January’s Numbers Show the State May Have Hit a Sweet Spot
I READ THAT Oregon collected almost $3.5 million in pot revenue in January. Is that pretty good?
IT’S EXCELLENT. And the monthly tally will probably grow.
If you, like me, enjoy geeking out about this stuff, you will find that there are really two main ideas with marijuana tax policy. One is to collect revenue, and the other is to discourage consumption (“offset social costs”). If a taxing authority pegs the tax rate too low, there may be a lot of consumption but little revenue. With tax rates too high, you still get a lot of consumption, but it’s via the black market, and revenues fade. Given the January number, it seems like Oregon may have hit a sweet spot.
Of course, there are plenty of other things you can do with tax, and with marijuana tax in particular. One option is to embed taxes throughout the distribution chain; another is to tax different products at different amounts. Oregon has done none of this, and also has opted to leave the medical marijuana program alone. Right now, those decisions look smart.
You may recall that weed was sold tax-free from October 1, 2015 until January 3 of this year, so the recent release of January’s numbers was big news. During last year’s fourth quarter, before the tax was enacted, Oregon treated weed like most other commodities from a sales tax standpoint—it ignored them. Effective January 4, however, House Bill 2041 levied a stout 25 percent sales tax on all pot purchases until the end of this year. That would be a severe impost in any state, but it is especially impressive in Oregon, which has no general sales tax whatsoever.
Later this year, the Oregon Liquor Control Commission’s (OLCC) recreational program should be fully up and running. The rate for pot sales through retail dispensaries recedes to 17 percent and local jurisdictions can tack on another 3 percent for their coffers. All of those dismal cities and counties that “opted out” of recreational marijuana cannot tax anyone, and they can’t share in statewide pot receipts. However, with numbers like $3.48 million coming down the pipeline in January, it may only be a matter of time before some of them start opting back in.
It’s also worth noting that high tax revenues will not be required to sustain Oregon’s recreational pot program. Ultimately, the OLCC is tasked with recovering its costs through fees paid by program licensees. After some authorized skimming by the Oregon Department of Revenue and the dispensaries themselves, most of the tax money goes to the state’s Common School Fund, along with mental health, alcoholism and drug services, and police and law enforcement.
The projections going forward are impressive: It’s estimated that recreational sales tax revenues will generate $10.75 million next year, after program costs. Once the program is fully built out, state economists project more than $62 million in the 2017-2019 biennium. That is a lot of money for schools, prevention, and cops. If that helps you feel good about your next purchase, all the better.