Prohibitive Taxation Could Doom Legal Weed

Washington and Colorado have legalized marijuana for recreational consumption, but over-taxation might defeat the main purpose of the laws.

As I’ve mentioned before, and before and before even that, if they want to bring in these sort of tax rates, they need to get the price of cannabis flowers down, down, down. To eliminate the black-market the out the door price on an ounce needs to seriously undercut the current illegal price; currently averaging $239 in Washington, can you chop a Ben Franklin off that? You can’t try to solve all of your state’s financial woes on the back of recreational marijuana nor will you eliminate the crime surrounding cannabis without eliminating the black market. You wouldn’t pay a moonshiner $5 for the same product you can get for $3 at the liquor store.

The dilemma is especially clear in Washington, where I-502 specified a 25 percent excise tax at three levels: sales between producers and processors, between processors and retailers, and between retailers and consumers. That’s in addition to the standard state sales tax of 8.75 percent.

According to calculations by BOTEC, Kleiman’s consulting firm, these taxes will make the retail cost of cannabis 58 percent higher than it would otherwise be, accounting for 37 percent of the price paid by consumers. One BOTEC projection, based on a production cost of $2 per gram, indicates the after-tax retail price will be $17 per gram, or $482 per ounce. Another projection, based on a production cost of $3 per gram, puts the retail price at $25.50 per gram, or $723 per ounce.

That’s a lot more than pot smokers in Washington currently pay. According to the website Price of Weed, which collects reports from marijuana consumers across the country, the average price for high-quality cannabis in Washington is $239 per ounce.

Washington and Colorado legislators will have the power to adjust tax rates. But they may be tempted to keep taxes high in the hope of generating more revenue, even when reducing rates might actually boost revenue by allowing licensed sellers to attract more business. The backers of hefty marijuana taxes are putting a lot of trust in legislators’ ability to anticipate unintended consequences and learn from experience—skills that do not come naturally to politicians.

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