By Guy Page
Last Thursday, at a Statehouse press conference, some medical lobby groups and Human Services Secretary Al Gobeille called for the House to ensure that prevention funding is part of any tax and regulate marijuana legalization bill.
To raise $6-10 million/year for abuse prevention programs will require a 26 percent tax on legal marijuana sold in Vermont stores, a spokesperson for one of the lobby groups said. The proposed tax in prevention-free S.54, the tax and regulate bill, is 20 percent.
But going up to 26 percent may actually suppress sales and revenue. It could make tax and regulate the most expensive way to buy marijuana, among the main four modes of purchase. And if sales and revenue lag beneath projections, taxpayers could be left on the hook paying for prevention.
The problem with the proposed 26 percent taxation is the reality of consumer choice. The Legislature cannot force consumers to buy tax and regulate marijuana if they prefer to patronize other more affordable legal, quasi-legal, and illegal competition.
Marijuana taxed at 26 percent will lose market share to 20 percent taxed legal competition. Massachusetts taxes marijuana at 20 percent. The “New Hampshire effect” of Vermonters traveling out of state to pay less in taxes will apply to marijuana. The only question is how much revenue will be lost.
Marijuana taxed at 26 percent will lose market share to tax-free quasi-legal competition. The 2018 personal possession law and S.54 both allow home cultivation that, individually or networked together, can produce a lucrative cash crop. The 2018 law has loopholes that encouraged home-grown weed money-making. S.54 explicitly says a person “may dispense” (pg. 66) an ounce of homegrown marijuana (street value in Vermont is $299.00) without taxation or regulation, provided there is no promotion or advertising.
One-ounce pot dealers would pay no taxes, endure no regulations, and won’t be hassled by police. At $300/sale, a large number of them could pose serious competition for licensed marijuana dispensaries.
Marijuana taxed at 26 percent will lose market share to tax-free illegal competition. Under the prevailing system of black market cultivation, transportation, wholesale and retail operations, Vermont is one of the highest per-capita marijuana consuming states in the nation. It is unrealistic in the extreme to think these well-established, thriving operators will concede market share. It shouldn’t be difficult for them to maintain. Organized crime pays no taxes, minimum wage, workers compensation, social security, laboratory fees, licensing fees, etc.. They do not need to pay the $1,000/month-plus banking fees that Vermont financial institutions charge medical marijuana dispensaries for handling their cash. The black market is one reason California 2018 T&R revenue fell $345 million short of projections. One Vermont senator recently expressed his doubts about T&R competing with the black market: “the Sinaloa drug cartel will beat you on price every time.”
Saddling the Vermont tax and retail marijuana business with heavy education and prevention costs will make it the slowest horse in a very competitive horse race. Yet the Legislature can’t not fund prevention, and non-consuming taxpayers will revolt if forced to pay for it.
S.54 supporters may say that Vermont’s taxed and regulated alcohol and tobacco industries make money and provide tax revenue to adequately fund prevention. But that conclusion is questionable. State of Vermont reports show that Vermont has a high drinking and binge drinking rate, compared to the rest of the country. By that simple yardstick, the millions spent on alcohol prevention, education and treatment don’t seem effective.
The Vermont excise tax on wine and beer has not increased since 1981 (pg. 42, 2017 JFO report). Gross receipts from 2005-2015 (adjusted for inflation) rose just 1.4 percent. Efforts to raise the tax usually face two big barriers. First, it’s perceived as regressive, punishing poor people: “Beer is the poor man’s champagne.” Second, lawmakers rightly fear losing revenue to the New Hampshire Effect — that many Vermonters will buy their alcohol across the state border.
These two arguments have helped freeze tax rates for 38 years. Both arguments apply to marijuana. In fact the regressive tax charge is probably even more apt, because S.54 requires one of the three Cannabis Control Board members to be an expert in social justice and equity, and all regulations must reflect a concern for lower-income and minority Vermonters. And unlike marijuana, the legal alcohol industry has little to fear from a low-balling black market.
Tobacco prevention is a real Vermont success story. We have spent heavily and have reduced teen and adult tobacco consumption rates. But most of the money came not from taxes but from the $59 million the state from the 1998 national tobacco company settlement, which then-Attorney General William Sorrell helped to negotiate.
It will be tempting for pro-legalization lawmakers to add a few million dollars in prevention money to S.54, boost the tax to supposedly cover the expense, say their bases are covered, and then push for the House to pass the bill. Whether the highly-taxed product will actually generate enough revenue, and whether tax-supported programs will truly prevent the addiction and other abuse problems caused by storefront marijuana, are two questions the Legislature must answer before saying yes to S.54.
Statehouse Headliners is intended primarily to educate, not advocate. It is e-mailed to an ever-growing list of interested Vermonters, public officials and media. Guy Page is affiliated with the Vermont Energy Partnership; the Vermont Alliance for Ethical Healthcare; and Physicians, Families and Friends for a Better Vermont.