Lower Taxes Will Help Bring Legal Weed out of the Black Market
Local elected officials will have important decisions to make about taxes if California voters legalize weed in November.
If California voters decide to legalize marijuana for recreational purposes on Nov. 8, there will still be important decisions left to local elected officials.
One crucial element that cities and towns will have to decide—if voters approve legalization statewide, as polls suggest they will—is whether to apply local sales taxes on cannabis. Proposition 64 sets a statewide sales tax of 15 percent on marijuana, but gives local jurisdictions the right to layer additional taxes on top.
As I explained in a column in the Orange County Register this weekend, cities should resist the urge to set high tax rates that could keep a portion the state's marijuana market—a market that could account for more than $5 billion in annual sales—in the shadows and make it harder for legal marijuana businesses to get started. Other states aiming to legalize weed should take the same cautious approach.
From my piece, which you can read here:
The tax plan contained in Prop. 64, pro-marijuana activists say, could help California avoid some of the pitfalls that Colorado, Oregon and Washington dealt with in the aftermath of legalization. Each of those states initially imposed tax rates in excess of 25 percent (Oregon had the highest initial rate, 37 percent), but all three already have taken steps to reduce their taxes on weed.
Higher tax rates, those states found, kept the marijuana industry partially in the shadows. California's lower tax rate should help to bring the state's robust black market for weed into the light. That's good for consumers, good for businesses and good for the state's tax coffers.
California isn't alone in learning this lesson. States considering legalization this year are all aiming at lower tax rates. Voters in Arizona and Nevada, like those in California, will decide on Nov. 8 if they want to legalize recreational marijuana and tax it at 15 percent. A marijuana legalization initiative in Maine would set taxes at 10 percent, and Massachusetts' proposed 3.75 tax rate would be the lowest in the nation for recreational weed, if voters approve it.
Estimates vary, but California is likely to net more than $650 million in revenue from the state sales tax on marijuana. An analysis by the Los Angeles Times suggests that that figure could rise to $1 billion within a few years. The state plans to use the revenue to pay for a wide range of things somewhat related to legalization, including law enforcement, drug education and treatment programs, environmental projects and DUI enforcement.
Still, the biggest benefit of legalization is the end of a destructive and expensive war against the black market for marijuana. That's why it's important that legalization doesn't come with tax burdens that could force marijuana to stay in the underground economy.
"It's a balancing act," says Lynne Lyman, whom I interviewed on this week's episode of American Radio Journal. Lyman is the California state director for the Drug Policy Alliance, which is supporting the passage of Prop 64.
"Overtaxing will not only not generate the revenue—because people will stay in the underground market," says Lyman. "It will also increase crime, increase arrests, all the things we're trying to reduce with legalization."
You can listen to the whole interview here, and check out more about California's Proposition 64 below.
