Potential revenue boost from legal marijuana hard to call

Tax evasion, fed response, popularity of drug would affect Colorado’s cut

Proponents of Amendment 64, the marijuana-legalization measure, frequently promote their initiative by talking about the money it would generate for state and local governments.

They argue that the measure, which would allow marijuana sales to anyone older than 21 at special retail stores, would put tens to hundreds of millions of dollars into state and local government coffers annually. One Colorado think tank estimates the measure would generate $60 million a year to start.

But other experts who have examined the issue say it is deeply uncertain how much money the amendment could generate. A dizzying number of factors – the number of stores, the demand, the price, the amount of tax evasion, the federal government’s response and even the measure’s impact on other industries – go into determining how much new revenue the amendment would create. Though the measure would make it legal for adults anywhere in the state to possess up to an ounce of marijuana, local governments could ban marijuana stores.

“It’s tough to put a precise figure on it,” said Vanderbilt University law professor Robert Mikos.

Money is never far from the conversation in debates about the initiative. In one television ad for the amendment, dollar signs float out of an image of Colorado toward Mexico.

“We all know where the money from nonmedical marijuana sales is currently going,” a narrator says. “It doesn’t need to be that way. If we pass Amendment 64, Colorado businesses would profit, and tax revenues would pay for public services and the reconstruction of our schools.”

The left-leaning Colorado Center on Law and Policy estimates the measure would generate $60 million a year initially in tax revenue and savings and $100 million a year after five years. The state’s nonpartisan voter guide estimates that the amendment would produce $5 million to $22 million per year in state sales tax.

But when Mikos looked at California’s 2010 marijuana-legalization measure, which made similar revenue claims, he concluded: “Proponents have grossly overestimated the marijuana tax’s potential by downplaying, or simply ignoring, the complexities of enforcing it.”

Mikos said that holds true for Colorado’s amendment. It’s just too difficult to predict how the various factors would combine.

The tax revenue for the Colorado amendment would come from two places. Marijuana stores – which would be regulated by the state – would pay state and local sales tax.

The store owners also might pay an excise tax of up to 15 percent when buying marijuana from licensed wholesale growers. The first $40 million collected each year from the excise tax would be put toward public-school construction.

The state Legislature, though, would have to refer that excise tax to the ballot in a separate election, and voters would have to approve it. The measure’s opponents cast doubt on whether it will be implemented. Even if it is, it could cause some marijuana sellers to stay underground and avoid the tax.

How much money comes in would also depend on the demand for legal marijuana, the number of people who choose to stay in the medical-marijuana system, where cannabis is not subject to a state excise tax, and the price of marijuana – which could plummet with legalization, said Beau Kilmer, the co-director of the Rand Drug Policy Research Center.

“If the taxes are set too high, you still have to worry about a black market,” Kilmer said.

The Colorado Center on Law and Policy writes in its report on Amendment 64 that its estimate accounts for price drops and tax evasion, which it concludes won’t be substantial.”

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