Cannabis Industry Pays the Price for State's Demand

Cannabis Industry Pays the Price for State's Demand

March 29, 2017

By K.Ford

States that consider legalizing marijuana solely as a governmental revenue stream may want to lower expectations and budget accordingly. Illinois state legislators recently sponsored a bill to legalize marijuana in hopes to overcome their deficit with the tax revenue.[1] The bill proposes a $50 per ounce wholesale excise tax, in addition to sales tax of 6.25% on transactions. Illinois is looking to supplement a multibillion-dollar budget with $349 to $699 million in cannabis tax revenue.[2] Fifty percent of the tax revenue will go towards Illinois’ General Fund, thirty percent to education, ten percent to substance abuse, and ten percent to public safety.[3]

As the national legal weed market expands there is a causal effect to cannabis' supply and demand. Marijuana prices will continue to decline as more people are able to grow, store, and supply across the nation. Overall, the price of a pound of weed has dropped from $2,500 to $1,000.[4] Both Colorado and Washington have seen the price of cannabis steadily decline since its legalization.[5] Colorado's weed prices has dropped 24%; Washington's price of a gram has dropped from $25 in 2015 to $6[6].

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For consumers, this is no doubt a benefit to their pockets and personal finances. But, as state governments begin to rely and pay their bills from the cannabis' tax revenue stream, it causes concern. State budgets (and the legislators who balance them) project for its fiscal year its costs, expenses, liabilities, and revenue streams to pay for such. A state’s bills consist of (but not limited to) the price of public education, state agencies, and employees. How can a state prepare to pay a bill in the future with uncertainty of its income today?

Colorado and Washington state legislators are already incorporating cannabis tax revenue into their government budgets, which could see a shortfall in projections if the price of cannabis continues to decline. This would impact the agencies, grants, and proposals that are funded by cannabis tax dollars. This could also lead to potential lay-offs by state organizations. For instance in Washington, $5 million of cannabis tax revenue will be allocated towards evaluation and research with $4 million of it going towards higher education.[7] This sounds like new employment opportunities for cannabis research at the University of Washington or Washington State, but only on a temporary basis. Because at the end of the fiscal year funds may be low, and universities may have to cut staff due to the price of a prerolled joint decreasing. Without states lowering expectations or the federal government providing consistency to the price with a national legal market, the price of weed variable is too independent for states to depend on it in government budgets.

I'm assuming to guard from this pitfall, Washington State Liquor Cannabis Board (WSLCB) has decided not to accept any new cannabis license applications to control the market. If you limit the amount of product suppliers in a market then you control amount of product in the market and the demand for it. Thus, controlling the price of weed by denying others the opportunity to grow and invest in the industry. Although the WSLCB states that it does not intend on limiting the amount of cannabis licenses, freezing the application process is capping the amount of cannabis businesses and against capitalistic principles. Other than the aforementioned reason, why else would WSLCB continue to deny the state more revenue in license fees and creating more taxpayers with every new business entity formed? Governments should not stand in the way of commerce, only observe and ensure the playing field is fair. But it's hard to just sit and do nothing when there are personal losses at stake.



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