I’m to be on a marijuana revenue panel in Connecticut on Monday, April 30. The folks in Connecticut, like everyone else, want to know the bottom line. Whew. That leaves aside the preliminary and necessary questions of what to tax (weight or stated THC, I would say) and tax rates.
OK, jumping the preliminary issues, here’s a wild guess: $155 million a year after the market matures in several years. That’s $43 per inhabitant times 3.588 million population.
The $43 number comes from Colorado and Washington, which legalized two years before any other state. Both those maturing markets are collecting just about that much cannabis tax revenue now. (Math is below.)
I thought Washington would collect more per capita than Colorado:
— The tax burden is higher in Washington. Economist Ben Hansen concludes, Washington’s “retail tax rate on marijuana of 37 percent remains on the correct side of the Laffer curve.” https://www.pdx.edu/sites/www.pdx.edu.econ/files/taxation-recreational-marijuana.pdf.
That is, if Washington can increase its tax burden and see collections go up. (Colorado taxes retail sales at 15 percent and producer sales at 15 percent (though the producer tax is often de facto weight-based by category like bud or trim).)
— Colorado exempts medical cannabis from everything but its 2.9 percent sales tax; Washington taxes medical cannabis at 37 percent of retail.
— Some Colorado cities tax cannabis – and their taxes don’t show up in the total.
— Colorado allows untaxed home growing; Washington does not.
— (Colorado had trouble with its 99-plant rule that allowed folks to avoid the legal system. I guess that problem (cited for creating out-of-state sales) has been solved, or that it doesn’t cut into Colorado legal sales much.)
Why might Colorado collect about as much as Washington?
— Colorado has more supply. Colorado reportedly has lots more retail outlets. http://thehill.com/opinion/campaign/384557-the-best-way-to-fight-illegal-pot-is-with-legal-cannabis. And Washington has many more grow licenses, too, I think.
— Colorado has more users per capita than Washington. As evidence of that, Oregon state government says both Colorado and Oregon have more users per capita than Washington. http://www.oregon.gov/das/OEA/Documents/forecast0318.pdf. And see below.
— Maybe Colorado’s lower tax burden is beating the black market better than Washington’s higher burden.
— Maybe Colorado attracts more tourists.
— Then there’s Oregon, which legalized two years after Washington.
Washington’s tax burden is higher than Oregon’s (17 percent state excise plus 3 percent local taxes, imposed nearly everywhere), and Oregon seems to have a supply glut. So Washingtonians might purchase in Oregon and bring product home (violating a rarely enforced federal law). In any event, Oregonians needn’t go to Washington. “In the days immediately following Oregon’s market opening, the quantity of marijuana demanded in Washington’s border counties fell by 41%.” Ben Hansen, “The Grass is Greener on the Other Side: How Extensive is the Interstate Tracking of Recreational Marijuana?,” https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3040362
That brings up Massachusetts, which will have sales up and running before Connecticut. Its tax is 20 percent of retail – like Oregon’s. Connecticut’s population centers are closer to Massachusetts than Washington’s are to Oregon. Now Connecticut pass a law to try to stop people from bringing cannabis across the border as it does with liquor (you can bring up to 4 gallons in without a permit, but you are supposed to pay tax on that. Ha!). But interstate tax competition can whittle away at a high-tax state’s collections. Leakage can be a problem.
On the other hand, there’s New York, which, if it legalizes late, could send lots of customers to Connecticut.
In any event, as time goes on, law enforcement and an increased tax burden can bring in more revenue. https://newtax.files.wordpress.com/2015/01/supplemental-thoughts-about-revenue-from-marijuana-in-vermont-16-january-2015-in-pdf.pdf (Part II.)
More per capita, as Ben Hansen suggests, than Washington is collecting today.
Colorado in 2017:
5.6 million population.
$247 million tax take. Source: https://www.thecannabist.co/2018/04/19/colorado-cannabis-industry-federal-reserve-economists/103835/
So ≈ $44 per woman, child, and man.
Washington in Fiscal 2017 (July 1, 2016 – June 30, 2017).
7.4 million population.
$319 million tax take. Source: https://www.tre.wa.gov/portfolio-item/washington-state-marijuana-revenues-and-health/
So ≈ $43 per woman, child, and man.
UPDATE: Karmen Hanson of the NCSL points out that per capita usage in Connecticut may be different from that in Colorado and Washington. Sure enough, SAMHSA data for 2015-16 show the percentage of the 12-and-over population as past year cannabis users as
15.08 percent in Connecticut,
23.12 percent in Colorado and
18.93 percent in Washington. That would tend to bring the estimated revenue down.
But part of Connecticut’s lagging might be due to legalization in Colorado and Washington: in 2008-09, SAMHSA data show the percentage of the 12-and-over population as past year cannabis users as
12.56 percent in Connecticut,
15.12 percent in Colorado and
12.81 percent in Washington.
So maybe Connecticut will gain parity with Washington after legalization, as it had in the earlier period. And maybe folks in CT now are less likely to say they used — which is a state crime there, but not in CO or WA.