Arizona Marijuana Tax Estimate

ARIZONA’S MARIJUANA LEGALIZATION BALLOT INITIATIVE

Arizona is one of the states with a possible marijuana legalization ballot initiative for 2016. The Arizona group working to legalize marijuana, Campaign to Regulate Marijuana Like Alcohol, have previously stated that legalizing and taxing weed at 15% would bring in approximately $40 million in new taxes.

Arizona’s legalization initiative would allow adults 21 and over to buy one ounce of weed, and grow up to six marijuana plants for personal use.

Opponents of marijuana legalization have expressed skepticism about the $40 million weed tax estimate. They pointed to Colorado’s marijuana tax revenues falling short of projections for 2014. (Note: Colorado’s taxes on marijuana have increased over 100% for the first 6 months of 2015, compared to the same period last year.)

Grand Canyon Institute Policy Analysis – Estimated Revenue from 15% Marijuana Sales Tax in Arizona (August, 2015)

The independent think tank, Grand Canyon Institute (GCI), has released a Policy Analysis studying the potential revenue for Arizona from a 15% sales tax on weed. GCI estimates that marijuana taxes for the state would total $64 million to $72 million depending on year of full implementation of Arizona’s marijuana legalization ballot initiative.

No independent analysis has been provided to evaluate [the $40 million] estimate. The Grand Canyon Institute has done so and finds that the revenue projections were conservative as proponents claimed. GCI estimates that, if the initiative were fully phased in now with dispensaries operating as in Colorado, the tax would generate $64 million, $25.5 million to K-12 education, $25.5 million to help fund all-day Kindergarten and $13 million to the Department of Health Services. If the initiative, were to make the ballot and be passed by voters, GCI expects 2019 to be the first year with a full rollout of retailers and at that point due to inflation and population growth, the expected totals would be $72 million: with almost $29 million each to K-12 education and helping fund all-day Kindergarten plus $14 million to the Dept. of Health Services.

The revenue gains do exceed the $40 million espoused by proponents of the initiative.

GCI makes clear in the Policy Analysis report that it “neither favors nor opposes the effort to legalize the recreational use of marijuana in Arizona.

“The Grand Canyon Institute, a 501(c)3 nonprofit organization, is a centrist think-thank led by a bipartisan group of former state lawmakers, economists, community leaders, and academicians. The Grand Canyon Institute serves as an independent voice reflecting a pragmatic approach to addressing economic, fiscal, budgetary and taxation issues confronting Arizona.”

GCI used Colorado as the basis of their projections for Arizona:

  • Arizona’s marijuana use (pre-recreational legalization in Colorado) is 75 percent that of Colorado.
  • Arizona’s adult population is 24 percent greater than Colorado and likewise the number of out of state visitors to Arizona is similarly larger.
  • By 2019 due to the growth of states with legal recreational marijuana, tourist use as a portion of the market will be less in Arizona than it is estimated to be in Colorado today.
  • The proper tax comparison to use in Colorado is the 10 percent recreational marijuana sales tax, not the 15 percent recreational marijuana excise tax, though Arizona’s sales tax would be 15 percent, not 10.

Using Colorado’s data on marijuana taxes, GCI made adjustments to for Arizona’s lower rate of marijuana use but larger population. The charts below shows Arizona’s estimated marijuana tax revenues under two scenarios with different years for full implementation.

Campaign to Regulate Marijuana Like Alcohol Responds to New GCI Study

The group, Campaign to Regulate Marijuana Like Alcohol, issued a press release responding to the higher marijuana tax estimates by GCI. The press release is quoted in full below:

MARIJUANA TAX REVENUE WOULD LIKELY EXCEED INITIATIVE BACKERS’ ESTIMATE OF $40+ MILLION FOR EDUCATION
SEPTEMBER 1, 2015

Independent think-tank projects the initiative to regulate and tax marijuana like alcohol would generate $64 million annually, including $50+ million for education; report rebuffs claims from opponents and some media members that the campaign exaggerated or ‘lied’ about potential revenue

* Statement below from J.P. Holyoak, chairman of the Campaign to Regulate Marijuana Like Alcohol *

PRESS RELEASE

PHOENIX — An independent Arizona-based research organization reports a proposed 2016 ballot measure to regulate and tax marijuana like alcohol would likely raise more revenue for education in Arizona than initiative backers originally estimated.

According to the Grand Canyon Institute, a “centrist think-thank led by a bipartisan group of former state lawmakers, economists, community leaders, and academicians,” tax revenue from the initiative would initially generate $64 million annually, including $51 million for K-12 education and all-day kindergarten programs. It estimates that by 2019, once the new system is fully rolled out, it would raise $72 million per year, including approximately $58 million for public education. The full report is available at http://bit.ly/1NTmGvm.

On August 19, the Campaign to Regulate Marijuana Like Alcohol announced that it had conservatively estimated that the initiative would raise more than $40 million in tax revenue for public education in Arizona. The estimate was called into question by opponents, and the Arizona Republic published an editorial in which it called the estimate a “lie” and accused the campaign of exaggerating the initiative’s revenue potential.

“The Grand Canyon Institute…finds that the revenue projections were conservative as proponents claimed,” the report reads. “The revenue gains do exceed the $40 million espoused by proponents of the initiative.”

Statement from J.P. Holyoak, chairman of the Campaign to Regulate Marijuana Like Alcohol:

“It is safe to say that our initiative to regulate and tax marijuana will generate tens of millions of dollars for education in Arizona. Our conservative estimate of $40-plus million in revenue for schools turned out to be even more conservative than we thought. It might not be enough to solve all of our schools’ budget problems, but it will help immensely.

“You can debate whether marijuana should be made legal for adults, but there’s no arguing the fact that this initiative will generate significant revenue for Arizona schools. For decades, people have been exaggerating the potential harms of marijuana and downplaying the benefits of regulating and taxing it. We have no need to lie or exaggerate because the evidence is on our side. The most effective and abundant weapon in our campaign’s arsenal is the truth.”

Source: “MARIJUANA TAX REVENUE WOULD LIKELY EXCEED INITIATIVE BACKERS’ ESTIMATE OF $40+ MILLION FOR EDUCATION

Marijuana Tax Revenue Estimates Too Conservative Due to Understated Marijuana Use Rates?

Any estimate is only as good as the data used to generate the projection. One of the key statistic in estimating potential marijuana tax revenues is the rate of use among the state’s population. If the rate is too low, it will result in estimates that are too conservative. And with any polling of “illegal activity”, some people will not be fully truthful about their use of marijuana or the frequency/amount of such use.

As noted previously, the anti-marijuana groups pointed to the fact that Colorado’s tax on weed had not met projections in 2014 to argue against Arizona’s weed tax estimates. But Colorado is now showing a doubling of marijuana taxes in 2015, compared to last year. What’s interesting is that this increase in marijuana taxes hasn’t seen a comparable increase in the rate of marijuana use. Either the same people are using a lot more weed, or there is a portion of users who aren’t being counted as marijuana users. And since marijuana users generally do not significantly increase the amount or frequency of use as a result of legalization, the more likely scenario is that some users do not admit to the marijuana use, even in a legal state due to concerns for social repercussions.

The resulting understated rate of marijuana use among the population will lead to tax revenue estimates that are too conservative. Anyone arguing that tax revenue projections are too optimistic are, in fact, saying people will lie that they use marijuana when they actually don’t (i.e. estimate rate of marijuana use among the population is too high). It defies logic and common sense.

For this reason, we believe all marijuana tax revenue projections are too conservative by definition.

What’s your opinion? Will people lie about their marijuana use? Are tax on weed estimates too low? Sound off in the comments below!

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