Since this week’s post deals with the legalization of pot in Washington and a few related developments, let’s start things off with a chuckle. Here is how this NBC News article describes the large number of confused applicants requesting marijuana licenses in Washington state. “… [M]any of them [are] apparently dazed, confused, or otherwise befogged by pot’s new bureaucracy.” That’s pretty hilarious.
The issue is that those applying for the licenses simply didn’t know what is required of them to get a license, and its led to a bureaucratic slow-down for the Washington State Liquor Control Board. Apparently, they received over 7,000 forms from confused applicants.
Another issue, according to Mark Kleiman of BOTEC, a consulting firm hired by Washington state as it was beginning to develop its marijuana laws, is that the way the state has decided to proceed is probably the “second worst way” it could have done so next to prohibition.
“We’re going to have much more drug abuse, and much less revenue for the state,” says Kleiman.
What he means is that the state has set itself up for future revenue issues by copying Colorado’s taxation methods. Tax revenue from marijuana in Colorado is tied directly to price, which while revenue is quite high now (pun intended) one can expect it to fall over time as supply to vendors increases and prices drop.
Kleiman also refers to the strong incentives sellers will have to drive up use and market themselves to clientele. This model is also based on Colorado’s which is characterized by “full commercialization, stores, and taxes based on a percentage of sales—basically the post-prohibition alcohol model.” This way lends itself to creating more and more users and more and more product sold. However, while the intention is that eventually retailers will own the market, presently they must compete with both the black market sale of marijuana as well as medical marijuana dispensaries which are much cheaper than what recreational vendors can sell their product for right now which is about $30 a gram.
Such a high price is due to the limited number of growers in Washington—an issue which goes back to the bureaucratic difficulties mentioned earlier. You can read more about the shortage here.
Remember Huddleston Tax CPAs are Seattle and Bellevue CPAs! If you’re in the marijuana business and you need an accountant, we’d be more than happy to figure out the new tax code for you!