Taxing Toking: The Tax Implications of Marijuana Ballot Initiatives


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In addition to a number of tax proposals on the ballot this election, voters in Alaska, Oregon, and the District of Columbia will vote on ballot initiatives that would legalize marijuana for recreational use. These measures could also have future revenue implications. If these initiatives pass, they would set these jurisdictions on the path of Colorado and Washington, which already allow production and sale of marijuana to adults for recreational as well as medical purposes.

While Colorado and Washington marijuana markets are still a work in progress, both states have proven that taxes on marijuana can generate revenue. For example, since recreational marijuana sales began in January, Colorado has collected over $45 million in revenue from marijuana taxes and fees. Washington has collected $5.5 million in excise tax revenue from July 8 (the first day of sales) through October 7.

Here's a breakdown of each state's potential plan to tax marijuana and what level of revenues these states could expect to collect:

Oregon

Oregon's marijuana ballot initiative would place a $35 per ounce excise tax on all marijuana flowers, a $10 per ounce excise tax on all marijuana leaves, and a $5 excise tax per immature marijuana plant. The revenue generated from these taxes would be earmarked such that 40 percent would go to the Common School Fund, 20 percent for mental health/alcohol/drug services, 15 percent for state police, 20 percent for local law enforcement, and 5 percent for the Oregon Health Authority. The Oregon Legislative Revenue Office estimates that this measure would raise $41 million from 2017 to 2019 , while the economic consulting firm ECONorthwest estimated that revenue would hit a much higher  $79 million over the same time period.

Alaska

Alaska's marijuana ballot initiative would place a $50 per ounce excise tax on the sale of marijuana with the option of allowing the Department of Revenue to exempt or apply lower tax rates to certain parts of the marijuana plant. While the Alaska Department of Revenue has chosen not to issue a formal revenue estimate, a Colorado-based organization, the Marijuana Policy Group, has estimated that the measure would raise $73 million  from 2016 to 2020.

District of Columbia

Unlike the initiatives in Alaska and Oregon, Washington, D.C.'s ballot initiative does not explicitly lay out a taxation regime in the initiative text. The assumption, however, is that the D.C. Council will follow-up with legislation that puts in place a regulatory and taxation system for recreational marijuana. To this end, D.C. Councilmember David Grosso has proposed the Marijuana Legalization and Regulation Act, which would place a 6 percent excise tax on medical marijuana and a 15 percent excise tax on recreational marijuana.

Although there has been no official score of the bill, an estimate of a similar hypothetical marijuana tax in D.C. predicted it could raise $8.8 million. Whatever the amount raised, the proposed D.C. legislation would direct all of it into a dedicated marijuana fund, which would fund anti-drug abuse programs across D.C. agencies. 

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