Outrun Change

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Nevada joins the list of states allowing sales of recreational marijuana with heavy taxes on sales – #29

Image courtesy of Adobe Stock.

Haven’t had an update on regulatory oversight of the recreational marijuana market in a while. With Nevada now allowing the sale of recreational marijuana, it is time to check out the regulatory world.

As readers of this blog already know, I am watching developments in Colorado and Oregon for the newly state-legal recreational use of marijuana. Just as a reminder, my interest is not in marijuana. My curiosity is focused on how much trouble a burdensome and expensive regulatory structure will create for a newly legalized industry.

My hypothesis is the heavy-handed regulations will be crushing and severely restrain a new industry.

11/29/16 – Brew Bound – Beer Volumes Declining in Markets Where Recreational Cannibas is Legal – Consumption of domestic beer is declining in Washington, Oregon, and Colorado. The business word used is that beer is ‘underperforming’, meaning sales are lower than would otherwise be expected.

Article says the 18-25 demographic is consuming more recreational marijuana and less domestic beer.

Another unintended consequence will be reduced alcohol tax revenue for the feds and the state to offset some of the high taxes on recreational marijuana.

6/13/17 – Bloomberg – Bitcoin is Helping the Pot Business Get Over Its Banking Problem – Marijuana businesses that are legal under state law have a problem: they generate lots of sales but cannot access the banking system. Bitcoin is emerging as a way to get around the federal prohibition of marijuana businesses having a checking account or even a credit card account.

Customers can set up a bitcoin account on the spot, buy bitcoins from a third-party, and pay the merchant.

Employees can set up a bitcoin account, be paid in bitcoins, and sell the bitcoins to a third-party for cash.

That would make it easy to pay employees – just have them set up a personal bitcoin account.

I’m not sure how this would help pay taxes or vendors. I suppose astute vendors would set up a bitcoin account.

7/1/17 – Associated Press at DailyBulletin – Nevada launches sales of legal recreational marijuana – Briefly tried to find some other source for the basic information, but based on cursory search it looks like lots of newspapers picked up this AP report.

Starting July 1 it is legal to buy recreational marijuana in the state of Nevada. Voters approved doing so in November 2016. This is the fastest any state has moved from approval at the ballot box to opening stores.

Basic parameters are individuals can buy up to an ounce if they are over 21 with a valid ID. Major constraint is the marijuana may only be consumed in a private home. Public consumption is not allowed. That is an issue for the two-thirds of sales expected to be from out-of-state visitors. Consumption in a hotel room is not allowed. That will produce conflicts.

States now allowing recreational marijuana:

  • Colorado
  • Oregon
  • Washington
  • Alaska
  • Nevada

6/29/17 – Las Vegas Review-Journal – 14 things to know about launch of recreational marijuana sales in Nevada – Here are some tidbits for your education on the new rules in Nevada:

One likely reason the state was able to allow retail sales so quickly after approval by voters is previously existing medical marijuana dispensaries are allowed to simply get a license and then start selling recreational marijuana. This is different from other states which have a completely different licensing process.

As in other states, all sales will be cash only. Banks cannot offer merchant credit card accounts to customers whose business is illegal under federal law.

Article points out there is an ATM outside most stores selling medical marijuana.

Taxes

Recreational marijuana in Nevada will have a special sales tax at the rate of 10%.

Article says that 32% of what you pay in Clark County will be various taxes. This includes the 10% sales tax mentioned above and a 15% excise tax on cultivation.  That would leave 8% or more for regular sales tax, adjusting for the cultivation excise tax which is obviously based on a lower price in the processing stream.

Still, that gives an idea of the tax structure.

In rough framework that would put recreational marijuana at a 10% premium over medical marijuana, according to the article. Presumably that would be at least a 32% premium on recreational marijuana compared to street sales.

That leaves the recreational marijuana industry at a dramatic price disadvantage compared to the previously-illegal-and-still-illegal street market.

Edible marijuana products are not allowed to be presented as gummy bears or other things will be appealing to children. Article says edibles are expected to be extremely popular with tourists.

Aha! Edibles would be the way to consume marijuana back in your hotel room without leaving the extreme aroma as evidence against you. Think that through to the next step – all that one would need to do is dispose of the wrapper in a public place instead of at the hotel and there would be no evidence you consumed it in your room. This is going to get ugly.

Prices

Article provides a framework for estimates of prices in Las Vegas, Washington, and Colorado. Just for the record, I have absolutely no firsthand information on street prices or retail prices of marijuana anywhere in the country. That is why I write on price references I see in public. That way my readers and I have some vague idea of what’s going on in the market.

Price comparisons from the article for your education:

  • Over $400 for 1 ounce – higher grade (whatever that means) – Las Vegas
  • $30 – $60 for 1/8 ounce – medical marijuana – Las Vegas
  • $80 for 1/8 ounce – estimate of recreational marijuana – Las Vegas
  • $20 – $60 for 1/8 ounce – range of prices for recreational marijuana in Washington and Colorado
  • $200 – $375 for 1 ounce – range of prices for recreational marijuana in Washington in Colorado

Those are some really wide ranges, but the information provides at least some sort of framework. Guesses in the article indicate the prices in Vegas will be higher than Washington and Colorado. Intuitively that makes sense because there is expected to be far more demand in Las Vegas due to tourism traffic.

Yield

Article has some yield information that I’ve been watching for. Just so you know, I have no personal knowledge of how much marijuana goes into a typical joint. Thus, the reason I mention this:

Article provides a frame of reference that one ounce of dried marijuana can result in 40 to 60 cigarettes. The range is due to personal preference in how to roll.

Of course my accountant brain then adjusts that to the 1/8th ounce data that is mentioned in the article.  That means 1/8 ounce could produce between 5 and 7.5 ‘joints’, again depending on your rolling preferences.

That also means that an ounce is a lot of marijuana. A lot. For tourists, 1/8th ounce is going to be a huge amount, especially for a weekend, even more so when it is not allowed to be consumed anywhere other than residential homes. Even more so when none of the left-overs can legally be taken through an airport or taking into most states of the country.

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