The Ace in the Game: Revenue from Legalized Marijuana

April 13, 2014 § Leave a comment

Click for PDF:  Oglesby, Pat, Ace in the Game – Revenue from Legalized Marijuna, April 16, 2014 (earlier version pasted below and at Oglesby, Pat, Ace in the Game – Revenue from Legalized Marijuna, April 14, 2014).  This paper is on the “Programme” for the International Society for the Study of Drug Policy meeting in Rome in May, http://www.issdp.org.

The formatting in the PDF above is better than this:

The Ace in the Game: Revenue from Legalized Marijuana By Pat Oglesby, M.B.A., J.D.* April 14, 2014

Abstract

After marijuana is legalized, the costs of producing and selling it will collapse. A windfall economic gain will be up for grabs. Policymakers might allow that gain to go to consumers (encouraging use) or to cannabusinesses (encouraging production). Or, through revenue measures, they might direct the gain elsewhere, or to society as a whole. New revenue for government does not justify legalization of marijuana. New revenue may not cover the costs that legalization creates, and a revenue stream gives government a permanent stake in intoxication. Revenue is only one card in a large deck of drug policy options. But it is the most powerful card.

How to play it? The safest, correctable way to distribute an intoxicant is government monopoly, Uruguay style. Retail-only monopoly can match or beat bootleggers’ wares. But monopoly breeds cronyism and corruption, unless power is spread around and transparent. In the United States, states might need to tweak the monopoly model to keep state control over location and price while assigning sales concessions to businesses.

A riskier plan is taxed commercial distribution, Colorado and Washington style. In the inevitable price war, bootleggers will act in a New York minute; Legislatures will not. That is a handicap. And no tax is perfect. Taxing by THC potency is theoretically appealing, but unworkable. A price tax base has several pitfalls. Even a weight base is problematic.

Three other models are possible: auctioning licenses, collective farming, and sales by non- profits.

Since no one really knows how to legalize, flexibility to change course is of the utmost importance. « Read the rest of this entry »

The Ace in the Game: ISS Drug Policy

April 12, 2014 § Leave a comment

UPDATE:  Superseded by full paper (including new abstract) here or at http://newrevenue.org/2014/04/13/the-ace-in-the-game-revenue-from-legalized-marijuana-2/.  (New draft abstract for talk in Rome in May at the International Society for the Study of Drug Policy, http://www.issdp.org.)

The Ace in the Game: Revenue from Legalized Marijuana 

When marijuana is legalized, its cost collapses to oregano’s level, so a windfall economic gain will be up for grabs. « Read the rest of this entry »

Sin tax for schools? Cabinet Report

April 10, 2014 § Leave a comment

Tom Chorneau of Cabinet Report, an education journal, has a thoughtful article hitting the main issues here.  Excerpts:

(Colo.) In a development that might have seemed unthinkable only a few years ago, cash-strapped school officials nationwide can rightly anticipate the next big windfall in state and local tax revenue – legalized marijuana.

. . .

“One approach is for schools to jump in and say, ‘Yes, let’s tax it and get the revenues,” explained Pat Oglesby, an attorney and former Congressional tax staffer, who has written extensively on the issue of marijuana and taxation.

“Another approach is to say, ‘Let’s tax it and deter or discourage use,’” he said. « Read the rest of this entry »

Colorado’s Marijuana Tax: 62 Cents per Gram of Flowers

April 9, 2014 § Leave a comment

Here’s how Colorado’s 15-percent wholesale level marijuana tax is actually a tax of 62 cents a gram for flowers and 10 cents a gram for trim. « Read the rest of this entry »

Colorado Marijuana: Medical Sales 2X Recreational

April 9, 2014 § Leave a comment

 [Update:  Law Professor Alex Kreit comments and analyzes here.]  In Colorado, recreational marijuana is making the news, but medical marijuana is dominating the market.  The state officially reports that in February, medical marijuana outsold newly legal recreational marijuana better than two to one.  And medical sales are growing more than twice as fast.

Taxes may explain the popularity of medical marijuana.  Medical marijuana bears only a 2.9 percent sales tax.  Recreational marijuana bears, along with that 2.9 percent sales tax, another 10-percent retail tax.  In addition, when a hole in Colorado’s wholesale tax disappears, all recreational marijuana will bear a stated 15-percent wholesale tax, now amounting to 62 cents per gram of flowers and 10 cents per gram of trim.

The total Colorado burden on recreational, even fully phased in, will be less than Colorado and federal taxes on cigarettes, but that may be enough to steer folks to the medical marijuana market.  It’s still too soon to know how marijuana revenue will play out.  But we are getting some early indications.

Here are the numbers:   « Read the rest of this entry »

Colorado Marijuana Sales Up 5 Percent

April 9, 2014 § 1 Comment

Updated 8:33 a.m EDT April 9:  Colorado’s second month of recreational marijuana tax collections officially shows sales just about flat – up 5.2 percent.  But since February has just 90.3 percent of January’s 31 days, a better comparison might be 1.052/.903, for a 16.4 percent increase.   (Thanks to Professor Bill Turnier of UNC Law School for mentioning the number of days.)  (This blog post looks only at recreational sales, not medical.  Another post covers the dominance of medical marijuana.)

The 2.9 percent sales tax:

January $416,690

February $438,253.

 

Total recreational sales:

January $14,368,621

February $15,112,172.

Both those ratios are 1.0517 to 1:   « Read the rest of this entry »

Auctioning marijuana licenses — exponentially

April 2, 2014 § Leave a comment

The City of Oakland enacted, a while back, an annual fee of $211,000 for each of four “marijuana factories.”[1] Other schemes to raise revenue through licensing at all levels of commerce are numerous. Requiring licenses for everyone in the supply chain conforms with evolving international standards for tobacco.[2]  Making licenses expensive or otherwise restricting them narrows the supply chain at a possible choke point.[3]  Consumer licenses have been suggested, [4] and correspond to cards issued to medical marijuana patients.

Auctioning[5] licenses could let government share the proceeds of legalization. An annual license auction might be optimal. After the first year, the incumbent might be able to outbid others because of intangibles it developed from the first year’s license. (Entrenched incumbent sellers are not necessarily a good thing.)

So what if the incumbent had to outbid competitors by a compounding excess? Say 10 percent. So the second year, the incumbent would have to pay 110 percent of the next bid; in the third year, 121 percent, and so on. After ten years, the incumbent would have to bid some 2.5 (1.1 to the 10th power) times the next bid to prevail. That rule could spread the wealth and power around — or finance spending, allow tax cuts, or reduce debt. « Read the rest of this entry »

Follow

Get every new post delivered to your Inbox.