The biggest marijuana-related measure this election season is in Colorado, where voters will decide whether the state should implement special taxes on the recreational cannabis industry.
A lot is at stake.
Proposition AA calls for a 15% excise tax on wholesale marijuana transactions as well as a 10% tax on all sales of cannabis products to consumers (medical marijuana would be exempt). Retail sales of recreational cannabis would also be subject to the standard 2.9% state sales tax rate.
Opponents of the measure – including advocacy groups, consumers and some entrepreneurs – say the standard state and local sales tax rates are more than adequate to fund regulation and enforcement, giving Colorado an estimated $25 million annually to oversee the industry.
They also argue that the proposal will elevate prices significantly, especially when combined with local taxes that could tack on another 5%-15%. That, opponents say, will drive customers to the black market and could lead to the collapse of the entire state-legal recreational cannabis program.
But supporters – including many existing cannabis businesses and industry groups – say the taxes are needed to ensure adequate regulatory enforcement, set a model for the rest of the nation and help the industry create a positive impression in the community.
If Colorado botches this, they say, the federal government could come down hard and stifle industry growth.
Medical Marijuana Business Daily spoke with attorney Brian Vicente, who helped craft the state’s recreational cannabis law and also chairs the committee backing Proposition AA, about his views of the measure and the general challenges Colorado cannabis businesses are facing.
Question: You’ve been very vocal about the need for cannabis businesses to support Proposition AA, even organizing a press conference with MMJ leaders who back the proposed tax rates. Why should businesses vote for something that will raise the cost of their product?
Answer: Colorado voters last November took a bold step forward to tax and regulate marijuana for adults, and now we have to complete the job by establishing a reasonable tax rate. This money is necessary to make sure the industry is run in a compliant fashion, and it will put tens of millions into the public school system. It’s absolutely necessary to regulate the industry and to send a strong message to the federal government that Colorado is providing an infrastructure capable of overseeing this brand new industry.
It’s about finishing what we started. We told voters that we would tax and regulate marijuana. We are setting the national model in sensibly regulating the industry, and it’s crucial that we move forward with the taxing component.
Q: What, in your opinion, will happen if this doesn’t pass?
A: If Proposition AA does not pass, it would be a bad thing for Colorado in a number of ways. We would not be capturing as much money in tax revenues for regulation and enforcement and we wouldn’t be providing money to public schools. Also, a lot of local communities would opt out and not allow these businesses. We’ve heard from dozens of communities that said if Proposition AA passes they will allow marijuana businesses but if it doesn’t pass then they will seek a ban.
This is a turning point in history. The federal government said it is willing to allow Colorado to move forward with adult-use marijuana, but we need to have a responsible and well-funded regulatory system in place. If this does not pass it will send a strong message to the federal government that Colorado is not taking the regulation of marijuana seriously, and they could come in and shut down the program.
Q: This is a contentious issue in the marijuana industry. Some cannabis business owners really fear that this will increase prices to the point that people will just continue going to the black market.
A: I think people don’t understand that this is a very moderate tax rate. If you look at Washington, you’ll have about a 75% tax rate. In Colorado it will be about 30%. We don’t think that’s high enough to drive people to the black market.
We’re under a microscope. For 80 years marijuana has been essentially entire illegal. We need to make this work.
By doing things like giving out free joints to people in parks [which some Prop AA opponents recently did], we send the wrong message. It’s just irresponsible and not what voters passed. Hopefully everything will loosen up in the future, but we need to be the responsible adults helping to regulate the product.
Q: What do you say to business owners who think this could be disastrous for the industry?
A: One, the market is getting much, much larger. Previously you could sell only to sick people, and now you can sell to any adult.
Secondly, the tax rate is actually quite reasonable. If you look at it per ounce or eighth, you’re talking about only a couple of dollars in the average transaction. It’s just not enough to force people to go back to buying it in a friend’s garage.
Also, to the best of my knowledge almost the entire industry supports Proposition AA. All the major trade organizations and prominent business owners who come to business conferences and meetings are in favor of it. Activists might not all support it, but businesses seem to.
Q: So you don’t think the taxes will have a significant impact on prices? That defies conventional wisdom.
A: This tax is not on medical marijuana, so current patients won’t have to pay more. This is for recreational users in the adult-use space. They will end up paying more [than without the tax], but at the end of the day I think prices will actually be lower than the black market currently. Basically it’s an economies of scale issue. You will have giant warehouses growing marijuana legally in Colorado, and that will help lower prices.
We’ve already seen this in medical marijuana. The price on the black market was $400 an ounce for a long time, now it’s $100-$150 an ounce. The same producers in medical will provide for the recreational market. So even with the tax, prices will still be lower than on the black market.
Also, this provides a much different experience from trying to buy marijuana in Civic Center Park, where you risk your life just for a bag of marijuana. Instead, you can go to a regulated storefront where you know the marijuana is grown in an ethical manner, has labels with THC levels, etc.
Q: How many existing medical marijuana businesses do you think will ultimately make the transition?
A: I think most will go to recreational, at least eventually. Many will go for it now, though some will wait until 2014 so they can wait and see how the first businesses are doing. On the other side of that, we have some clients who are amped to be the first in history doing this, so they are excited and are hustling through the regulatory process.
Q: What are the other big business issues you see as Colorado transitions to recreational?
A: Current licensees are trying to make decisions on whether or not they want to move forward on the adult-use side, and if so how much product should they allocate for that versus medical. Then certainly you have the issues of banking and taxes, which have never gone away.