State lawmakers are debating how much they can tax recreational marijuana without driving consumers back to the black market.
On Wednesday, the lawmakers charged with crafting Maine’s marijuana regulatory system struggled to find that “sweet spot” of taxing enough to pay for the cost of enforcing the law and some drug prevention, and hopefully making the state at least some money, but not taxing it so much that consumers will still buy their marijuana from a street dealer.
“I know we’re interested in raising revenue, of course, but we need to consider our other policy goals, too, including our desire to eliminate the black market,” said Rep. Kent Ackley, an independent from Monmouth. “We want people who have been growing, buying and selling for years in the black market to come into this new regulated market. If the tax is too high, that won’t happen, and the black market will continue.”
Stamping out the black market for marijuana and other drugs may be more important than raising revenue, Ackley said.
But other lawmakers, like Republican Sen. Roger Katz of Augusta, a co-chairman of the committee, said Maine needs to be careful not to set low tax rates or adopt regulations, like allowing towns to tax local marijuana businesses, that will encourage marijuana use, even if it helps the state balance its budget. The ballot measure only won by the smallest of margins, some lawmakers noted.
In the legalization ballot measure approved last fall, voters supported a 10 percent tax on recreational marijuana, but most lawmakers seem to dismiss that as too low. Instead, members of the marijuana legalization committee appeared to prefer a combination of sales and excise taxes that would be at least twice as high, or 20 percent, with some wanting to go even higher.
“We are low compared to other states,” said Rep. Teresa Pierce of Falmouth, Democratic co-chairman of the special committee. “I’m thinking 25 percent.”
Each of the other seven states that have legal recreational marijuana markets approach taxes differently.
In Colorado, the first state to legalize recreational cannabis, consumers pay a 10 percent marijuana sales tax, a 2.9 percent general sales tax, and possibly a local sales tax, which is 3.5 percent in Denver. Marijuana wholesalers pay different taxes on different parts of the plant — higher rates for buds, lower rates for trim — that averages out to be a 15 percent excise tax. Medical marijuana is taxed at 2.9 percent.
Massachusetts is still working to rewrite the legalization law passed by voters last November, the same time Maine legalized. The voters had set a maximum 12 percent tax on marijuana — composed of the standard 6.25 percent sales tax, a 3.75 percent excise tax and the option of a 2 percent local tax — but state lawmakers there want to raise it to a 28 percent tax rate.
Using the 10 percent tax rate approved by Maine voters, the state is likely to bring in about $18 million a year once the market is established, in two or three years or so, said James Myall, a policy analyst for the Maine Center for Economic Policy. While some advocates expect Maine to benefit from its vibrant tourism industry, Myall notes that a lot of Maine’s 36 million tourists come from Canada and Massachusetts, where marijuana also is going to legally available.
Towns could get a cut
Myall noted the price of recreational marijuana in Maine is higher than the national average, at least for now, likely because a lot of it is grown in the West, or even in Mexico, and must pass through several parties, and several markups, before it reaches the local market. He said that the average price of non-medical marijuana in Maine is about $10.50 a gram, compared to $7.50 to $8.50 in western states.
State lawmakers are wrestling with whether to give towns a cut of the revenue, allowing them to levy their own tax or sharing a percentage of the state tax with towns that host marijuana businesses, much like those that host casinos. Without a tax incentive, towns are unlikely to open their doors to legal marijuana businesses, creating a void that will allow the black market to continue, supporters say.
They are also wrestling with exactly how they should levy a tax — with a sales tax that is charged at the point of sale and is clearly visible to the buyer or with an excise tax built into the process, perhaps when a grower sells wholesale marijuana to a retail store. While some want a tax that is a percentage of the total sale, others want to tax by volume, or weight, while Ackley wants to tax based on marijuana potency.
A tax based on weight — Alaska charges a $50 per ounce tax on cultivation facilities — insulates the state from price fluctuations, supporters say. No other state currently taxes on potency, but that would allow the state to possibly differentiate between recreational marijuana, which usually has a higher level of THC, the agent that actually gets you high, and medical marijuana, which usually has lower levels.
The committee still has a lot of work to do before it submits its bill that will create the overall regulatory structure, including setting the tax rates, licensing criteria, cultivation limits and whether or not to allow social clubs, a component of Maine’s legalization ballot measure that would create a setting outside the home for adults to consume cannabis. If approved, Maine would be the first state to license such clubs.
Katz hopes the committee can make most of its key decisions by the end of the month and have a bill written for consideration by fall.
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