When Colorado became the first U.S. state to legalize marijuana in November of 2012, many around the nation, and the world for that matter, saw it as a live experiment of sorts. Would it work out? Would more people die? Would the state benefit from it? Would the streets run rampant with brainless zombies?
It has been over a year and a half since the state began legal sales on January 1, 2014, which has given us time to analyze the effects the legalization has had on the state – functionally, financially, socially, medically, etc. Today, we look at financials.
According to the Colorado Department of Revenue, from July 1, 2014 to June 30, 2015, the first whole fiscal year that marijuana had been taxed, the state raked in almost $70 million solely from marijuana-derived taxes. This went well over the Colorado Legislative Council’s initial estimate of $33.5 million and even the more recent estimate of $58 million. In the same time frame, Colorado took in just under $42 million from alcohol taxes. These figures are specifically to taxes on the substance and does not include general and sales taxes.
Now, it is important to note that taxes on marijuana are significantly higher than that of alcohol. Marijuana in the state is currently taxed a total of 25% - 15% at the wholesale level (i.e. what growers pay) and 10% at the retail level (i.e. what consumers pay). Alcohol on the other hand has incredibly low tax rates in Colorado: $2.28 per gallon of liquor, $0.28 per gallon of wine, and $0.08 per gallon of beer. Besides the District of Columbia, Maryland, Missouri, and Kentucky, Colorado is the cheapest place to purchase liquor in terms of taxes. For beer, only Wyoming has a lower tax. And for wine, just California (duh), Louisiana, and Wisconsin (Tax Policy Center). Many of those states have additional taxes on top of the volume rate, but Colorado does not, making it effectively even less taxing to purchase alcohol in the state.
So, yes, the numbers are a bit inflated and you can’t just make the judgment call by looking at the numbers right away. This doesn’t mean that Colorado residents smoke more than they drink; not by a long shot. But what it does mean is that this works. This long, looming experiment that started in November of 2012 is beginning to show that states can benefit financially and be better off by regulating the sale of marijuana. And that was just year number one; as people get more comfortable with the new laws these figures will go up. As a matter of fact, based on sales through July, tax revenue for the calendar year 2015 is expected to double that of 2014. Up to May of this year, the calendar year has clocked in $88 million in tax dollars for the state; in June 2015 $9.7 million was earned, $5 million more than June 2014 – both telling signs.
Earlier this year Colorado’s Governor John Hickenlooper signed legislation that would reduce the marijuana retail tax by 20% to 8% beginning July 2017 (Forbes). Why you ask? Colorado’s Taxpayer’s Bill of Rights (TABOR) makes it that the state must issue refunds if their revenue collection exceed projections. This is merely an effort to avoid passing the maximum threshold of collectable taxes. Not only is this the reason for this permanent 20% tax break, but it is also the reason the state’s cannabis consumers enjoyed a “tax holiday” on September 16 and the same reason that, beginning on January 1, 2016, the retail tax will drop down to 0.1% until the reductions in tax revenue equals $13.3 million or June 30, whichever happens first. Now, if only Washington would take note (their effective tax rate, according to the Washington Liquor Control Board, is 44% - 25% on producers, 25% on processors, and 25% at the retail level).
Also in accordance with Colorado’s TABOR is the fact that these taxes are to be refunded to consumers and taxpayers. As such, Colorado introduced HB 15-1367, a ballot initiative that will decide what the state does with the marijuana tax money, to avoid having to give it back. If the bill is passed by voters, Colorado will spend the tax money as they have outlined in the already-approved Prop AA. The $70 million would go to voter-approved projects: About 70% to the construction and improvement of public schools, 20% to the Marijuana Tax Cash Fund, which would provide enforcement, youth programs, public health initiatives, and coverage of the costs of legalization, and the remaining 10% to the state’s general fund. If it isn’t passed, which is unlikely, about half of the sum of tax revenue would have to be refunded to tax-paying growers and consumers, likely through more tax cuts, with the other half being distributed to all Colorado taxpayers.
From the perspective of any state – how can you let a potential $70 million to reinvest into the state go down the drain to underground and black markets? Tax revenue is just one of many reasons marijuana prohibition doesn’t make sense for states’ governments. They spend more money enforcing the arrest and imprisonment of marijuana consumers than they could use to potentially reinvest and take measures that will actually impact the safety and health of its residents, and more importantly the well-being and education of our children. Anyone even remotely educated in math or business will tell you that financially, the support for marijuana prohibition makes absolutely no sense.
Want proof? Colorado's Gov. Hickenlooper, a Democrat, has been publicly against marijuana for a very long time. He opposed the legalization in 2012 when it was on the ballot and said earlier this year that he thought it was a “bad idea.” And here he is now, happily reporting his state's gains from its regulation. Crazy right? Although it’s still too early to tell whether it truly was a bad idea or not, one thing is for sure: Dollars make sense.