Pot revenue 60% below projection

Oregon-tax-newsBy Taxpayer Association of Oregon Foundation

A study on the revenue potential of recreational marijuana that was promoted during Oregon’s legalization ballot push last fall is $60 million less than the state’s most recent budget projection. That figure gap is even bigger if one accounts for the costs associated with starting and running Oregon’s pot legalization program.

In the months leading up to the November 2014 vote to legalize recreational marijuana use, ECONorthwest issued a report indicating that tax revenue from pot-related sales in Oregon would approach $80 million. However, the Oregon Liquor Control Commission recently released its 2015-16 budget projections for related sales, which are only expected to contribute $18.4 million to the state’s bottom line. In reality, the economic benefit is even lower at $7.9 million since it will cost an estimated $10.5 million to implement the legalization program.

If Colorado is any guide, the lower-than-expected revenue shouldn’t come as a surprise. Though a handful of states have legalized recreational marijuana use, Colorado is currently the only state where complete annual figures for pot-related tax revenue have been calculated. In Colorado’s case, actual tax revenue raised from pot sales hasn’t quite matched the pre-vote hype of legalization proponents. Revenue generated through pot sales is projected to come in at $69 million when the current fiscal year ends in June. That’s nearly 42% less than the initial projection of $118 million floated by the Governor’s Office in February 2014.

Oregon’s understated figure in part reflects what’s been learned in Colorado. There, pot is still considerably less expensive on the black market, and it’s also much cheaper through medical dispensaries. As a result, recreational marijuana sales have been lower than expected. In Washington, marijuana growers are also currently struggling to sell their inventory. Recreational marijuana is still roughly twice as expensive as pot purchased through medical dispensaries. Similar to Colorado, many users are opting to stay with their black market dealers—leading to a significant over-supply of legal marijuana.

As reported in a recent New York Times article, Colorado’s inflated projection around marijuana-generated tax revenue reflect a trend in recent years of states looking to close budget gaps without raising broad-based taxes. Higher taxes on cigarettes, expansion of gambling, and now marijuana legalization are being pursued as budget solutions. Often, revenue projections used to justify related policy changes fail to match actual revenue generation.

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