462 Medical Cannabis Businesses are Registered with DOR and Pay Taxes



Data from http://dor.wa.gov/Content/AboutUs/StatisticsAndReports/stats_MMJTaxes.aspx, accessed on 2/8/2015.

by Dominic Corva, Executive Director

Tax revenues derived from cannabis sales in Washington State are a major public policy question at this moment for at least two major reasons. First, the state legislature is currently trying to figure out how to reconfigure the I 502 tax structure in order to maximize revenue; and second because policymakers seem certain that one route to doing so would be to capture an increasing share of revenue for the I 502 market from medical cannabis markets. I would argue that there is a third significance that is at odds with the first two, which is what kind of social costs would be potentially incurred by such revenue-maximizing strategies. For this post, however, I will address the first two issues because without understanding existing realities policymakers are likely to create suboptimal strategies for what they are trying to do, and this would bad for everyone.

In order to begin to represent existing relationships between cannabis markets and revenue, we have to have some idea of the relationship between revenue and taxes on medical cannabis retail markets. What is the current reality?

The Washington State Department of Revenue provides us the most authoritative data available regarding medical cannabis markets and state and local tax revenues absent a special vice tax such as the I 502 three-tiered one. Thus, it provides a model for estimating tax revenues in a market that isn’t distorted by rates so big as to require reinvention in the current legislative session. It also provides us with a number of taxed, registered medical cannabis access points that corrects public perceptions of an untaxed, unregulated industry. There are limits to the data, of course, but the DOR accounts for sales and tax information from 462 medical access points from the beginning of FY2014 though the first five months of FY2015.

From the linked document:

*462 registered medical retailers owed the State of Washington a total of $10,696,252 in FY 2014; and $5,054,345 through four months of FY2015 (July-November 2014). 

*Registered medical retailers owed $2,147,653  in local retail sales tax for FY 2014 and 1,101,346 for FY 2015.

*The above numbers were on $69,369,667 of revenues in FY2014 and $35,645,866 of revenues for FY2015.

This chart gives us a baseline from which to estimate potential WA State cannabis revenues based on no vice tax. More analysis along these lines is forthcoming, but the chart provides one surprise of note. Every quarter, the State gets a revenue bump (September, December, March, June). But September 2014’s peak is barely above its previous two months, and is followed by declining revue rather than flat revenue in previous quarters. The DOR document thus ends on a cliffhanger: have we reached a peak of registered medical cannabis revenues in Washington State, already? And why might that be?

Stay tuned.