A number of states have legalized recreational marijuana with the intention of collecting tax revenue on the sale of the drug after it becomes legal. There is little thought given to the possible effects of the drug or the long-term consequences–it’s about the money. As far as the long-term consequences, I posted an article in October of last year that included a first-hand account of the effects of continuing marijuana use. Yesterday (updated today) The U.K. Daily Mail posted an interesting article about how the legalization and taxation of marijuana has worked in California.
The article reports:
California is increasing business tax rates on legal marijuana, a move that stunned struggling companies that have been pleading with the state to do just the opposite.
Hefty marijuana taxes that can approach 50 per cent in some communities have been blamed for pushing shoppers into California’s tax-free illegal market, which is thriving.
Industry analysts estimate that $3 are spent in the illegal market for every $1 in the legal one.
The California Cannabis Industry Association said in a statement that its members are ‘stunned and outraged.’
The group said the higher taxes that will take effect January 1 will make it even worse for a legal industry struggling under the weight of heavy regulation and fees, local bans on pot sales and growing and a booming underground marketplace.
‘Widening the price … gap between illicit and regulated products will further drive consumers to the illicit market at a time when illicit products are demonstrably putting people´s lives at risk,’ the group said, referring to the national vaping health crisis.
Los Angeles dispensary owner Jerred Kiloh, who heads the United Cannabis Business Association, said the increased levies added to the heavily taxed market ‘seems like a slap in the face.’
The changes involve taxes paid by legal businesses, which ultimately get passed along to consumers at the retail counter.
Josh Drayton of the cannabis association predicted that an eighth-ounce purchase of marijuana buds, typically priced around $40 to $45, would be pushed up to $50 or more in the new year.
There are a few lessons to be learned here. First, increasing taxes on something results in people finding another source or buying less. In this case, people have found another source. A person buying legal marijuana can be reasonably sure that he is getting the product he is paying for; however, buying any drug illegally can be very risky. This is the Laffer Curve at work–raising taxes on something will at some point decrease revenue. Second, companies don’t pay taxes–increased taxes are passed along to the consumer in the form of increased prices.
Legalizing recreational marijuana use may have unseen consequences we haven’t even dreamed of yet. In California it has not ended the illegal drug trade, and the greedy government’s taxes have only exacerbated the problem.