The voter-approved Proposition 64 had addressed taxes for recreational and medical marijuana, but the omission of a date in proposed law has eliminated the tax on medical marijuana from now through the end of 2017

Benjamin Franklin said that taxes, like death, are one of life’s few certainties. But due to a glitch in the technical language of California’s successful marijuana legalization initiative, the state’s pot smokers may prove him wrong.

California’s marijuana legalization initiative is designed to raise significant tax revenue for the state. When legal recreational marijuana sales commence on Jan. 1, 2018, the initiative applies a 15 percent excise tax on recreational and medical marijuana, as well as some taxes on marijuana producers based on the weight of each plant grown. The state’s 7.5 percent sales tax is tacked on top of that for recreational marijuana, but the ballot proposition repeals that tax for medical marijuana. The idea was to give medical marijuana users a tax break relative to recreational users once the initiative’s new taxes begin in 2018. But because the Jan. 1, 2018, target date was omitted in the relevant subsection of the 62-page initiative, the medical marijuana sales tax elimination instead became effective this week when the measure passed.

 

As a result, tax-free medical marijuana sales will occur in California from now through the end of 2017. With recreational sales not set to begin until 2018, tax-free medical sales leave California facing a disappointing near-term marijuana tax revenue picture. The creators of the initiative have stated publicly that providing a 14-month tax holiday for marijuana was not their intention, but the state’s Board of Equalization ruled otherwise.

Tax revenue could continue to fall short of projections even after 2018 if new recreational users become regular customers in the tax-free medical market, where they would have every incentive to stay. Why endure what economists call ‚Äúswitching costs‚ÄĚ ‚Äď finding a new dispensary and favored types of weed…

The Cannabist
By Keith Humphreys
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