Last November, Maine voters passed the Marijuana Legalization Act by the slimmest of margins. Pro-cannabis activists eked out a victory by fewer than 4,000 votes. I’m not trying to rehash arguments surrounding whether marijuana use for adults should be legal but rather to highlight the balance the Legislature was attempting to find in the regulation and taxation of this new industry.
The Legislature passed on Oct. 23 a bill, LD 1650, to regulate the state’s recreational marijuana market after months of work from the Marijuana Legalization Implementation Committee. The committee, of which I am a member, in many areas did an outstanding job, but the tax scheme it set up won’t bring in enough short-term revenue to cover costs.
The fact that the tax scheme doesn’t even raise enough money to pay for the program should be a red flag to all legislators. I know we can do better.
How did this happen? In addition to a 10 percent sales tax, the bill included an ill-conceived excise tax on wholesale sales of marijuana flowers, trim, plants and seeds between cultivators and retailers based on weight that fails to raise a 10 percent effective tax rate on marijuana products.
To explain the excise tax, I will focus on marijuana flower — the bud — as the tax placed on each of the mentioned items is different.
The excise tax for marijuana flowers will be $130 per pound. Where does this come from? The committee wanted to find a way to levy an excise tax that approximated 10 percent of the average market rate of raw, unfinished marijuana or plants, based on Colorado’s example. The current average market rate for a pound of marijuana flowers in Colorado is $1,300. Thus, the bill sets the excise tax, based on that average market rate, at $130 per pound for marijuana flowers.
But the bill does not take into consideration that the average market rate fluctuates with the market, which is why Colorado recalibrates it four times per year. There is no such mechanism in the bill to achieve 10 percent of the average market rate, only a flat $130 per pound regardless of future market fluctuations. This is based on a snapshot of Colorado’s market, and Maine’s will likely be different.
Keep in mind that Colorado’s market has been up and running for a few years, and in January 2015, when its market was in its infancy, the average market rate for marijuana flowers was $2,007 per pound, so an effective tax rate of 10 percent would generate about $200 per pound. It will be a few years before this bill’s tax scheme generates an effective tax rate of 10 percent.
A straight 20 percent sales tax on marijuana and marijuana products when purchased at retail outlets will generate more revenue as value has been added to the product as it moves from cultivators to storefronts. This tax scheme was in the original bill draft prior to the adoption of the excise tax.
This would have captured the market rate of post-cultivation raw, unfinished marijuana and plants as cultivators, businesses in the production process and retailers will factor the cost of raw materials into their retail prices.
Unlike the current tax scheme, a straight 20 percent sales tax is revenue positive a year earlier, better capitalizes the Adult Use Marijuana Public Health and Safety Fund — which funds public health and safety education programs and training for law enforcement — and generates significantly more revenue.
One thing I’ve learned in my short term and a half in the Legislature is that money does not go far. A fair share of legislators have been eyeing this new pot of money not realizing it’s virtually empty — even less with the bill that passed.
Sustaining a much-anticipated veto of LD 1650 is the only way for legislators to send the message that the taxation scheme needs to be reworked. I’m positive that our constituents’ expectation is that we pass a bill that generates more revenue than what it takes to run the program.
Patrick Corey represents House District 25, which includes part of Windham. He serves on the Joint Select Committee on Marijuana Legalization Implementation.
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