Blog : Colorado Rocky Mountain (Tax) High

by Ed Zwirn on February 20th, 2014

Cannabis LeafMarijuana sales are creating a higher-than-expected buzz for Colorado's tax collectors, according to a budgetary report released Wednesday by that state's governor.

The upshot could well be a nationwide expansion of legalized marijuana, as states finally wake up to the huge amounts of money that illegal dealers are raking in tax free.  

Retail sales of the weed, which have been legal for "recreational" purposes since Jan. 1, have far exceeded expectations, making the state's pot sector one of the few retail bright spots in the U.S.

One of the major reasons for the recent weak retail showing in the U.S. is said to be the unseasonable weather. On the other hand, Coloradans are used to snow, and the white stuff did little to dampen desire for the green stuff.

In his budget report, Governor John Hickenlooper estimated that MMJ sales and excise taxes next fiscal year would produce some $98 million, well above a $70 million annual estimate given to voters when they approved the pot taxes last year. This would be derived from a 12.9% sales tax on recreational weed as well as the take from medicinal stuff, which are subject only to the statewide 2.9% sales tax.

The projections are rosier both because many more retail outlets have opened than expected and because the smoke generally is going for much more than the $202 an ounce forecasters guessed last year (Duh!).

About $40 million of the tax proceeds are being spent on the construction of new schools and the remainder on substance abuse and other health problems, along with law enforcement and regulatory oversight.

Significantly, the state's total sales of the product were estimated at about $610 million for next fiscal year. This is the first reliable official estimate of revenues for the marijuana trade, which, being illegal and clandestine throughout the rest of the country, has been difficult to get a handle on.

But it is the good news on the tax front that should give MMJ advocates the most to bong about. For one thing, it means there will probably be no turning back in Colorado (as opposed to the backlash that might have ensued if tax revenues had come in lower than promised in the referendum).

Guys and DollsMore broadly, any prospect of revenue enhancement tends to go a long way toward ending conservative scruples. The repeal of Prohibition was widely touted as a revenue enhancer for cash-strapped Depression-era state governments. More recently, the success of Las Vegas in filling Nevada coffers has been a lesson well learned by other states and Native American reservations dropping the scruples against gambling which prevailed in an earlier age, as has the proliferation of state (and Mega) lotteries since that time.

Lotteries have cut into the action received by illegal numbers rackets and the secret floating crap games of Guys and Dolls infamy are now quaint reminders of a bygone era. It remains to be seen whether the shadowy Reefer Man will be totally circumvented by retail outlets, but there are already many penny stock investors betting that this is going to happen soon.

Whether this proves to be the case or not, there is no doubt that the revenues for legal marijuana will be expanding soon. That being said, we are talking about a business activity with ridiculous ease of entry, whether from below (I've heard it is ridiculously easy to grow marijuana at home) or above (think big tobacco).

There are also problems with financing of marijuana companies that would put a crimp on any industry. For one thing, the stuff is still illegal under our progressive federal laws. Banks holding commercial loans on properties that lease to Colorado marijuana businesses say they don't plan to refinance those loans when they come due. Bankers say property used as collateral for those loans theoretically is subject to federal drug-seizure laws, which makes the loans a risk.

Colorado's two largest banks, Wells Fargo Bank and FirstBank, say they won't offer new loans to landowners with preexisting leases with MMJ businesses. And Wells Fargo and Vectra Bank have told commercial loan clients they either have to evict marijuana businesses or seek refinancing elsewhere.
Beyond these difficulties, I eagerly await the day when an aged stoner population throngs to see a Broadway musical in which the protagonists are lovable MJ dealers. I can just see tomorrow's Marlon Brando and his gang of loveable hoods selling nickel bags, tap dancing, inhaling and hiding from loveable, corrupt cops. Guys and Dolls on a high note.

Just make sure you reserve a table at the Carnegie Deli for after the show. I usually down my pastrami and brisket sandwich with a Black Cherry soda, and follow it up with a brownie. It is amazing what a good dose of nostalgia will do for the appetite.



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