One of the main goals accomplished by legalizing marijuana in Colorado was the perceived increased revenue stream from state tax. Lawmakers strongly believed Colorado would benefit financially from the legalization of marijuana in its state. To their shock and dismay, the legalization has not been as profitable as lawmakers had hoped.
By way of brief background, Colorado enacted a pot tax in 2013. Specifically, on November 5, 2013, Colorado voters passed the pot tax. The tax operated similar to other sin taxes in that it came at a hefty rate. Recreational marijuana sales were subjected to a 25% tax which went into effect on January 1, 2014. Of the 25%, 15% will be tagged for public school construction projects and 10% was earmarked to funding enforcement regulation on the retail pot sales. This excise tax, which is similar to tobacco and cigarette taxes, is in addition to 2.9% sales tax at the retail level. Colorado estimated that the recreational marijuana tax would generate about $100 million in revenue within the first two years. However, as Colorado’s Legislative Council economist Larson Silbaugh eloquently put it “I think our original assumption about cannibalization was wrong.”
In fact Colorado’s projection on its pot tax was off by about 60 percent. In its first fiscal year, the tax generated just over $12 million, which was down from its $33.5 million projection. This also scaled back its year 2 projections from the $100 million number to about $30 million.
According to the Cannibist of the Denver Post, Colorado will be looking deeper into the medical marijuana system to explain the revenue shortfall. The attorney general’s office believes that the avoidance of the medical market for pot is driven heavily by avoiding the steep tax rates. Other officials were not alarmed because they believe that the recreational sales will shortly surpass the medical sales in the years to come. For those that believed strongly that the states would significantly benefit financially from the new marijuana tax, Colorado is certainly pause for concern. One can bet that the opponents of its legalization in other states, such as Florida, will point to this data when it comes up for vote.
Original Post By: Jerry Donnini