New pot tax will pay for enforcement and satisfy the feds

Coloradans on Tuesday passed a meaty statewide sin tax on pot in Proposition AA, handing a windfall to the state’s emerging marijuana regulatory regime and some yet-to be determined amount to local school budgets.

The first $40 million taken in will be set aside for the state’s BEST school construction grant program, which can be used to build new schools or improve existing school buildings. That’s the only money to be generated from Proposition AA promised to a specific program, according to state regulators at the Department of Revenue, which oversees the Marijuana Enforcement Division.

“If there is additional revenue, it has to be appropriated by the General Assembly, which can be for the regulatory structure, as well as related costs for health, education and public safety,” Daria Serna, communications director at the Department of Revenue, told the Independent in an email.

But Prop AA was never about the $40 million earmarked for school construction. It’s a relative tiny amount. BEST doled out $979 million in grants to 181 applicants in 2012. As a nod to the wary federal government, the proposition was passed to raise money needed to bulk up the state’s pathbreaking pot enforcement division.

Next year, the Colorado General Assembly will be tasked with engineering a stronger division, one designed no longer to oversee a fledgling medical marijuana industry but statewide recreational pot sales and use. The enforcement arm will be bulked up and excess cash will be banked in the Marijuana Cash Fund, which has already been raided for other of the near-universal cash-starved programs in the state.

According to Serna, the legislature appropriated $5.7 million for 55 employees at the pot division for the current fiscal year. The division was guaranteed 2.9 percent sales tax revenue from medical marijuana, but that mechanism never even delivered the promised $5.7 million.

The Blue Book, Colorado’s guide to elections, anticipated that with the money brought in from Prop AA the division would hire 22 staffers and establish an information infrastructure to enforce the new sales taxes. Enforcement would cost $4.2 million the first year and $1.3 million each year after that.

The division also plans to open offices in Colorado Springs, Grand Junction and “somewhere north of the Metro area,” Serna said.

Some pot-tax money will also go to training the burgeoning industry on the state’s Marijuana Inventory Tracking Solution — a not-quite-but-almost seed-to-sale tracking program. Money will also be diverted to health and safety programs in other departments.

Still, various estimates put Colorado’s revenue from the new pot-taxes much higher than the sum total of all these new services. In the first few years, at least, while pot remains a novelty for tourists and a hot product in a low-supply-high-demand market, the Marijuana Cash Fund may be stuffed to brimming like a dorm-room pipe on a Saturday night.

Phyllis Resnick, an economist at CSU’s Futures Center, co-authored a paper in April about the taxes, relying then on a 15 percent instead of 10 percent sales tax. She re-ran the numbers for a more accurate estimate, leaving the other assumptions in the paper the same. The paper was also published before House Bill 13-1317 established a set of regulatory procedures for the retail market.

“I think in total, it’s about $90 million, split across the three taxes,” said Phyllis Resnick said of the likely new revenue. “Given the House Bill, I think it’s very likely that they’re going to be sufficiently funded to have a strong regulatory structure.”

But because HB 13-1317 is not constitutional, there are no strong rules governing the revenue, which means the legislature, after funding the new enforcement division, will use the Marijuana Cash Fund as it likes.

“Here, and I’m being entirely speculative, my guess is in the first year or two, they may just let it sit there,” Resnick said. “Until this plays out, they’re probably going to be cautious and collect, monitor, and audit this tax.”

Resnick’s paper could bring relief for anti-tax activists who feared high taxes might push marijuana back into the black market. The paper prices a retail ounce at $185 — and that’s assuming a 15 percent, rather than the actual 10 percent, sales tax. Resnick’s number is well below the Blue Book’s $201.5 an ounce figure. But both figures are in line with figures posted by Price of Weed, the crowd-sourced black-market website that gives estimates for the cost of underground pot. In Colorado, it claims “medium” quality black-market dope hovers around $198.78 an ounce.

[ Image by Bradley Gordon ]


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