360° Coverage : How Tax Could Blunt The Growth Of The Legal Marijuana Market

2 Updates

How Tax Could Blunt The Growth Of The Legal Marijuana Market

Feb 20 2014, 3:43pm CST | by

The economics of the legal pot industry seem simple. Make it legal, tax it and let supply-and-demand take over. Soon enough, illegal drug trade should dwindle and state tax coffers should be filled...

Filed under: news

 
 
 

27 weeks ago

How Tax Could Blunt The Growth Of The Legal Marijuana Market

Feb 20 2014, 3:43pm CST | by

The economics of the legal pot industry seem simple. Make it legal, tax it and let supply-and-demand take over. Soon enough, illegal drug trade should dwindle and state tax coffers should be filled.

In the real world, it’s not that simple. In Colorado, for example, where the commercial production and sale of recreational marijuana is now legal, the cost per ounce of high grade pot from a retail outlet is now more than double what it costs from an illegal drug dealer. Why? You guessed it. Tax.

Currently, pot sold legally in Colorado is subject to the state’s 2.9% sales tax, an additional 10% state tax on retail marijuana sales and a 15% excise tax on average market rate of wholesale marijuana. According to the Colorado Department of Revenue’s Division of Taxation, this last piece is calculated by multiplying the quantity of retail marijuana product by the average market rate at the time, then multiplying by the 15% (excise tax rate). The state even provides the following sample calculation on their website:

ABC cultivator transfers 3 pounds of flower, 5 pounds of trim and 8 plants to ABC store. At the time of transfer the average market rates are:

$1,876 for Flower
$296 for Trim
$9 per Immature plant/>/>

3 lbs. of flower  x $1,876  = $5,628
5 lbs. of trim      x $296   = $1,480
8 plants             x $9      = $72____
$7,180 x .015 = $1,077 in retail marijuana excise tax due/>/>/>

Once you get past the initial shock of reading a word problem about marijuana growers on a government tax site, the next reaction is how complicated this business is! Once you do the math, this tax equation means that a $30 eighth ounce of marijuana will have about $8.59 in taxes appended to it. In other words, a 29% tax rate.

Colorado projects about $67 million a year in new revenue from these taxes.

Will they reach that goal? With just over a month of regulated marijuana sales under their belts, the government officials responsible for the program say they are happy with the early results, but have yet to report details. The AP reports:

“Colorado’s top marijuana regulator, Department of Revenue head Barbara Brohl, said it’s too soon to know how much tax revenue legal weed is going to produce, but that Colorado appears to have avoided major public safety problems, at least in the six weeks since marijuana sales began.”

There are some very real obstacles standing between Colorado and their revenue goal.  According to NBC News, retailers in Colorado have been selling top-shelf marijuana at close to $400 an ounce. For some perspective, that’s about twice the price of medical marijuana. On the black market, an ounce of high-grade marijuana sells for about $237 in Colorado, according to priceofweed.com, a site that bills itself as the “global price index for marijuana.”

Once the novelty of retail pot wears off, will consumers continue to pay more than double the price in order to get something legally? Or, will the back-alley drug dealer come to be seen by consumers as a “tax free zone”? Additional social and economic considerations will play into the equation as well, such as the implications of becoming a location for drug tourism and cost of enforcement.

Other states are betting that the Colorado experiment will pay off. Washington State, for example is putting plans in motion to legalize pot with a 25% excise tax on all phases of production in addition to an 8.75% sales tax, which analysts expect will add 37% to the retail price of marijuana. Alaska, Arizona, D.C. and Oregon are said to be mulling loosened marijuana laws as well.

As more states entertain new marijuana legislation, the economic impacts will be a fascinating case study in the influence of taxes on consumer behavior.

Source: Forbes Business

 
Update
2

3 days ago

Khazanah throws MAS RM6b lifeline

Aug 29 2014 5:01pm CDT | Source: Business Times Singapore

August 30, 2014 1:15 AMKHAZANAH Nasional will inject RM6 billion (SS$2.4 billion) over three years to resuscitate loss-making Malaysia Airlines (MAS) under a recovery plan that includes even an Act of Parliament. Other key moves are migrating its operations, assets and liabilities to a new comp ...
Source: Business Times Singapore   Full article at: Business Times Singapore
 

 
Update
1

4 days ago

MAS posts loss of RM307m for Q2

Aug 28 2014 5:00pm CDT | Source: Business Times Singapore

August 29, 2014 1:13 AMMALAYSIA Airlines (MAS) registered a loss of RM307 million (S$122 million) for the second quarter to end-June, but warned of worse to come in the second half when the "full financial impact of the doub ...
Source: Business Times Singapore   Full article at: Business Times Singapore
 

 

Don't miss ...

 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

Cab sharing helps cut cost, curbs CO2 emission
New York, Sep 2 (IANS) Sharing a cab may help reduce total travel time by up to 40 percent, with corresponding reductions in operational costs and carbon dioxide emissions, says a new study.
 
 
Belly fat increases high BP risk
Washington, Sep 2 (IANS) People with fat around their abdominal area are at greater risk of developing hypertension (high blood pressure) when compared to those with similar body mass index (BMI) but fat concentrations elsewhere on the body, says a study.
 
 
Watching action movies makes your waistline grow
New York, Sep 2 (IANS) If your kids love to watch Hollywood action movies, better watch out for their junk food consumption.
 
 
Return as India's envoys, Modi to India-bound Japanese youth
Tokyo, Sep 2 (IANS) Prime Minister Narendra Modi Tuesday kicked-off a new initiative on training for Japanese youth started by Tata Consultancy Services (TCS) at its various facilities in India, asking them to return to Japan as India's ambassadors.
 
 
 

Latest from the Network

Cab sharing helps cut cost, curbs CO2 emission
New York, Sep 2 (IANS) Sharing a cab may help reduce total travel time by up to 40 percent, with corresponding reductions in operational costs and carbon dioxide emissions, says a new study. If passengers had been...
Read more on Apple Balla
 
Belly fat increases high BP risk
Washington, Sep 2 (IANS) People with fat around their abdominal area are at greater risk of developing hypertension (high blood pressure) when compared to those with similar body mass index (BMI) but fat concentrations...
Read more on Celebrity Balla
 
Fung targets home success at PGM Sabah Championship
Sabah (Malaysia), Sep 2 (IANS) Reigning Asian Development Tour (ADT) Order of Merit champion Nicholas Fung hopes to recover from a fever in time to contend for the Professional Golf of Malaysia (PGM) Sabah Championship...
Read more on Sport Balla
 
Watching action movies makes your waistline grow
New York, Sep 2 (IANS) If your kids love to watch Hollywood action movies, better watch out for their junk food consumption. According to a study, viewers who watch action-packed programmes indulge in over-eating. "We...
Read more on Celebrity Balla
 
Pitch Perfect cast feel 'under pressure' with sequel
Ben Platt says the cast of 'Pitch Perfect' are feeling the pressure ahead of the sequel. The actor, who has starred in the popular Broadway production 'The Book of Mormon', acknowledges that the eagerly-awaited sequel...
Read more on Movie Balla
 
Imagine Entertainment in talks for 24 movie
Imagine Entertainment want to make a '24' movie. According to TVLine, the production company's chairman, Brian Grazer, has expressed an interest in taking the hit Fox series to the big screen following the end of the...
Read more on Movie Balla
 
Stan Lee reveals Black Panther movie is in the works
Stan Lee has suggested plans to make a Black Panther movie are still in development. Lee, the former president and chairman of Marvel Comics, says that Marvel Studios will look to make a film based on the first black...
Read more on Movie Balla
 
Lindsay Lohan uses hypnotherapy to quit smoking
Lindsay Lohan is using hypnotherapy to quit smoking. The 'Mean Girls' actress has reportedly turned to alternative medicine to kick her nicotine addiction before her West End debut on September 24 for David Mamet's play...
Read more on Celebrity Balla
 
Angelina Jolie and Brad Pitt's kids write wedding vows
Angelina Jolie and Brad Pitt's children helped to write their wedding vows. The Hollywood couple tied the knot in France on August 23 and they enlisted the help of their kids Maddox, 13, Pax, 10, Zahara, nine, Shiloh,...
Read more on Celebrity Balla