Washington State Levies Heavy Tax on Pot

For proponents, tax revenue has always been part of reasoning for legal marijuana.

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With an enormous untapped retail market would come untold riches for state coffers and public programs – and individuals who smoke marijuana should pay for that right.

Our medical marijuana lawyers know that things may not be so straightforward.

Though it’s too early to tell with any certainty, there are already concerns that taxes may be too high – so high that they’ll drive customers straight back to the black market to get their marijuana.

The problem is especially worrisome in Washington State, where voters legalized weed in the 2012 election (Colorado voters did the same).

The ballot proposal that made pot legal, imposed a 25 percent excise tax on each of the three sales in the chain of production: from cultivator to processor, from processor to retailer, and from retailer to customer.

According to one calculation that was performed for the state, this would add 37 percent to the price of marijuana. That could mean an ounce would cost anywhere from $482 to $723, depending on how much it cost to produce it.

Marijuana proponents claim that these prices are extremely inflated. An ounce of high-potency cannabis currently costs an average of $236 per ounce in Washington, according to priceofweed.com. That figure includes purchases from the black market and from medical pot stores, which aren’t taxed and often undersell even the black market.

The state expects a major windfall from its newly legal pot market, as much as $2 billion over the next five years. With a $900 million hole in the budget for the 2013-2015 biennium, that money couldn’t come at a better time. If it comes at all.

And that’s the danger: Buyers may show up for the novelty of opening day, but if prices are too high, they may just return to their street dealers, or to the dispensaries that sold to them under the table.

Furthermore they could find a doctor’s recommendation and make it legitimate, not the most difficult task in the Pacific Northwest. And they won’t pay taxes on their product.

Observers have similar concerns in Colorado. Retail pot shops opened there Jan. 1 to great fanfare and success, but also to high prices. An ounce of weed sold for upwards of $400 in the first few days, when lines were long, demand strong and the number of shops limited.

Now more stores are opening, and the hope is that prices will stabilize. The situation in Washington may be even harder to predict. Colorado’s taxes, approved by voters in November, are estimated to add a total of 22 percent to the cost of marijuana – still a hefty amount, but not as big as Washington.

Lawmakers in both states have the power to reduce tax rates if things go bad. But their incentives may lie elsewhere: Holding taxes high on a “luxury” item such as cannabis creates the appearance a politician is generating revenue, even if the taxes kill the business that would actually create that revenue.

The CANNABIS LAW Group represents growers, dispensaries, collectives, patients and those facing marijuana charges. Call us at 714-937-2050.

Additional Resources:

High Marijuana Taxes Could Derail Legalization Plans Oct. 17, 2013, Forbes.com
More Blog Entries:

Legal Possession: Should the Odor of Marijuana Amount to Probable Cause? , December 5, 2013, Los Angeles Marijuana Lawyer Blog
Cannabis Patients Fight to Keep Rights , December 3, 2013, Los Angeles Marijuana Lawyer Blog