On Jan. 1, marijuana became legal to purchase in Colorado for recreational purposes by anyone age 21 and over. Voters passed Colorado Amendment 64 in November 2012, directing state agencies to finalize rules before legalization.
Washington Initiative 502 passed in the same 2012 election, and while officials in that state are still finishing regulations, sales are expected to begin between now and April.
On top of Colorado’s 2.9 percent sales tax, the state added 10 percent state tax on retail marijuana sales, just like purchases on tobacco and alcohol, plus a 15 percent excise tax on the “average market rate” of wholesale marijuana. In addition to local and county taxes, marijuana purchasers have roughly a 30 percent tax on marijuana.
Many of the stores that opened in the first week of legal sales in Colorado actually closed not because of consumers refusing to pay such high taxes but because they underestimated demand and sold the majority of their inventories. In fact, many stores reported that the most expensive, high-quality strains of cannabis sold out first.
The Colorado Department of Revenue projects earning $67 million a year from marijuana taxes. This is new state revenue based on legalizing an already existing and rather robust — though formerly illicit — industry in the state.
One of my friends joked this week that Colorado will soon have some of the best schools, roads, law enforcement equipment and government facilities like water treatment plants, ironically paid for by the stereotype of law-breaking stoners who haven’t showered.
Putting humor aside, although estimates on the illegal marijuana industry in the United States range wildly from $10 billion to $150 billion, a 2009 Standard & Poor’s report estimated the American marijuana industry produces
$35 billion to $45 billion in sales per year. At 30 percent in taxes, that means the government could earn between
$10.5 billion and $13.5 billion in sales tax revenue if
marijuana was legalized across the country.
In comparison, the report estimated that in the same year, alcohol generated $188 billion in taxes, with $99 billion from beer, $61 billion from liquor and spirits and $27 billion in wine.
Tobacco generated $75 billion, with $71 billion coming just from cigarette sales. The rest is from cigars and chewing tobacco.
In Colorado and Washington, marijuana still remains illegal for those under 21 and under federal law. The legalized “vice” of recreational marijuana may spread to other states, but it could remain isolated like prostitution in Nevada or gambling in Atlantic City, N.J., Las Vegas and on American Indian reservations.
Whether Arizona chooses to join in and light up will likely depend on whether the experiments of Colorado and Washington prove too troublesome or pay off financially.
Legal marijuana sales may generate billions in taxes
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