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Follow the money: The impact of legalized pot

The arguments surrounding the controversial measure to legalize and tax the recreational use of marijuana have relied at least in part on speculation.

Aside from the ideological and political differences that pit the measure’s supporters against its opposition, neither side knows for sure how the initiative will affect California’s economy.

Proponents of the Nov. 2 ballot initiative, Proposition 19, say decriminalizing the recreational use of marijuana would allow the state to rake in some much-needed cash by taxing sales of the herb. The Yes on 19 campaign stated that the Board of Equalization estimated the measure would bring in an additional $1.4 billion in annual revenue.

But that estimate came from an analysis of a different piece of cannabis legalization legislation authored by Assemblyman Tom Ammiano, D- San Francisco. That bill seeks a $50-per-ounce taxation rate on marijuana sales. And the debate over the dollar impact is almost as fierce as the debate over the initiative.

The literature of Proposition 19 does not include any such tax. In fact, the measure itself does not require local governments to impose a set tax on the sale of marijuana nor does it require local governments to license marijuana distributors.

Nate Bradley, a member of a pro-Proposition 19 group Law Enforcement Against Prohibition and a former Sutter County Deputy Sheriff, said the measure is written this way to gradually attract local governments to the economic and social benefits of legalizing and taxing marijuana.

Bradley said focus group studies revealed more people were comfortable with legalizing marijuana under the condition that their local governments were able to participate voluntarily.
“One county will start (selling marijuana) and others will follow,” said Bradley.

Board of Equalization spokeswoman Anita Gore said that without a set taxation rate to work with, estimating the potential fiscal effects of Proposition 19 is almost impossible. There is no telling, said Gore, what counties will participate in the sale or taxation of marijuana. Out of those counties that would embrace the new law, it is equally unclear how they will choose to tax recreational cannabis.  

The BOE released an analysis of Proposition 19 just recently but the report did not include a conclusive fiscal analysis of the initiative.

“The legalization policy proposed by this measure complicates the revenue estimation task considerably,” read the BOE’s fiscal analysis of Proposition 19.

The board staff said it does “not know which local jurisdictions will choose to authorize the sale of marijuana products… (and) is not able to create estimates of marijuana consumption and price at the local level.”

The report also noted that the tax experts  on the BOE staff were not able to estimate the impact that legalization, local regulation, and taxation will have on the consumption and price for those jurisdictions that choose to authorize sales.

The Legislative Analyst’s Office, the Legislature’s nonpartisan fiscal adviser,  faced similar challenges in its report on Proposition 19 but was able to provide a rough revenue estimate.
“We estimate that the state and local governments could eventually collect hundreds of millions of dollars annually in additional revenues.”
But even the LAO’s estimate was trimmed by disclaimer.

“The revenue and expenditure impacts of this measure are subject to significant uncertainty…It is unknown how many local governments would choose to license establishments that would grow or sell marijuana or impose an excise tax on such sales.”

A study by the nonprofit research group RAND echoed the uncertainty.

“There is considerable uncertainty about the impact of legalizing marijuana in California in public budgets.”

But the RAND report also noted that “the pretax retail price of marijuana will substantially decline, likely by more than 80 percent. The price the consumers face will depend heavily on taxes, the structure of the regulatory regime, and how taxes and regulations are enforced.”

The No on 19 campaign has sharply criticized the measure for being vague and sloppy in its wording, referring to it as “a jumbled legal nightmare.”   

Spokesman Roger Salazar said, “The revenue is not going to be anywhere near what the proponents claim. There is nothing in the initiative that lays out what the taxes should be on marijuana if Proposition 19 passes. It wouldn’t be worth the headache.”

Assemblyman Ammiano introduced a follow up bill Tuesday that would create the Marijuana Control and Regulation Act of 2010, to take effect after the passage of Proposition 19.
The objectives of the act include raising funds and trying to “discourage substance abuse by the imposition of a substantial fee on the legal sale of marijuana, the proceeds of which will support drug education and awareness programs.”

A part of those funds will come from charging a licensing fee to marijuana sellers.

“The fee for the license shall be set at an amount that will reasonably cover the costs of ensuring compliance with the regulations to be issued, but may not exceed five thousand dollars ($5,000) for an initial application, or two thousand five hundred dollars ($2,500) per year for each annual renewal.”

The act also specifies that no person can legally sell marijuana or any of its derivatives without proper licensing.

Apart from the concerns over how much revenue the measure may or may not provide to the government through taxation, a group of medical marijuana distributors have raised concerns that Proposition 19 threatens the rights of patients who rely on cannabis prescriptions by jeopardizing medical marijuana distribution businesses.  

The newly formed group known as the California Cannabis Association held a press release on the West Steps of the Capitol on Tuesday to announce their opposition to Proposition 19.

CCA President George Mull said the measure does not protect medicinal marijuana patients because it allows counties to decide whether or not they want to allow for the legal sale of marijuana within their jurisdictions, jeopardizing the rights of medicinal marijuana businesses to distribute the drug.

Mull and other CCA members, to include Lanette Davies, whose family owns the explosively successful Canna Care medical marijuana distributor, also said that Proposition 19 could impose unfair taxes onto licensed patients.

Ammiano’s proposed Marijuana Control and Regulation Act responds to this concern by stating the act will. “Exclude medical marijuana from the fees and regulations imposed by this act.”

Yes on 19 campaign spokesman Dan Newman said Proposition 19 “will not change or affect current medical cannabis laws or protections offered to qualified patients. Patients will still be able to possess what is needed for medical use, and patients, caregivers and medical cannabis collectives and cooperatives will retain all existing rights.”

Despite concerns from the medical marijuana industry and a collection of law enforcement groups that have spoken out in opposition to Proposition 19, the LAO’s report on the measure said it could lead to a reduction in law enforcement costs for local governments.

“The measure could result in savings to the state and local governments by reducing the number of marijuana offenders incarcerated in state prisons and county jails, as well as the number placed under county probation or state parole supervision.”

Several local Democ
ratic Party organizations agree.

“California should stop arresting thousands of non-violent cannabis consumers, freeing up police resources and saving millions of dollars each year, which could be used for apprehending truly dangerous criminals and keeping them locked up, and for other essential state needs that lack funding,” read a press release from the Alameda County Democratic Party on its announced support of Proposition 19.

According to a press release from the Yes on 19 campaign, Democratic Parties in L.A., Butte, Madera, Modoc, Monterey, Orange, Placer, San Francisco, Siskiyou, and Sonoma County have endorsed the measure.

Bradley said one of the greatest costs to law enforcement is the cost of writing tickets to citizens charged with carrying less than an ounce of marijuana.

“The ticket is a misdemeanor charge with a maximum fine of $100 but it costs the county $1,000 to process…If we just stopped writing those tickets we’d save an instant $60 million a year.”

Bradley referred to the current “drug war” as “a huge waste of money for local government” and said Proposition 19 would end that waste by freeing up unnecessary bureaucracy in the conviction process of marijuana users.

“It is unclear whether the fiscal benefits of Proposition 19 would be massive, immense, or merely substantial and significant, but there is no question that Prop 19 would generate billions of dollars,” said Dan Newman, spokesman for the Yes on 19 campaign.  

Apart from potential savings in local law enforcement, marijuana and its distributors would be subject to at least the same sales and business taxes as other taxable products in California. With sales and business tax alone, the initiative is likely to bring in at least some revenue to local governments. The evasive question is simply “how much?” and, as voiced by the No on 19 campaign, would it be worth “the headache?”


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