentiment, pointing out the amount of time and resources it takes to arrest, prosecute and jail offenders of the states’ marijuana laws. He added that taxes on the drug could be flexible, and fill gaps where funding is needed from year to year.
Smith, who recently visited a dispensary in Denver with Colorado lawmakers, said the wrapper of a marijuana chocolate bar he purchased noted that proceeds from the candy were earmarked for sick children and public school funding.
However, lawmakers say that the bill is more symbolic than anything else. It died last year before it hit its first committee stop, and Gov. Ron DeSantis has said recreational pot has a “detrimental effect.”
“For people who really care about reforming Florida’s draconian cannabis possession laws, they have been well-advised to work around the Legislature, not with them,” Smith said. “The reality is the best path for cannabis reformers to take is going to be a constitutional amendment.”
Bringing pot to the polls
Enter Michael Minardi.
Minardi’s initiative, which calls for adults over 21 to have the right to grow and use cannabis, has brought in just over $416,000 to fund what he expects will be a $5 million effort.
The proposal is the most successful of three marijuana proposals vying to make the ballot this year, which include a pitch to make mental health a medical condition under state medical marijuana laws and a pitch to allow medical marijuana patients (and their caregivers) to grow their own plants.
It has 83,192 signatures — about 10,000 signatures above the threshold to warrant Supreme Court and financial impact review. If the court approves the language, the next step is to gather a minimum of 766,200 signatures to put the question on the ballot for voters across the state.
Minardi said adapting to market changes is expected of any new industry, and that he expects Florida will face challenges just like any other state.
Florida law is hazy, but CBD’s popularity is clear at inaugural Miami Beach trade show
“Until it’s federally legal, it’s going to be difficult to create that equilibrium,” he said.
Minardi added that the ballot proposal can’t set a tax rate itself but instead gives the Legislature the authority to come up with a tax model to implement the proposed amendment if it passes in 2020.
He said lawmakers should be reasonable as to not “continue to fuel the black market.”
Orlando personal injury attorney John Morgan, who bankrolled the 2016 amendment that legalized medical marijuana, has insinuated involvement in a yet-to-be-announced ballot initiative also focused on recreational marijuana. Morgan, who calls himself “pot daddy,” says while tax revenue is a big issue, it’s just the “whipped cream and a cherry on top.”
“It’s not the ice cream,” he said. “The ice cream is criminal justice reform. It’s the freedom of choice. It’s medicinal benefits. It’s really just a libertarian thing.”
