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Colorado’s Marijuana Tax Potential Attracts New Allies

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(credit: CBS)

(credit: CBS)

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DENVER (AP) – Colorado’s hearty embrace of a 25 percent marijuana tax this week could prove a turning point for legalization backers. They’ve long argued that weed should come out of the black market and contribute to tax coffers instead of prison populations.

But it’s far too soon to say how much revenue the marijuana taxes in Colorado and Washington will actually produce when retail sales begin next year.

A tax windfall in the two states could win over skeptical states that may be interested in pot legalization but wonder about costs of regulation. On the other hand, if many pot smokers in Colorado and Washington stay in the black market to avoid taxes, supporters could lose a major plank of their longstanding argument that legalization will take money from criminal cartels and benefit government programs.

(credit: CBS)

(credit: CBS)

“It’s a crucial question,” said Sam Kamin, a University of Denver law professor who served on a panel that helped write Colorado’s marijuana regulations. “There’s this premise that marijuana legalization can be a net-net win, spending less money putting people in prison and seeing a tax benefit from the sale of marijuana. Voters are going to expect to see both.”

Colorado’s vote Tuesday showed it wants the benefits, even in a tax-adverse state that typically rejects proposed taxes. The pot tax question – on an excise and special sales tax that could add more than 25 percent to the sales price of weed – passed by nearly 2-to-1.

That margin was much broader that Colorado’s legalization vote itself in 2012. Many who opposed legalization then supported the taxes this time around. Last year’s legalization measure also called for tax revenues for the state.

Washington state has already settled its pot taxation scheme, charging 25 percent at three possible transfer points from production to retail sale, plus sales taxes.

It’s impossible to say precisely how much revenue the pot taxes will produce. A projection prepared for Colorado voters predicted pot taxes would bring in almost $70 million a year. Of that, $27.5 million would go to school construction, as specified in last year’s ballot measure that legalized the drug.

The rest of the money would go toward paying for the regulation of pot shops. Several Colorado municipalities approved additional pot taxes Tuesday, ranging from 3.5 percent in Pueblo County to up to 10 percent in the city of Boulder.

Both Colorado and Washington are taxing pot based on the sales price, unlike alcohol and tobacco, which are taxed by the gallon or by the pack. The price of marijuana varies widely based on potency and quality and is likely to go down once recreational sales are legal.

Based on crowd-sourced estimates of what black-market pot smokers pay, Colorado’s state tax rate would add about $50 to a $200 ounce of loose marijuana, roughly the amount that would fit in a sandwich-sized plastic bag. Local taxes could bring the total consumer tax burden near 30 percent, or a total price of $260 an ounce.

Denver approved a 3.5 percent tax Tuesday that could generate $4.5 million a year. The Denver Post has predicted state and city taxes will add $8.59 to a $30 eighth of an ounce of pot.

Colorado saw a lively if small opposition campaign to the pot taxes, mostly legalization backers who argued high taxes would keep smokers in the black market. Colorado, unlike Washington, also allows people to grow pot at home, enabling marijuana users to avoid taxes entirely.

Most of the nascent marijuana industry embraced steep taxes as a path to acceptance.

“Sure, the taxes are a little bit too high. But we’ve been asking for this for 40 years,” said Robert Kane of Colorado Springs. Kane is senior vice president for Endocan Corp., which makes cannabinoid treatments for patients with cancer, HIV and other ailments, as well as hemp-infused cosmetics.

“I’ll gladly pay an extra $5 or $10 every time I go to the store to shop in a regulated market and have the money go to my kids’ schools,” he said. “Let’s do this, get the establishment started, show the world we can do this in a responsible way.”

- By Kristen Wyatt, AP Writer

(© Copyright 2013 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed.)

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