Pubdate: Sun, 24 Nov 2013
Source: Columbus Dispatch (OH)
Copyright: 2013 The Columbus Dispatch
Contact:  http://www.dispatch.com/
Details: http://www.mapinc.org/media/93
Author: Jake Grovum, Stateline.org

JOINT EFFORT

Two States Have Legalized and Taxed Recreational Marijuana; Will 
Others Do the Same?

WASHINGTON - Earlier this month, Colorado voters overwhelmingly 
approved a plan for taxing their state's legal marijuana market. And 
next month, Washington state will start issuing licenses to retailers 
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 such as 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 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 revenue. They plan to highlight missteps and 
problems that arise as legalization becomes 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 new. They also point to areas where medical marijuana 
businesses exist that haven't seen new crime waves or other side effects.

Legally or not, young adults continue to experiment: An annual survey 
shows 18.7 percent of people 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 that 
money 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.

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.

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 special 10 percent sales tax, in addition 
to the state's 2.9 percent general 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 at 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 ratio 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 the 2.9 percent general 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, although many of them had opposed 
legalization itself. They said the levy fulfilled the promise of the 
legalization campaign a year earlier.

Opponents, however, see a downside in high tax levies that they say 
could create a "gray market," in which some drug sellers become tax 
evaders, depressing revenue to the state.

"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.

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 one.

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 
unclear, for example, if the new retailers and customers can use 
banking services for 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 unclear how much leeway that would ensure, since federal raids 
on casual users and small-time sellers already are rare.

Other cautions: It would only take one incident - or 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.
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MAP posted-by: Jay Bergstrom