Pubdate: Sat, 23 Nov 2013
Source: Bulletin, The (Bend, OR)
Copyright: 2013 Western Communications Inc.
Contact:  http://www.bendbulletin.com/
Details: http://www.mapinc.org/media/62
Author: Jake Grovum

WITH TAXES SET, ALL EYES ON COLORADO AND WASHINGTON

WASHINGTON - Colorado voters overwhelmingly approved a plan for taxing
their state's legal marijuana market earlier this month. And
Washington state will start issuing licenses to retailers next month
to sell recreational marijuana.

Washington and Colorado are set to provide a case study in the debate
over legalization. That debate is expected to spread to other state
legislatures next year - advocates have identified Rhode Island and
Maine as potential targets - and also to foreign countries like Uruguay.

It's unlikely the outcome in Colorado or Washington will settle the
issue. But both sides agree the stakes are high.

"Reformers look at these two states as literally laboratories," said
Allen St. Pierre, executive director of NORML, a group that backs
marijuana legalization. And if things go well, he said, "This is
largely the beginning of the end of cannabis prohibition."

Opponents still fighting

Opponents aren't giving up. They, too, see the start of legal markets
as a turning point, one that will confirm warnings about ill effects
and dash promises of new revenues. They plan to highlight missteps and
problems that arise as legalization becomes a reality.

"I don't accept that marijuana legalization is inevitable," said David
Evans of the Drug Free America Foundation, which opposes legalization.
"The states that have legalized it are going to serve as an example of
what not to do."

Already, opponents have seized on anecdotal evidence of increasing use
among young people - as chronicled by The Denver Post, for example -
in the 20 states plus the District of Columbia that allow medical marijuana.

Supporters balk at the connection, saying marijuana use among teens is
hardly a new phenomenon. They also point to areas where medical
marijuana businesses exist that haven't seen new crime waves or other
side effects.

Legal or not, young adults continue to experiment: An annual survey
shows 18.7 percent of young adults ages 18 to 25 used marijuana in
2012, compared with 16.1 percent in 2004.

Both Colorado and Washington set 21 as the age for legal marijuana
use.

Revenue is one measure that both sides will be watching closely as a
way to evaluate legalization.

Estimated income in Washington and Colorado varies widely, from tens
of millions of dollars in the first few years to as much as $2 billion
in the first half-decade of legalization. The disparity comes, in
part, over uncertainty about demand.

State officials have been left guessing. Colorado has made no official
estimate. A study from the Colorado Center on Law and Policy projected
the tax could produce $60 million in new revenue and savings annually
in the first years of legalization.

Washington predicted a "fully functioning" market could bring in $1.9
billion in five years, although the state isn't counting on those
dollars in future budgets.

The revenue swing could ultimately prove crucial to the future of
legalization and it is one reason the stakes were so high for the
ballot question in Colorado on Nov. 5.

Tax revenue

The measure offered a two-tiered tax scheme, as approved by the
legislature. It passed the House 37-27 with solely Democratic support,
although a handful of Republicans backed it in the Senate. The
question fell under Colorado's strict anti-tax policies, which require
revenue-raising proposals to go before voters, who gave it 65 percent
support this month.

The approved tax includes a 15 percent assessment on the wholesale
price of retail marijuana, with the first $40 million set aside for
education. Then there's a 10 percent sales tax, in addition to the
state's 2.9 percent sales tax, with proceeds earmarked for regulation,
public health and police activities related to the legal pot market.

In Washington state, recreational marijuana was approved last year
with 55 percent of the vote. It will be taxed 25 percent three
separate times: producer to processor, processor to retailer, and
retailer to consumer. The effective tax for consumers ends up being
between 35 percent and 45 percent, depending on how many transfers are
involved and other variables. Washington's tax was subjected to less
public scrutiny than in Colorado since it didn't require a separate
vote.

The Colorado tax on marijuana passed by a nearly 2-to-1 margin in the
same election in which voters also easily defeated a $1 billion
proposal to increase the state's flat income tax and earmark those
dollars for education. The pot tax gained more support than
legalization itself saw just a year earlier when it was approved by 55
percent of voters.

Had the tax failed, legal marijuana potentially would have been
subject to only a 2.9 percent sales tax, short-circuiting one of the
key arguments for legalizing the drug in the first place: revenue.

The Colorado measure saw wide support from state lawmakers and
Democratic Gov. John Hickenlooper, despite many of them publicly
opposing legalization itself. They said the levy fulfilled the promise
of the legalization campaign a year earlier.

Gray market?

Opponents, however, see a downside in high tax levies that they say
could possibly cause a "gray market," in which some drug sellers
become tax evaders, depressing revenues from the legal market.

"The fact that the government set the taxes so high, paradoxically, is
going to reduce the revenue because cheating will be widespread," said
Robert Corry, Jr., an attorney who was involved in the campaign
against the marijuana tax measure. "The shops will lose a lot of the
market to the gray market."

Colorado allows home-growing of as many as six plants, while
Washington does not, leading to more concern about a "gray market"
cutting into tax revenue. Other factors: Washington will not allow pot
growers to sell directly to consumers, while Colorado will, and
Washington is doing away with much of its medical marijuana system,
while Colorado's medical market will continue alongside the
recreational market.

Corry and others said the dual tax system in Colorado could mean the
medical marijuana market, which will be taxed much less than the
recreational one, could flourish, with recreational marijuana mainly
purchased by tourists and other out-of-state consumers.

Ultimately, it may be the federal government that weighs most heavily
on the success or failure of marijuana legalization. It's still not
clear, for instance, if the new retailers and customers will be able
to use banking services related to their business.

Observers on all sides have been awaiting word from the Justice
Department on whether banks and credit card companies will be allowed
to process transactions or even keep deposits from these businesses.
For now, it's likely even an armored car service contracted to move
cash could find itself violating federal law for working with a
marijuana business.

The broader treatment of marijuana, too, is a wild card. Federal law
enforcement officials have said they don't plan to go out of their way
to crack down on the new markets in the two states, but it's not clear
how much leeway that would ensure, since federal raids on casual users
and small-time sellers are already a rarity.

Other cautions: It would only take one incident - not to mention a new
administration in Washington - to change that understanding,
potentially upsetting any marketplace that's been established.

"Until the federal law is completely clear, I think any prudent
marijuana producer, even in a state where it's legal, is going to have
some concerns about how visible they make their industry," said
Jeffrey Miron, a Harvard economist and analyst at the libertarian Cato
Institute. "If it's illegal federally, it's really hard for a state to
really, in a clean and unambiguous way, try to legalize it."