Can The Government Make Marijuana Cheaper?

Kevork Djansezian/Getty Images

Source: Kevork Djansezian/Getty Images

“Marijuana legalization is one of the biggest shifts in public policy in decades,” The Seattle Times Editorial Board wrote in an op-ed published earlier this year. “Washington is a leader. Lawmakers need to act to make sure it doesn’t die on the vine.”

That’s a strong statement from the Pacific Northwest’s biggest newspaper, and it wasn’t made without genuine concern for the state’s fledgling marijuana market. In fact, due to some fundamental issues with Washington’s legal marijuana laws, the entire experiment is flirting with becoming “a market failure,” in the words of The Seattle Times.

When voters in Washington opted to legalize marijuana for adult recreational use during the 2012 general election, the state became one of two in America to allow for lawful possession and use of cannabis without a medical prescription. While Washington and Colorado both became leaders in that right, the states passed two very different legalization bills. Colorado’s was much more open and free-market based, and Washington’s was much more tightly regulated.

That tight regulation is proving to be far too constricting, and is actually leading to the problems that Washington is facing today. Luckily, there’s a plan to fix things.

In addition to a number of rules and regulations constraining the actual number of marijuana producers, processors, and retailers allowed to operate in the state of Washington, a heavy-handed taxation system has all but stunted the legal market’s ability to supplant the black and medical markets — which is where all consumer dollars were going before legalization. The main goal, from a legislator’s perspective, would then be to redirect those dollars into legal, taxed channels.

But Washington’s tax system — which calls for a 25% tax on producers, another 25% on processors, and yet another 25% at the retail level — has shown to be far too much, and actually acted as an incentive for consumers to continue buying from the black market.

The solution? Make pot cheaper.

In light of the current failures in the market, that is exactly what Washington lawmakers are looking to do. There is a bill working its way through the Washington state capital, SB 6062, that aims at restructuring the taxation system, making marijuana from legal retail shops cheaper, and thus more competitive, with weed from the black and medical markets.

In effect, instead of compounding taxes at various levels of production, processing, and eventual retail sale, a one-time 37% tax will be imposed at the point of sale. Another way to visualize the proposed change would be going from the existing system of a 25% tax being imposed three times, to a one-time retail tax of 37%. While consumers at retail stores would see the end sales tax jump 12%, prices, in theory, should still be considerably lower as producers and processors would see input costs drop.

This is more in line with Colorado’s tax system, which imposes a variety of state and excise taxes that total up to around 30%, and more in certain areas. While Colorado’s total income from those taxes was a bit lower than expected, its system of looser regulation, and lower taxes, has proven to be more successful than Washington’s. Lawmakers have evidently taken notice, and are moving now to address the issues with Washington’s marijuana tax code.

On a national scale, this is important for a couple of reasons. One, it gives the entire country — including lawmakers in states that are likely to see legalization in 2016 or 2018 — a cheat sheet as to what kind of system works when it comes to marijuana laws. Two, it shows that the state lawmakers are willing to adapt and change bad policy when evidence permits. In this case, Washington’s heavy taxes are doing no one any good. Consumers are continuing to buy from the black market to get cheaper product, and those willing to invest in legal business ventures are struggling to stay afloat as a result. The solution, lawmakers are hoping, is to loosen the reins a bit.

Of course, that still may not close the gap, so to speak, and herd consumers to legal retail stores over black market dealers. But it’s a step in the right direction. And again, the most important takeaway from this change of course is that Washington is essentially experiencing growing pains that other states can learn from going forward.

If 2016 is another big year for legalization, which it is expected to be, then the lesson is clear for those crafting legislation: tax too much, and the black market will continue to thrive.

Follow Sam on Twitter @Sliceofginger

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