Marijuana and Cannabis News

Could overtaxed marijuana in Washington and Colorado help the black market?
By William Breathes in Legalize It, News
Friday, October 18, 2013 at 1:20 pm

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Would you pay $17 for a gram of marijuana if you knew it cost only $2? How about a $100 half-ounce for $136? If you're planning on buying legal cannabis in Colorado or Washington, that might be the case as both states plan to tax marijuana sales heartily.

In Washington, for example, there is a required 25 percent excise tax three different times for consumers, producers and retailers. That is on the back-end and customers theoretically shouldn't see it, but as any community college economics teacher will tell you: that's not the way things work. Instead, many of those businesses will end up jacking up the price to cover their taxes, costing the consumer more in the end. That is in addition to the 8.75 percent sales tax they already have to pay in Washington.

Forbes.com reports that herb produced at $3 per gram would retail for more than $25. That's $723 per ounce. Even if they produce at $2 per gram, that's $482 an ounce. Keep in mind that you can get an ounce of good herb for around $200 in Washington from a friendly local with a little bit of searching. Dispensary ounces sell for $250 on the regular as well, untaxed.

Colorado's looming recreational industry also comes with some tax promises, though Colorado law requires voters approve tax measures before they can become law. Enter Proposition AA, which would impose a 15 percent excise tax on wholesales between producers and retail outlets as well as a 10 percent special sales tax on cannabis. That is on top of the existing 2.9 percent state sales tax and whatever local sales taxes happen to be in the city or county where the recreational marijuana store is located. In Denver, that's just shy of 8 percent. So, in total, you're looking at around 34 percent tax on recreational cannabis in total. So, what was a $200 ounce just became a $268 ounce.

Supporters of the tax measure say it is needed to pay for enforcement. Enforcement, they say, will help keep the feds happy and prevent them from pulling the rug out from under the industry completely by prosecuting shop owners for violating federal law. Opponents say the taxes are way too high and that the licensing fees (which are also really, really expensive in Colorado) should cover enforcement.

UCLA drug policy expert Mark Kleiman tells Forbes.com that both states are overtaxing cannabis with their proposals.

"That's a big problem," Kleiman says. "The legal market is going to have a hard time competing with the illegal market, but a particularly hard time competing with the untaxed, unregulated sort-of-legal market."


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