By Danny Restivo
Support for legalized Marijuana in the United States is growing nearly as fast as its profits. With recreational marijuana legal in Colorado, Washington, Oregon, and now Alaska, sales have projected to hit $4.3 billion in 2016, according to the Marijuana Business Daily’s 2016 factbook. Some experts have even predicted a $22 billion industry by 2020. These figures have attracted state’s and investors hoping to cash in on a lucrative revenue source. In November, voters in four states—Arizona, Massachusetts, California Nevada, and Maine—will decide whether to permit recreational marijuana (REC). All of these states currently allow Medical Marijuana (MMJ), which they hope to integrate into their regulatory framework. If voters approve their respective initiatives, it could further legitimize cannabis’ economic value.
In light of these ballot proposals, the Drug Enforcement Agency announced in August that marijuana would remain a schedule 1 narcotic under the Controlled Substance Act. Written in 1970, the Controlled Substance Act categorizes marijuana—as well as heroin, ecstasy, and other narcotics—as a “drug with no currently accepted medical use and a high potential for abuse.” In their announcement, the agency cited a need to further study and research the benefits of Marijuana. The DEA’s decision comes after the Department of Health and Human Services recommended moving the drug from a schedule 1 classification to a schedule 3 classification, which would acknowledge its health benefits and make it easier to prescribe. Currently, doctors can only “recommend” cannabis to patients in a state with medical marijuana.
To help stymie the potential for prosecution, President Obama issued a memo in 2009 to federal prosecutors encouraging them not to prosecute medical marijuana operations that are in accordance with state law. In 2013, after Colorado and Washington had passed laws legalizing marijuana, the Department of Justice announced an update to their marijuana enforcement policy. The announcement stipulated that marijuana would remain illegal under federal law, but they expected states like Colorado and Washington to create “strong state-based enforcement efforts…” Ultimately, the DOJ reserved the right to challenge their policy, but they maintained “they wouldn’t do it at this time.”
As a result, the four states with marijuana ballot proposals in 2016 have mirrored their legislation off the legal cannabis markets in Colorado, Oregon, Washington and Alaska. All stipulate that 21-year-olds can legally purchase and possess up to an ounce of pot. However, cultivation policies, tax rates, state revenue and the distribution of those funds all differ. Here’s a glimpse at the current marijuana regulatory framework in place.
States with Recreational Marijuana
Alaska became the third state to legalize marijuana after voters approved Measure Two in 2014. Since then Alaska has established a Marijuana Control board, which has adopted regulations for packaging, distribution, store locations and edibles. The agency has enacted a $50 per ounce tax on marijuana cultivators, as well as 25 percent excise tax on retail cannabis. The state’s Department of Revenue expects to collect $12 million annually. Roughly half of that money will go towards Alaska’s Department of Correction’s Substance Abuse Treatment Program, the Department of Health and Social Services and the Department of Public Safety. In July, Governor Bill Walker signed a bill that would allocate half of the excise tax to programs aiming to reduce prison recidivism. Regulators are expected to strictly monitor taxes and fees when retail stores come online in late 2016.
Since approving recreational marijuana in 2012, Colorado has served as a bellwether model for other states looking to adopt recreational or MMJ programs. Colorado has issued 1,303 medical licenses for stores, grow sites, product manufacturers and testing facilities. On October 1, 2016, the state issued new guidelines to limit the THC concentrate in edibles and marijuana fluids and waxes.
Colorado’s cannabis market is monitored by the Marijuana Enforcement Division of the Department of Revenue. The state’s policy allows adults to grow up to six plants at home, three of which may be flowering. Colorado charges a 15-percent tax on wholesale marijuana prices, plus a 10-percent tax on sales, which will drop to 8 percent in 2017. Furthermore, local municipalities can add additional charges or taxes. In Denver, a customer pays roughly 21 percent in taxes on a retail cannabis purchase. In 2014, the state collected $59 million in taxes, fees and licenses, while the revenue increased to $135 million in 2015. That revenue is roughly once percent of the state’s entire budget. Thirty-five million dollars of the 2015 revenue went to the public education system, while the remaining revenue was redistributed into the marijuana enforcement division.
Unlike Colorado and Alaska, Washington does not allow personal cultivation, which is considered a felony under the new law. The state also has limits the amount of marijuana-infused edibles or liquids someone can purchase or possess. Washington imposes a 37-percent excise tax on all retail marijuana sales, a gross receipt tax from the state Business & Occupation (B&O), a 6.5 percent sales tax, plus local sales taxes. In its first full year of legal use (July 1, 2015 to June 30, 2016) the state collected $62 million in excise taxes, $10 million in state sales taxes, $1.3 million in state B&O taxes, and $3.6 million in local sales taxes on $157 million in retail sales, according to Washington State’s Liquor and Cannabis Board. Forty percent of that money will go to the state’s general fund and local budgets, while the remaining 60 percent is earmarked for substance abuse prevention, research, education, and health care. In January 2016, the WSLCB announced that it would increase the number of marijuana retail stores from 334 to 556. With an increase in retail operations, the state has projected $136 million in collecting taxes.
In Oregon, it’s legal to possess one ounce of marijuana in public, while it’s ok to keep up to four plants at home. After legalizing recreational pot in 2014, the state’s liquor control commission began overseeing Oregon’s marijuana retail stores. The commission established a 17-percent tax on the retail price of recreational marijuana, which will go into effect in late 2016. Until then, the state has collected a 25-percent excise tax. In August, the Department of Revenue reported $25.5 million in sales tax revenue from the state’s 309 dispensaries. As part of the state’s regulatory policy, local governments can adopt ordinances that add up to 3 percent in sales tax.
The state expects it will collect roughly $44.4 million in marijuana taxes throughout 2016. Roughly $12 million is earmarked for the state’s regulatory efforts. Forty percent of the remaining funds will go to education, 20 percent to mental health and substance abuse, 15 percent to the Oregon state police, 10 percent to local law enforcement and 5 percent to Oregon Health Authority.
In 2014, voters approved an initiative to legalize Marijuana. However, a month later congressional Republicans inserted a clause into the city’s budget that prevents any federal funds from regulating legalized cannabis. When local legislators attempted to create a regulatory framework, they were threatened with fines. As a result, there is no legal sale or distribution of pot in D.C. however Marijuana consumers can have up to two ounces and grow up to six plants, but smoking in public is strictly prohibited.
States with Recreational Marijuana Initiatives on the Ballot in 2016
Proposition 64 would allow consumers to carry up to an ounce of pot, while also allowing a person to grow six plants at home and purchase eight grams of concentrate. If proposition 64 is approved, market experts believe California—which is home to 23 percent of America’s population—will send a strong message to other state’s debating recreational cannabis. Furthermore, recreational marijuana would be completely legal on the West Coast. The initiative’s support campaign has raised roughly $17 million, most of which originated from Silicon Valley investors. By comparison, the opposition has raised roughly $250,000.
According to a Public Policy Institute of California poll taken in May, 60 percent of Californians support the legalization of Marijuana. The proposal would create a new Bureau of Marijuana Control, which will work with the Department of Consumer Affairs, the Department of Public Health and the Department of Food and Agriculture to help monitor the industry.
The measure will also establish a 15-percent sales tax as well as a cultivation tax of $9.25 per ounce for flowers and $2.75 per ounce for leaves, with exceptions for qualifying medical marijuana sales and cultivation. According to some projections, the state could collect up to a $1 billion a year in tax revenue. The proposal has loosely outlined how states and localities may implement the measure, as well as how the tax revenue will get distributed to state and local agencies.
Proposition 205 would allow a 21-year-old to possess up to an ounce of marijuana, and grow up to six plants in their home. Recent polls have showed voters are evenly split on the issue. Republican Senator John McCain has voiced support for Prop 205, while Republican Governor Doug Ducey opposes the initiative. If approved, the state would create a Marijuana Commission that would further establish transportation, manufacturing and retail guidelines for pot. Marijuana would receive a 15-percent sales tax, while 80 percent of the generated revenue would be directed to education with the remaining 20 percent going to the Department of Health services. Projections on tax revenue have been as high $130 million to as low as $55 million.
If approved in November, Question One will have the least strict marijuana guidelines in the United Sates. The state would allow 21-year-olds to purchase and possess up to 2.5 ounces of marijuana, more than twice the legal amount in Oregon and California. The law would also allow adults to grow up to 12 plants, as long as no more than six have flowered. Furthermore, Maine’s proposed 10 percent sales tax is far less than other regulated states. Projected estimates believe the state could generate an additional $9 million, 98 percent of which would go to the general fund while two percent would go to Maine’s Local Government Fund.
Governor Paul LePage and Attorney General Janet Mills have both expressed opposition to the proposal. However, a recent poll from the Bangor Daily News shows 55 percent support for the law, while 40 percent oppose it.
Like other states, Massachusetts’ Question Four would allow adults 21-years and older to purchase an ounce of cannabis, or five grams of concentrate. Residents would be allowed to grow six plants at home, with a maximum of 12 per household. Question Four would establish a cannabis control commission to help regulate cultivation, testing, manufacturing and retail. Experts believe a marijuana market within the state has the potential to generate $100 million in sales. The state has proposed a 12-percent tax; 6.25 percent would be a sales tax and 3.75 percent would be an excise tax used to fund the commission’s operating budget. The remaining two percent would go to the locality where the marijuana was purchased.
Republican Governor Charlie Baker, Boston Democratic Mayor Marty Walsh and Attorney General Maura Healey all oppose the measure. However, a poll by Ballotpedia shows a majority of support among likely voters.
Like other Western states, Nevada’s Question 2 would allow 21-year olds to purchase and possess up to an ounce of marijuana, while allowing 1/8 of an ounce of liquid concentrate. Efforts to legalize marijuana failed within the statehouse in 2013 and 2015. However, proponents believe they have a better shot for approval via statewide vote. The measure calls for a 15-percent excise tax on wholesale marijuana sales in addition to other sales and use taxes. The proposal is also calling for variety of licensing fees, which could span from $3,000 to $30,000 depending on the operation. While the state hasn’t projected any numbers for tax revenue, a report commissioned by proponents suggests the industry will bring in more than $464 million in tax revenue between 2018 and 2024. If the measure is approved, that money will go to the Department of Taxation and local municipalities for administration and regulation costs, and leftovers would go to the state’s general education fund.
According to Ballotpedia, only one poll on the issue exists, but it supports Question 2 with support at 50 percent, while opposition hovers at 41 percent. Democratic Senate candidate Catherine Cortez Masto and Sen. Harry Reid have both voiced opposition to the legislation, as well as the Nevada Resort Association—the chief lobbying arm of the Las Vegas casino industry. More importantly, Republic Governor Brian Sandoval has also voiced opposition, which may create more hurdles if the proposition is approved by voters