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Legalized, Taxed Marijuana Would Generate .1% of RI Budget

Friday, March 14, 2014

 

Based on the recent revenue reports from Colorado that showed them taking $2 million in taxes from the legalized sale of marijuana in January, if Rhode Island were to legalize and tax marijuana in a similar manner, the state could generate nearly $5 million annually -- which is less than .1% of Rhode Island's FY14 $8.3 billion budget.  

The $2 million collected in Colorado in January stemmed from $14.2 million in sales, which would put the state on path to collect nearly $25 million from taxes alone in 2014, with fees collected putting that number at least $10M higher, as the combined tax-and-fee amount for January was $3.5 million.

See How New England Would Compare to Colorado BELOW

 "I think that in general, the sales tax and excise tax in our bill are pretty close to what's going on in Colorado right now," said Rhode Island State Representative Edith Ajello, who is a sponsor of House Bill 7506, for the legalization and taxation of marijuana in the state.  Ajello noted that in the Rhode Island legislation, "The excise -- which is when a wholesale sells to retailer, that's based on weight, $50 an ounce. The sales tax is 10%."

To date, Ajello says a fiscal note has not been done on prior bill introductions, which she attributes to its introduction and referral to the Judiciary Committee. "Typically, the bill doesn't start in finance, it's in judiciary," said Ajello. "The logic behind that is that the legality issue, something that needs to be dealt with first."

Ajello is optimistic about the potential for legalization this year. "There are a significant number of my colleagues who are quite eager to see this move forward for a variety of reasons. Some of them are revenue, but another reason -- my primary reason -- is getting it out of the back alleys, when it's used by a significant amount of our population. The taxation would pay for the regulation, that's the first thing it does. A portion of the revenue would be set aside for public education, and addressing substance abuse treatment."

In contrast, Dr. Kevin Sabet with group Smart Approaches to Marijuana -- which is chaired by former Congressman Patrick Kennedy -- was vocal in his group's opposition to legalization -- and taxation.

"Taxing marijuana to fund the extra treatment and prevention required if we legalize the drug is like jumping in front of a car in order to get settlement money to pay for your hospital bills. Not only is it wrong headed, the money will never pay for the damages incurred," said Sabet. "And we see that with alcohol and tobacco today -- every $1 collected in revenue comes at a price of $10 in lost social costs."

Fiscal Implications for Legalization

Pat Oglesby, who is the Founder of the Center for New Revenue, commented on the tax and regulation scenario unfolding in Colorado -- and how other states are paying close attention.
"The numbers in Colorado came in a little light, lower than the estimates in which I was basing that $20 per resident per year revenue estimate," said Oglesby. "They've got a pretty low tax rate. There's so many moving pieces. You've got to keep it low enough."

Oglesby recently penned "Marijuana Taxes in Colorado - an Early Clue" for the Huffington Post, in which he wrote the one month sales were not necessarily an indicator of things to come. "In future months, Colorado's industry will probably sell more grams of marijuana than it sold in January, but at lower prices. More grams will pull taxes up. Lower prices will push taxes down. It's not clear where taxes will end up," wrote Oglesby.

"Over time, the legal price will go down. If I can rent space -- not sneak around like a bootlegger -- my cost is going to come down," Ogelsby told GoLocal. "The bootlegger is not going to benefit from the cost reduction. Costs are high for the start-ups - they've had to hire lawyers, get licenses. The weak will perish, the strong will survive."

"I'm just a tax guy -- I can't talk to marijuana use being influenced by price point," said Oglesby. "Colorado has a tax based percentage of of price. if price goes down, tax goes down. Contrast that with the Rhode Island legalization proposal, which is based on weight. So if the price goes down, the tax doesn't. I think that's a smarter approach."

Oglesby noted where he saw some issues with the Colorado model. "Whenever you have price as the basis for a tax, people start playing around on that. How do you tax a deal like, "$30 all-you-can smoke"? Or stay-and-smoke packages at hotels? It makes it very difficult. "

Mason Tvert with the Marijuana Policy Project thought that every state looking to legalize moving forward would have to deal with taxation issues on a state-by-state basis.

"Every state is going to decide for themselves how to treat marijuana, and what the appropriate tax structure should be, just like every state decides how to tax alcohol," said Tvert.

Tvert said he believed that legalization would curtail an underground market, "Ultimately, the black markets will be eliminated -- there will be no economic incentive for risk for growing, transportation, or selling it illegally," said Tvert.

He warned however that setting a tax rate too high. "If one of the goals is take it out of underground market, but states tax it a rate that allows still for a black market, you're failing to meet your goal. Colorado specifically capped excise cap at 15%, which was modeled after how alcohol was taxed after Prohibition, to allow the entry back into legal market."

Opposition, Opportunity

Sabet, issued the following statement along with Kennedy earlier this week regarding the recent numbers out of Colorado.

“It appears that Colorado is falling well short of the state's revenue projection from marijuana sales. Instead, the number from January is less than $2 million, far below estimates claimed by the Governor and legalization advocates. Of course, just like alcohol and tobacco revenue, we know that the sales of this intoxicant will bring in far less than the costs of its use. In fact, every $1 in alcohol and tobacco revenue the state gains comes at a price of $10 in lost social costs. Already, legalization in Colorado has been characterized by children visiting hospital emergency rooms for marijuana poisonings from ‘pot cookies,’ increased marijuana use in schools, and a 40% increase in workplace and school drug tests."

Tvert, however, saw the role of tax revenue as being beneficial, but by no means a solutions. "The regulation and taxation is not going to solve a state's economic problems, but it can help significant. Take Rhode Island -- it might not save its pension fund, but it could go towards programs and services for Rhode Islanders. You can't draw a lot of conclusions from the first month -- there was increased demand, and a lot of businesses still aren't open yet." 

 

Related Slideshow: Potential Revenue From Legalized Pot in NE States

Using Colorado as an example, GoLocal analyzed how much potential revenue each New England state could make--and how impactful that would be to the state budgets--by following the same path.

In Colorado, recreational marijuana sales are taxed through a 12.9 percent sales tax alond with a 15 percent excise tax.

Prev Next

Massachusetts

Potential Annual Tax Revenue: $30.74 Million

State Population: 6.646 Million (2012)

FY 2014 State Budget: $34 Billion

Revenue as % of Budget: 0.1%

Prev Next

Connecticut

Potential Annual Tax Revenue: $16.61 Million

State Population: 3.590 Million (2012)

FY 2014 State Budget: $18.8 Billion ($37.6 Billion Biennial Budget for 2014-15)

Revenue as % of Budget: 0.1%

Prev Next

Maine

Potential Annual Tax Revenue: $6.15 Million

State Population: 1.329 Million (2012)

FY 2014 State Budget: $3.15 Billion ($6.3 Billion Biennial Budget for 2014-15)

Revenue as % of Budget: 0.2%

Prev Next

New Hampshire

Potential Annual Tax Revenue: $6.11 Million

State Population: 1.321 Million (2012)

FY 2014 State Budget: $5.35 Billion ($10.7 Billion Biennial Budget for 2014-15)

Revenue as % of Budget: 0.1%

Prev Next

Rhode Island

Potential Annual Tax Revenue: $4.86 Million

State Population: 1.050 Million (2012)

FY 2014 State Budget: $8.2 Billion

Revenue as % of Budget: 0.05%

Prev Next

Vermont

Potential Annual Tax Revenue: $2.90 Million

State Population: 626,011

FY 2014 State Budget: $2.22 Billion

Revenue as % of Budget: 0.1%

 
 

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Comments:

50 dollars an oz?!! LMAO! Black market will be alive and well! "II think in general...." Know your facts Edith the Idiot!

Comment #1 by lupe fiasco on 2014 03 14

There's the mentality of this state. Something doesn't even exist in the state yet, and all we're worried about is how much the state can get from taxes on it.

I really can't imagine a state being more despicable than RI. I really can't.

Comment #2 by pearl fanch on 2014 03 14

Also to be taken into consideration with legalization, is the cost savings when law enforcement doesn't undertake months long, (or longer) investigations to nab your neighbors, your kids, or yourself for partaking in something as innocuous as smoking and selling pot.

Legalization is the smart thing to do. The people I know who smoke are NOT bad people.

Comment #3 by RI Taxpayer on 2014 03 14

Legalization will create an atmosphere of normalization and acceptability. Do we really want "Pot Cookies" to be our new normal? And since when will any underground economy be eliminated if this is legalized. Hey buddy, you want some really good stuff and avoid the taxes? Do I have a deal for you, will be the call on the streets. Ya, a lose, lose for society.

Comment #4 by Roy D on 2014 03 14

Gotta love our legislature, they want to sell marijuana to make up for the loss at Twin Rivers.We have become what we set out to get rid of Gambling,Drugs and Corruption.

Comment #5 by THOMAS Murray on 2014 03 14

How do we know taxes from sale of marijuana would not generate enough money to fund the pension fund unless RI tries it? Rhode Island is not Colorado. Its totally different in demographics. Of course, the monies have to be put in the pension fund and left there, not the general fund.

Comment #6 by Lorraine Botts on 2014 03 14

Here's some numbers for your consideration:

If we were to ask our state government, businesses and citizens to adopt a 10% Shift in their purchases toward local companies:

~ To illustrate the economic impact that a 10% shift in (only) consumer purchases can have, a recent study in an area of Michigan with a similar population to RI reports that just a 10% shift in consumer behavior to shop and dine locally would create $140 million in new economic activity, add 1,600 new jobs and provide $50 million in new wages. (localfirst.com/why_local_first). A similar shift in state and business purchasing would surely produce even greater results. I propose we motivate a 10% shift in all our purchasing.

If we were to restore our Tourism income to 2007 levels:

~ In the latest available forecast, there has been 14% decline in market share against other states since 2007. If the state had maintained this market share, the RI Foundation projects that Rhode Island would be now benefiting from $375 million in revenue, 6,800 new jobs and a tax revenue boon of $87 million.

Our organization has specific action plans to help make this happen. Here's a link to the starting point. Your input is welcome.
http://rhodemapri.org/guest-blog-rhode-island-first/

Comment #7 by Stephen Maciel on 2014 03 14

How many new state jobs would no doubt have to be created if pot is legalized and taxed? Or would laid off Twin River employees automatically get those jobs?

Comment #8 by David Beagle on 2014 03 14

i gald i read the article and the replys
i always thought it was just a female product----Mary Jawanna

Comment #9 by Howard Miller on 2014 03 14

Whether you want to legalize or not - please tell me how the 'war on drugs' is working at any level? Just give me ONE EXAMPLE of how the current drug war is benefiting our society. Just one..........

Comment #10 by Dave Johnson on 2014 03 14

The headline and opening paragraph for this story are very misleading.

Basing your projections for RI (.1% of the budget, or $5 million) on the first month of CO is faulty for a number of reasons mentioned in the article, but also for a few others. Essentially we have to recognize that CO is in it's early ramp up period.

Revenue is CO is low for January because 1) only a small number of stores were opened/licensed, 2) they couldn't even meet demand, and 3) the medical marijuana businesses were allowed to transfer MJ from their grow to their retailer and not pay the 15% excise tax as a one-time deal.

Recently Ron Kammerzell, Deputy Senior Director of Enforcement for the CO Dept. of Revenue was asked about how the $2 million generated in taxes compares to the projections of $100 million for revenue by CO Governor Hickenlooper. He explained that many state-licensed stores don't have their local licenses yet, so there's a ramp-up period. They still expect $100 million for the state this year.

Comment #11 by Jared Moffat on 2014 03 14

LOL--if it's legal, why can't I grow my own? And share it? As stated earlier, welcome to the burgeoning black market. In the end, we'll get little revenue and all the problems. Special...

Comment #12 by Jimmy LaRouche on 2014 03 14

Interesting economics at play here; elasticity of demand for pot and the degree the tax level would create sufficient incentives for a different black market (untaxed pot). Note with cigarettes, there was a major sting last year and estimates that up to 40% of cigarettes sold in RI are smuggled. In addition, RI are supposed to file taxes for cigarettes bought from out of state vendors on line or through phone (and wait until big brother allows the state to obtain your credit card spending data to look for tax violators).

"The smugglers pocketed the difference when they illegally sold
the Virginia cigarettes in Rhode Island -- at or near the
full Rhode Island retail price. Investigators allege that Rhode
Island lost about $1.05 million in state tax revenue as a result."

There may be lower costs from operating legally, but as seen in CO, some of those are offsets by the rash of crime necessitating major expenditures on security -- especially since the Feds' prohibition on pot means banks are reluctant to be involved so pot is a huge "cash" business still.

"I think everyone has been robbed at least once," says Jonathan Salfeld, the owner of Local Product of Colorado, which has been broken into twice, despite being located a block from Denver Police headquarters.

So, now you'll have police shifting from enforcement to more costs for anti-smuggling, theft, racketeering (you don't think organized crime won't sit still if legalization starts to take business away), other effects (driving while under influence), etc.

Whether the net change is positive or negative is hard to tell, whether the other states follow and chip away at any 'tourism' pot business (like we'll see with growth of casinos in MA on the gambling side), whether the taxes will really come close to estimates after the initial market effects wear off -- all hard to predict.

But I'm pretty sure it won't be anything close to being a blip in the state budget so don't look at this as any solution to things like the pension liabilities or even making up for predicted gambling revenue declines.

Comment #13 by Prof Steve on 2014 03 14

@Dave Johnson
Legalizing Marijuana. Give me one example of how legalizing yet another drug-intoxicant will benefit our society. Just one!

Comment #14 by Walter Miller on 2014 03 14

Walter Miller - legalizing will:
1) Free up law enforcement to chase real criminals
2) Stop ruining lives with criminal records over nonsense possession
3) Bring in tax revenue
4) Diminish drug cartels profits
5) Reduce the prison population
etc, etc, etc, etc....................

Comment #15 by Dave Johnson on 2014 03 14

Dave Johnson - He said JUST ONE EXAMPLE!! Can't you read?? (/sarcasm)

Legalize it for one year. Let's see what happens. I bet the world doesn't end.

Comment #16 by RI Taxpayer on 2014 03 14

It's the future. The Genie is out of the bottle. Legalize it and get a jump on the competition or get left in the dirt. It's better for you than alcohol. It's poses much less danger on the roads than having someone drive drunk. In Rhode Island you can sit around your living room with an AK47 and a bottle of Jack Daniels before heading to a strip club with its indoor prostitution and then head to the casino to finish the night on a crap table but we're going to draw the line at marijuana, the least harmful vice?

Can you say jobs and tax revenue boys and girls?

Comment #17 by Jonathan Bainsworth on 2014 03 15

@Walter Miller - I'm still waiting for you to give me any example of how the 'war on drugs' is working........ C'mon man, you must have something - no????

Comment #18 by Dave Johnson on 2014 03 15

@Dave Johnson. Maybe you can explain how making this drug that has no proven medical benefit legal would make things better?

Comment #19 by Roy D on 2014 03 15

@Roy D - I already gave five examples above. I can think of a few more if you'd like.

Comment #20 by Dave Johnson on 2014 03 15

@Dave Johnson. There is no factorial basis for any of those examples. Your examples 1 and 2 have been shown Not to be the case. Any revenues from example 3 may be offset by increased programs to take people off the drug. Example 4, I doubt it. There will always be an underground market, either to avoid tax or to deal with more of a potent drug. And 5, please provide statistics of how many are in prison for small amounts of the drug. A little more to it then that.

Comment #21 by Roy D on 2014 03 15

@Roy D - I stand by all of my examples, statistics are out there, I'm not going to dig them all up and turn this into a 5,000 word essay. And how can you POSSIBLY say that #2 has "been shown Not to be the case"?? Are you kidding me? My God, I know people that have been turned down for major job opportunities just because they admitted they tried pot. What a joke that is, especially considering that the three most recent POTUS's are admitted drug users.

The 'war on drugs' is a gigantic travesty of justice administered by a bunch of damn hypocrites.

Comment #22 by Dave Johnson on 2014 03 15

Marijuana is very easy to grow, so I think legalization would have an effect similar to the Internet -- democratization. With the fear of being busted gone, everybody has a little patch out in the back yard or growing under some lights in the spare room. And it's essentially free.

I wouldn't expect any windfall taxes for the state. But if this catches on state by state, I can see the Mexican drug cartels taking a major hit, so to speak.

Comment #23 by Art West on 2014 03 16

Jusy more money for hack carpetbaggers like Hand it OUT Handy to buy votes from the neversweats with. They don't call it DOPE for nothing. Insofar as all those "intellectual" arguements for DOPE....ROFLMFAO.

Comment #24 by G Godot on 2014 03 17

The most troubling thing I see in the article is, again the State is counting money it doesn't have. Instead of cutting costs it decides it needs more money to spend. I gotta go talk to the boss see about a raise.

Roy D - We must get away from the premiss that "The State" must take care of those that get themselves messed up. Personal responsibility, every time a new program is proposed we must say NO loud and clear. If necessary bring back the institutions. No more disability and EBT where you can buy whatever on the taxpayer dime. You need us to take care of you this is it.

Comment #25 by Wuggly Ump on 2014 03 19




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