More states chase tax revenue into cannabis market

More states chase tax revenue into cannabis market

(Ill.) As the governors of Illinois and Connecticut proposed legalizing marijuana in their states to boost revenues, the chief executives in several other states where the drug is already approved for recreational use struggle with a host of challenges.

In unveiling his budget plan for next year, Illinois Gov. J.B. Pritzker suggested last week that legalizing marijuana could generate $170 million in licensing and other fees by 2020.

Connecticut Gov. Ned Lamont, who campaigned in favor of legalizing the drug last year, would only note in his budget press conference that the state faced a $1.5 billion deficit and the money needed to come from somewhere.

Meanwhile, lawmakers in Nevada applied sharp pencils to Gov. Steve Sisolak’s K-12 education plan, especially the anticipated $54 million expected to be generated by taxes on marijuana purchases.

And in California, Gov. Gavin Newsom got the sobering news that cannabis sales in his state last year produced only about a third of the expected $1 billion in tax revenue.

Like it or not, the psychoactive drug still banned under federal law and restricted to medical use only in 23 states has emerged an important source of tax revenue for state and local governments—and school districts in particular.

According to analysis published earlier this year by the Education Commission of the States, the state of Colorado collected roughly $245 million tax revenue from marijuana sales, of which, $40 million went for school construction projects and another $30 million to general school funding.

In Oregon, the state collected $82 million in taxes related to pot sales in 2018. Close to $32 million of that total went to education, according to state officials.

But the first year outcome in California was a big disappointment. The state took in $345 million in taxes generated by cannabis sales—a far cry from the $1 billion estimated last summer.

Proposition 64, approved by California voters in 2016, does not specify a set amount of tax revenue tied to pot sales that would help education. Instead, the measure gives the governor and legislative leaders authority to simply ensure that the taxes be spent on drug research, treatment, and enforcement, health and safety grants addressing marijuana, youth programs, and preventing environmental damage resulting from illegal marijuana production.

The big decline in taxes generated in California, industry officials have speculated, is tied to the still robust black market trade that can undercut legal distributors hampered by heavy tax burdens.

The question of how much tax money states can reasonably expect to raise by legalizing pot, is getting increased attention—especially as more and more states jump into the market.

“Marijuana is being legalized all over the country right now,” said Nevada Assemblywoman Maggie Carlton, D-Las Vegas, at a hearing last week, as she questioned the administration’s assumptions for cannabis revenue.

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