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Are High Taxes on Pot Helping Black Market?

Are High Taxes on Pot Helping Black Market?

Drug reform advocates have long argued that legal marijuana will end black market sales, but the Californian experience suggests otherwise.

Parts of the US are in the midst of a long-awaited and fascinating experiment with legalizing marijuana while more states look likely to follow.

As of June 2018, nine states – Alaska, California, Colorado,Maine, Massachusetts, Nevada, Oregon, Vermont and Washington – have decriminalized sale and possession for medical and recreational use of marijuana while the District of Columbia has legalized personal use but not commercial sale.

One of the principal arguments of pro-marijuana reform advocates has been that legalizing certain drugs will help cut out the black market as well as boost much-needed tax revenues at the state and local level.

Yet in California, the first state to experiment with marijuana reform, legal pot, which faces high taxes that raise its price by up to 45%, has struggled to compete with black market or informal sales.

All cannabis legally sold in California now comes with a 15% excise tax. Cultivators also pay a tax by weight, which bumps up the retail price. Then there’s regular state sales tax, which typically runs between eight and 10%. Also, 57 cities and eight counties have tacked on their own taxes, which range from two to 20%.

Yet first quarter revenues from cannabis taxes totaled just $34 million, according to figures released in May by the Legislative Analyst’s Office, a figure significantly below the $175 million in marijuana revenue that Gov. Jerry Brown projected in his most recent budget for the first six months of the year.

California voters approved the taxes when they passed Proposition 64 in 2016, allowing legal growing, distribution and sales of marijuana for recreational use and requiring state licenses for the continued sale of pot for medical purposes.

Yet, alarmed that California’s fledgling legal marijuana industry is being undercut by the black market, a group of lawmakers proposed Thursday to reduce state taxes for three years on growing and selling cannabis to allow licensed sellers to establish themselves.

“Criminals do not pay business taxes, ensure consumers are 21 and over, obtain licenses or follow product safety regulations,” said Assemblyman Tom Lackey (R-Palmdale), one of five legislators pushing the bill. “We need to give legal businesses some temporary tax relief so they do not continue to be undercut by the black market.”