On January 7, 2016

Despite hype, legalizing pot will not be a revenue windfall for Vermont

Dear Editor,

Vermont, like many states, is dealing with a budget deficit; this year, legislators are grappling with an estimated $40 million shortfall. New sources of revenue are increasingly hard to come by, so the idea of increasing tax revenues by legalizing recreational marijuana has, for some, a distinct appeal. Proponents like the Marijuana Policy Project and Vermont Cannabis Collaborative would have us believe that the state would benefit significantly from the legalization of pot.

But a close look at the actual experience in Colorado shows that legalization is no windfall, and that any profits come at too significant a cost.

The Cannabis Collaborative, citing a report by the RAND Corporation on the projected effects of legalizing marijuana in Vermont, along with information the group gathered during visits to states where recreational marijuana is already being commercialized, reports that Vermont entrepreneurs could realize over $250 million in annual sales of 55,000 pounds of marijuana, netting the state between $20 and $70 million in tax revenues.

During Colorado’s legalization debate, proponents originally predicted as much as $118 million in tax revenues from recreational sales. After pot shops opened in 2014, the prediction was lowered to about $70 million. In reality, the first full fiscal year of recreational sales brought in $53 million in taxes, less than half of what was originally anticipated.

That sounds like a lot of money, but none of the $53 million was “extra” money for Colorado’s overall budget–all of it was needed for regulation and enforcement. In a little-publicized interview in October, Colorado Governor John W. Hickenlooper told CNN: “I tell the other governors that right now we’re not making any extra revenue from this, in terms of spending the money to regulate the industry, making sure we have the money for the appropriate programs, and then money to educate kids.”

One reason for the shortfall in Colorado is that high taxes keep consumer prices high, so there is still a very busy black market–as much as 50 percent of sales. In an attempt to counter that, the Colorado legislature this fall passed a bill to lower tax rates by 2 percent. They’re hoping that the lower tax rate will be balanced by increased legal sales. (Washington State is having a similar problem and has recently consolidated its complicated three-tiered tax system into a single tax to be levied only on consumers, not on the industry.) Such industry-friendly regulations clearly benefit retailers and dilute the benefits to the state, further undermining the initial revenue estimates.

Speaking to The New York Times last April, Mark Kleiman, one of the RAND report’s authors, said, “Tax revenue is nice to have, but in most states it is not going to be enough to change the budget picture significantly.”

This notion that legalizing pot will lead to a huge revenue bonanza is clearly false. The voices of experience are clear. It is up to Vermont to listen.

Debby Haskins, Executive Director Smart Approaches to Marijuana-VT (SAM-VT)

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