Tax revenue projections and first month of sales tax report from Colorado for state-legal-federally-illegal marijuana sales
As an experiment in the heavy hand of tax and regulation, I’ll be watching the results of Colorado and Washington legalizing marijuana. My hypothesis is the heavy sales tax burden and regulatory requirements will cause unintended consequences.
January tax revenue
First month of tax revenues in Colorado were announced this week. In January, the state collected $2.1 million in taxes and fees from recreational marijuana sales and an additional $1.4 million from so-called “medical” sales, for total of about $3.5M for the month.
That is according to multiple media sources, including Reuters, Colorado reaps $2.1 million in taxes, fees in first month of recreational pot.
The revenue from recreational sales includes the following taxes, according to the article:
- 2.9% – sales tax
- 10% – special sales tax on marijuana
- 15% – excise tax on growers
Assuming the sellers are vertically integrated, that would put taxes at 27.9%. That excludes any local sales tax. The vertically integrated assumption is a guess on my part. Seems to me the risks would be too severe for one party to produce medical marijuana and sell it in bulk to a retailer. That would seem to be a clear distribution crime under federal law and so easy to prosecute. Would also leave a large paper trail and traceable bank transactions.
If retailers aren’t vertically integrated, I’m guessing the state tax load would be around 20%.
There are also licensing fees on retailers.
The first month of sales is not a good representation of how sales will proceed. A haul of $2.1M is not in line with the projection for the first six months of operation.
Revenue projections for Colorado
In order to watch the industry develop, it would be good to put some forecasts on the table now. Here’s some info from The Denver Post, Hickenlooper expects marijuana tax money to exceed prior expectations.
The article says the revenue projections imply there will be under $1B of legal marijuana sales in the state for FY 14/15, of which over $600M will be from recreational sales. This is an increase from $395M projected in the ballot that was approved.
The state budget forecasts the tax revenue. The article includes forecasts for expected sales as well. The fiscal year ends June 30. The column headers are abbreviated: “rec” for tax revenue and fees from recreational sales and “med” for so-called medical sales. The recreational sales revenue for FY 14 cover the period from January 1, 2014 through June 30, 2014.
Here are the projected state tax revenues from sales tax and excise tax, amounts in millions:
Here are the projected sales, in millions:
Bloomberg has an article with other tidbits of background info: Pot Shops in Denver Open Door to $578 Million in Sales. Written on 12/30/13, the article tells us in December the projection was for $67M of tax revenue at the state level.
Taxes are 15% at the “wholesale” level, which means from manufacturers to sellers. This would be the excise tax mentioned above. Phrasing of the sentence implies to me there will be manufacturers that are separate from retailers.
Sales are limited to one ounce for Colorado residents and one-quarter ounce for out-of-state residents.
Do I really need to point out how silly that restriction is since it applies at the per-transaction level? Merely drive to the next store to get another ounce or return to your favorite store after lunch for another ounce/quarter-ounce.
The article quotes a website where people can post the prices they paid for buying pot. Reported prices for medium-quality (that’s news to me but it makes sense there would be consumer-rated quality levels for marijuana) are $196 an ounce in Colorado and $192 an ounce in Washington.
I’ll try to follow the news out of Colorado and Washington. In the meantime, you can see from these posts what I think we will see.