On February 19, Colorado Governor John Hickenlooper did something unexpected. He announced a state spending plan for nearly $100 million, with the vast majority of the funding devoted to improving drug awareness, addiction prevention, and public health—an enviable sum for any government to put toward normally difficult-to-fund initiatives. Even more surprising is that every dollar of that amount will come from tax revenues on the sale of drugs that were illegal until this year.
Colorado legalized recreational marijuana use last year, but the first retail marijuana stores have only opened in the past few months—the state now has over 150 of them. The initial results are staggering, not just for the individual cannabis businesses but also for the state itself. Tax revenues from recreational marijuana sales, which hit $2 million in January, have exceeded all expectations. Voters were initially given a projection of $70 million in marijuana tax revenue, but the government now expects over $130 million in sales and excise taxes in the next fiscal year, beginning July 1. (Washington, which has also legalized marijuana sales but hasn’t opened the floodgates yet, expects $190 million over the next four years.)
For every recreational marijuana sale in Colorado, there’s a 2.9 percent sales tax, a 10 percent additional sales tax (part of which goes to local governments where the sales take place), and a 15 percent excise tax. On top of that, the state will earn an expected $2 million in the next fiscal year from the fees that businesses pay for licenses to sell the drug. The 28 percent net tax on marijuana is actually less than the rate for tobacco products, which is 40 percent in Colorado.
Legal marijuana is the rare industry that’s campaigning for its own regulation, high taxes, and strict oversight, in sharp contrast to Silicon Valley start-ups like Uber and AirBnB.
Under the new recreational cannabis law, the first $40 million earned through the excise tax will go toward building new schools in the state. With the governor’s proposal, the remainder of the revenue will be funneled into educational programs around marijuana, “creating an environment where negative impacts on children from marijuana legalization are avoided completely,” Hickenlooper wrote in a letter to the budget committee.
It’s a strange irony that legalizing a drug still outlawed by the federal government could allow for more resources to be devoted to preventing its negative effects. But that’s exactly what’s happening in Colorado—the marijuana tax has proven so effective at raising public funds that there’s more than enough money to combat the criticism that recreational marijuana will lead to more addiction. In fact, with the new initiatives, it could lead to fewer drug problems all around.
The money that the recreational marijuana tax raises is strictly limited as to where it can be put to use. In his letter, Hickenlooper laid down two guidelines: “programming should have a direct or indirect relationship to marijuana use, and we should not create any situations where State or local government has an incentive to promote marijuana use.”
To that end, the plan allocates around $45 million of the funding to “youth marijuana use prevention and deterrence” and another $42 million to “substance abuse treatment,” including adding space to existing drug treatment facilities. Public health programs will see a $9 million cash infusion. And $15 million will be distributed between law enforcement and public safety and regulatory oversight, reinforcing the laws already put into place to limit marijuana sales and use. On top of that, the state expects a surplus, and will likely end the next year with $12 million in a Marijuana Cash Fund.
This spending is as good for cannabis businesses as it is for the state. Legal marijuana is the rare industry that’s campaigning for its own regulation, high taxes, and strict oversight, in sharp contrast to Silicon Valley start-ups like Uber and AirBnB that are making a case for less government intrusion in the commercial sphere, deregulating public transportation and residency restrictions in the name of market-induced efficiencies.
The distribution in FY 2014-15 of the existing enforcement monies as well as the requested allocation of all marijuana-related sales and excise taxes and expected matching funds. (Chart: Colorado's Office of the Governor)
MICHAEL ELLIOTT IS THE executive director of the Marijuana Industry Group (MMIG), a trade association of marijuana companies that launched in 2010 to participate in creating the framework for Colorado’s cannabis industry. The group is a kind of enlightened lobbying firm, pushing lawmakers to set a high bar for marijuana entrepreneurs and their businesses.
When Hickenlooper published his plan for the marijuana tax revenue, Elliott responded in a newsletter, noting MMIG’s concern over whether the state had enough resources to police the marijuana business. “It is imperative the Department of Revenue is funded adequately so it can vigorously enforce state regulations and ensure that everyone in the industry is abiding by the rules,” Elliott wrote.
An early audit “made it very clear that state marijuana division could not do its job because of a lack of funding,” Elliott says. “They really need to have everything that they ask for and then a reserve as well.” Getting this line from a marijuana business insider is like hearing a Big Tobacco lobbyist call for more lung cancer research. But there’s a burgeoning conflict behind the marijuana tax revenue that’s worrying Elliott and the companies he represents.
“We can all agree that kids should not be using marijuana,” he says. “But that money has to be spent on evidence-based programs. It has to be neutral and objective.” MMIG is concerned that the marijuana education money could go toward groups that are actually trying to overturn legal marijuana laws. “The money should not be available for them, nor to me and my organization to tell people how awesome marijuana is,” Elliott says. “It ensures that we’re not giving away money simply to overturn the will of voters.”
Though the marijuana education initiatives will no doubt warn against the dangers of addiction, proponents are also hoping that some of the stigma associated with the drug is also removed. “In the 1930s, ’40s, ’50s, marijuana education was the government telling you marijuana will make you crazy, a homicidal maniac. The ’80s weren’t much better,” Elliott says. “We shouldn’t be lying to kids. We need to bring integrity to education.”
The initial hurdle of marijuana legalization has been crossed in Washington and Colorado, and the success of the taxes should motivate more states to pass liberal marijuana laws. But as the spending concerns show, the war on the drug’s public perception is far from over.
That the marijuana market is moving away from its outlaw roots is clear. “For every $1 of tax revenue, that’s $1 being taken away from the black market and given over to state and local governments,” Elliott says. “That’s not going to solve our debt crisis, but it is a pretty phenomenal thing.”