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.


Paul Hennessy/Polaris/Newscom

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.

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  1. There is one way to legalize weed:

    “Laws prohibiting marijuana are hereby repealed. All convicted marijuana offenders are hereby pardoned and convictions shall be expunged.”

    That’s. It.

    Fuck Gavin Newsom. He’s evil, and he knows it.

    1. I just looked him up.

      When I saw the first images, I had to make sure I didn’t mistype him as “Patrick Bateman”

    2. That’s future Governor Gavin Newsom to you!

    3. Evil pays big these days. Why if you’re evil enough, you could be president!

    4. Weren’t you the one that said this legalization bill was something like 65 pages long?

  2. “Lower Taxes Will Help Bring Legal Weed out of the Black Market”

    Lower taxes? Ha! In Cali? Hahahhaaahhaahh!!! Oh, that’s funny.

    Look, you dope smoking libetarians, do you want to give us moar revenues, or do you want to visit the rape cage for that illicit plant material? WE’VE GIVEN YOU CHOICES! You should be thanking us!

  3. Yet another inevitable and foreseen consequence of the left’s giving lip service to their pro “civil liberties” agendas.

    More Uncle Sugar involvement.

    cities should resist the urge to set high tax rates


    1. Why is this weed so expensive? I can’t afford it, damn corporations!


  4. Overtaxing will not only not generate the revenue

    This sounds suspiciously like VOODOO ECONOMICS.

  5. make it harder for legal marijuana businesses to get started

    If legal taxed marijuana can’t compete with bootleg untaxed marijuana: TOO FUCKING BAD.

    1. We need a war on black markets! Only the licensed growers who know how to buy off the right people conduct a safe growing operation can be allowed to grow.

  6. IF Cali passes this, I cannot wait for the conservotards comments on WaPo.

    ”They just legalized drugs in California! Maybe it will finally fall into the ocean now!”

    “Yeah, stupid libertarians putting marijuana into little kid’s candy, lock them up!”

    Oh, who am I kidding, I’ll have to actually cut and paste the comments because they’ll be 10 times that stupid.

  7. Wayne LaPierre in an NRA ad just said the ruling elites and their media lackeys hang out at “star-studded champagne dinners”. “Cocktail parties” must be OUT.

  8. With politicians as their competitors, drug dealers have nothing to worry about. The politicians will tax the hell out of weed, the illegal dealers will keep selling it for less, and the system will grind on trying to stamp out that “dangerous” untaxed weed problem, thereby giving the drug warriors something to do and keeping prisons full.

    1. Sounds pretty accurate to me.

    2. As you well know, the only thing more sad than a full prison is an empty one.

  9. Weed will be taxed high, then people will be targeting for using the black market to avoid paying their patriotic / fair share / whatever buzzwords fucking idiot lefties use now. They people will be arrested or shot, like Garner for selling loosies, and these same fucking idiot lefties will cry “police brutality”, “corporations!”, “greed”, etc.

    Yet it never fucking occurs to them its them and the government being greedy, or them calling out the police on people.

  10. Listening to this interview with Lynne Lyman is rage inducing.

  11. Jeff Hamilton finally asks the correct question.

  12. Why is 15% tax on the retail market “fine” Lyman? Why?

  13. If police departments, prosecutors, and prison tenders are really spending a lot of time arresting, prosecuting, and imprisoning a lot of non violent dope smokers and deal-to-my-friends level dealers, we could expect a largish savings on public expenditures when weed is legalized. Sadly, these savings will not be found. Even if there was a lot of arrest. prosecution, and imprisonment of non violent dope smokers (there is not) the coppers, DA’s, and prison tenders will find something else to arrest, prosecute, and imprison for.

    I am in favor of decriminalizing weed possession, but imagining that there is a lot of public revenue to be raised is probably nonsense. If weed is legal or decriminalized, people will simply grow their own and a bit more for their friends too lazy to do it for themselves, and too cheap to pay inflated prices at the pot shop. There will be some revenue, for sure, but a LOT more people will just avoid it in favor of paying no taxes at all, with no chance of being prosecuted for possession of having a few ounces on hand.

    1. What you’re saying about people growing their own is a lot like saying that because people are allowed to make their own beer or wine that there will be no revenue from beer and wine. Most people live in cities and do not have any space to grow cannabis. Also, most people I know could kill any houseplant there is, no matter how tough it is. Yes, some people will surely grow their own. But you also realize that they always put really strict limits on how much you can actually grow, legally. No one is going to be growing weed for 60 of their best friends, legally. And anyone living in an apartment will be lucky to even grow enough for their own needs year round. Also, Americans are lazy.

      There will be lots of revenue, because most people will need to or choose to buy the stuff at least part of the time.

      1. “…strict limits on how much you can actually grow, legally…” Because every pothead is actually a law-abiding citizen. None of them would ever make shatter in their apartments, either.

  14. Colorado cities and counties have seen a pretty big increase in tax revenues from cannabis sales. I don’t think most people really event think about taxes at all much less intentionally try to avoid them. It’s all about cost for your average consumer and if taxes increase cost above black market rates. For most consumers, as long as a dispensary can sell them weed for less than “their guy,” they’re going to the dispensary every time.

  15. In these first few years, it will be a high-demand, low supply situation. The price will be determined by how much people are willing to pay. Thus, the benefits of lower taxes will flow to the businesses, not the consumers. In other words, businesses charge high prices not because they must pay the taxes but simply because they can, there’s not enough competition to force down prices. Over the long term, legal businesses run by actual are going to have an edge over illegal businesses run by criminals, even if they have to pay taxes.

    Serious question relevant to this issue: does anyone know of data on the effective tax rate for fortified wine?

  16. This is the second Reason video I’ve seen that shows Wyoming as pro and Colorado as anti cannabis. Take a geography lesson and get your shit together.

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