Month: March 2014

I’m to give a paper and talk on marijuana revenue policy in Rome at the International Society for the Study of Drug Policy meeting in May.  Here’s what I’m thinking (comments welcome).

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State monopoly, Uruguay style, is the safest start for legalization of an intoxicant.  But it’s not easy.  Corruption and cronyism threaten.  Transparency and division (separation) of power are vital to keep trust.  Short terms for officers, even if renewable, and appointment by members of different branches of government or different parties may be worth exploring.  State production might provide unresponsive products, so the Norway/North Carolina alcohol model is worth a look.  That model lets private enterprise produce and supply product to a state monopsony, which is also a retail monopoly.

If monopoly is a nonstarter, as in the United States so far, tweaking the monopoly model to keep state control over location and price by assigning sales concessions to private contractors may be worth a try.

Taxation, Colorado and Washington style, is a second-best path, at least as long as tax rates are inflexible.  Bootleggers don’t hesitate, in part because they don’t deliberate.  They can change prices faster than a corner gasoline station, and they will fight a price war to win.  No Legislature can outmaneuver them.

Pueblo County, Colorado, is starting to look like the Dixville Notch of marijuana revenue reporting.  Pueblo County reported its January results before the state did, and it has done the same for February.

Month over month results are down.

Jeff Tucker of the Pueblo Chieftain reports:

The second month of legal recreational marijuana sales in Pueblo saw three more stores open and $4,000 less in sales tax revenues collected by the county.

Pueblo County Clerk and Recorder Gilbert “Bo” Ortiz said five Pueblo County stores delivered $28,724 in sales tax to the county late last week, representing roughly $820,000 in total sales for the month of February.

. . .

 The state collects both of those taxes and those totals won’t be official until the state issues a report sometime next month.

But based on what the county collected from its own tax, it stands to gain about $49,000 from the sale of recreational marijuana in February.

In January, the county collected $32,643 in county marijuana tax from just two stores and brought in a total of about $56,000 from all marijuana sales tax sources.

It may be that the novelty of legal weed has worn off a bit from its historic first month, but Ortiz said it will be difficult to make any real predictions or analysis until after the county has a full year under its belt.

Folks hoping for marijuana revenue pointed to the opening of more stores as a positive.  Maybe in Pueblo, the positive of more stores was trumped by loss of novelty, or one-time tourists.  Most likely, the sample size is too small to be useful.

But the “new stores” argument doesn’t get me far, because new stores new need customers, and new (post-January) buyers of recreational marijuana could plausibly come from three categories: (1) switchers from the medical market to the recreational market, (2) switchers from the black market to the legal market, and (3) former non-consumers.  I don’t see how new stores add to the number of customers (or more precisely, sales) in any of those categories other than at the margin.  [UPDATE March 28: But new customers could come in from any category because legal supplies were low – and as legal prices drop.]

UPDATE:  2:10 p.m. Eastern:  January sales could be abnormally high because consumers bought several months’ supply when legalization started.  And a friend writes:  “I imagine that the stores are having supply issues . . . it’s about a 3 to 4 month long growing cycle, so when those first big harvests are ready in the next month or so, we’ll probably see that there is more supply, prices go down, and more purchases are being made.”  In that case, sales measured in ounces will go up for sure, but the price declines will work to bring sales measured in dollars and taxes down.  The net effect could bring in more revenue or less.  [UPDATE March 30:  Colorado will recalculate “average market rate” for the period starting July 1 — and that may reduce the tax rate from its current 62 cents per gram of flowers and 10 cents per gram of trim.  Colorado’s switch, de facto, from percentage to weight is covered elsewhere on this blog.]

2:40 p.m. Commentor “john_downs” at this site points out that February has fewer days than January – enough to make the results basically flat.  “[T]he county will make 8.8% less tax revenue by the month, but the month of February has 9.7% less days than January so it is still a gain in revenue per day. Sounds like an increase to me.”  I would calculate revenue at $28,724 divided by $32,643, for 88 percent, or 12 percent less revenue and sales, but the point about days is valid.

3:51 p.m.  Earlier posts on this blog look at how Colorado numbers might play out in light of early results.

 

Tax what you can find.  Tax what you can measure.  Humboldt County, California, is considering following the lead of Arcata and taxing excessive electricity use – associated with indoor marijuana grows.  Once electricity use exceeds a high threshold, the tax kicks in.

From Will Houston in the Eureka Times-Standard:

Third District Supervisor Mark Lovelace said that the tax would benefit the county in three ways — reducing environmental impacts, reducing housing stock that is “being consumed by grows” and generating revenue — but could not have them all at once.

Continue reading “If You Can’t Tax Marijuana, Tax Electricity?”

Evasion of cigarettes taxes in the developed world occurs in two forms, smuggling and counterfeiting.

The smuggling form involves cigarettes that have incurred tax somewhere and that were legal through all but the last steps of the supply chain.  A typical transaction involves a pack of cigarettes bought legally and tax-paid in a low-tax tobacco-producing state and resold illegally without further tax in a high-tax jurisdiction like New York City.  Those cigarettes were cost-effectively manufactured by an identifiable, deep-pocketed corporation that tested them for quality  — on which its reputation depends.  They bore federal tax and the tax of some state (or maybe tax of some country).  They are in a recognizable branded package, designed by the manufacturer to prevent counterfeiting.  Customers know what they are getting.  Analogous jurisdiction-shifting evasion for marijuana will not appear until at least two jurisdictions legalize it.  Then bootleggers will be interested in transporting tax-paid marijuana from a low-tax state to a high-tax state.  As today’s Wall Street Journal points out, tobacco companies may turn a blind eye to smuggling: “Tobacco Firms Step Up Fight Against Cigarette Smuggling:  Labs Examine Fake Smokes; Critics Say Industry Turns Blind Eye to Smuggling of Real Cigarettes.”

Continue reading “Smuggling and Counterfeiting”

The Oregon Legislature took a hard look at marijuana legalization in early 2014, but failed to act. So November voters may get to choose between legalization initiatives with dueling revenue ideas. The Control, Regulation, and Taxation of Marijuana and Industrial Hemp Act (CRTMIHA) puts marijuana commerce in the hands of private sellers — and taxes it modestly. The Oregon Cannabis Tax Act of 2014 (OCTA) lets the state make big profits from monopoly sales.

CRTMIHA taxes marijuana by weight. Per-ounce rates are $35 for “flowers” and $10 for “trim.” Seedlings bear a different tax — $5 each. (CRTMIHA partly indexes dollar amounts. Continue reading “Marijuana Revenue: Oregon 2014 — from HuffPost”

Colorado Governor John Hickenlooper says, “The [marijuana] industry was a great supporter of our very stiff tax rates; generally they’ve been supportive of our pretty stiff regulation,”  Colorado marijuana tax rates — relatively — aren’t very stiff at all:  Whatever assumptions you use, those taxes add up to less than 20 percent of the after-tax retail price.  That’s less than Colorado taxes cigarettes.  European cigarette taxes almost always account for over 75 percent of the retail price;  often, over 85 percent.

How can a 15 percent wholesale tax, a 10 percent retail tax, and a 2.9 percent sales raise less than 20 percent of the final price?  Because the base of the wholesale tax is so small Continue reading “Very stiff taxes: Cigarettes in Europe? Yes. Marijuana in Colorado? No.”

http://lawprofessors.typepad.com/marijuana_law/2014/03/colbert-on-pot-taxes.html or here.  Thanks to Professor Alex Kreit for mentioning this.

 

Colorado’s January recreational marijuana tax collections came in at $2 million – but those numbers may be lighter than we can expect in the medium run (until prices start to drop) for a number of reasons, including limited supply, relatively few open stores, and more.

One factor that is easy to quantify is a temporary hole in Colorado’s wholesale tax on account of a technicality – a “one-time transfer” tax exemption that might add some $800,000 per month to the coffers in the long run.  Here’s how: Continue reading “Colorado Marijuana Revenue – The Missing $800,000 in January”

Retail sales of recreational marijuana in Colorado for January came in at $14 million.  That seems light.  Colorado tax officials say those numbers are in line with expectations.  But official projections call for increasing sales over time, building from an average rate of $32 million per month from January to June 2014 ($194 million for the six months) to a rate of $51 million per month from July 2014 to June 2015 ($613 million for the fiscal year).  

Those six- or 12-month projections aren’t granular enough to reveal monthly growth -– sales won’t stay flat for six months and then suddenly jump to a new plateau for the next 12.  So I asked my friend Steve Schecter, a mathematician, how to smooth then out.  (I thought there was an excel program to do that).

His answer, with work shown below, is that recently estimated January revenue, based just on regranularizing (which is not a word, I know) the data, would figure out to some $28 million -– twice the actual amount reported, Continue reading “Can Colorado Meet Its Marijuana Revenue Expectations?”

State monopoly of sales of an intoxicant would maximize revenue and limit the profit motive.  That’s the model in 17 U.S. States for liquor, and in the Nordic countries for most alcohol.

This comes from http://en.wikipedia.org/wiki/Liquor_store (here), so it must be true:

All Nordic countries, except Denmark, have government-owned alcohol monopolies.

• Denmark – Alcoholic beverages can be bought at any grocery store or kiosk.
• Faroe Islands – Alcoholic beverages above 1.8% ABV can be bought in Rúsdrekkasøla Landsins, also known as Rúsan
• Finland – Grocery stores may sell beer and other alcoholic beverages of less than 4.7% alcohol by volume (ABV), if the alcohol is produced by fermentation. All other alcohol must be purchased in the Alko store.
• Iceland – Can only be bought at hard-liquor stores. Vínbúð stores.
• Norway – Alcoholic beverages above 4.8% ABV can only be bought at Vinmonopolet stores.
• Sweden – Grocery stores may sell beer and cider no higher than 3.5% ABV. All other alcohol must be purchased in the state-run Systembolaget stores, also known asBolaget or Systemet.

Most Canadian provinces, too, have liquor monopolies.

Results of poll commissioned by the Center for New Revenue and conducted by Public Policy Polling: “If marijuana were to be made legal in North Carolina, do you think should it be taxed more than alcohol and tobacco, less than alcohol and tobacco, or about the same as alcohol and tobacco?”

Should be taxed more……………………………….  41%

Should be taxed less…………………………………  6%

Should be taxed about the same ………………..  49%

Not sure ………………………………………………….  4%

Full results with cross-tabs:  NC Marijuana Taxation — How Much? 

Results from an earlier poll show a strong preference for monopoly (58%) over private stores (19%):  https://newtax.files.wordpress.com/2013/03/nc-marijuana-polling-march-2013.pdf or click here.

Marijuana Taxes in Colorado — An Early Clue

http://www.huffingtonpost.com/pat-oglesby/marijuana-taxes_b_4914763.html or here

Across America, lawmakers are eyeing tax revenue from legalized marijuana. Colorado and Washington are each officially expecting over $100 million annually in marijuana excise taxes. In a few days, the Colorado Department of Revenue is due to report how much marijuana tax was paid there for January, the first full month of recreational sales anywhere ever.

But the report on January collections will tell us next to nothing about what other states can expect, and only a little about Colorado. You can multiply January taxes by 12, but that won’t show annual marijuana revenue the state can count on from now on — for two reasons. First, the mature market will not resemble the start-up January market. Second, Colorado will start taxing some transactions that it exempted in January.

Start-up Uncertainties Continue reading “Huffpo: Marijuana Taxes in Colorado — An Early Clue”

Taxes, collected at the producer level, are $35 per ounce on flowers; $10 per ounce on leaves; and $5 per immature plant.  This marijuana initiative, the Control, Regulation, and Taxation of Marijuana and Industrial Hemp Act was hard to find, so I paste it (thanks to Anthony Johnson for sending the text, current as of March 4, 2014):

An Act

Be it Enacted by the People of the State of Oregon:

Continue reading “New Approach Oregon 2014 Initiative”