Colorado Must Exercise Patience Using Marijuana Revenues

Justin Haskins Heartland Institute
Published October 13, 2015

Editor’s Note: This article was co-authored by Michael McGrady

Legalization of recreational marijuana in Colorado brought forth a new industry that was never before seen as acceptable. In most other states, shopkeepers peddling marijuana would be considered criminal drug dealers, but in a growing number of places, such as Alaska, Oregon, and Washington, it’s now a legitimate multimillion-dollar business.

In the State of Colorado alone, about $70 million in taxes were collected from the sale of marijuana. That beats out alcohol tax revenues by more than $30 million. Few could argue the experiment thus far has been quite a success.

One reason the state has brought in more money in marijuana revenues compared to other products, such as alcohol, is that marijuana is taxed at a much higher rate.

“Recreational pot is taxed much more steeply than alcohol—25 percent, plus statewide and local sales taxes. Alcohol is taxed by volume, ranging from 8 cents a gallon for beer to $2.28 a gallon for liquor, plus sales taxes,” reports The Cannabist.

It’s a good thing the cannabis industry is able to produce so much state tax revenues while still managing to grow and improve employment, but there still remains questions about what should be done with the millions of extra dollars flooding into the state’s coffers.

The answer to that question could be determined in November, when voters will vote on Proposition BB, which if passed would provide copious cash to schools and education programs.

“Proposition BB allocates $40 million for public school construction and $12 million to fund marijuana education, substance abuse treatment and prevention, [and] youth mentoring services,” according to the Vote Yes on BB committee.

If Proposition BB is not passed, the millions of dollars in new tax revenue from marijuana sales will be refunded to the Colorado voters. On the surface, it sounds as though voters could win either way, right? No. Proposition BB is harmful to the state and taxpayers no matter what voters say.

With the success of the recreational marijuana industry will come further, more complex expansion. With expansion will inevitably come more state expenses related to enforcing laws, regulating marijuana sales and distribution practices, and other unforeseen costs. When it becomes necessary to add government services, where will the money come from? Instead of sending more money to public schools or to taxpayers, a far more cautious and well-planned approach would require the state to hold the money in an account that can only be used to improve necessary government services related to this industry. After a set period, if the funds have not been used, they can then be returned to taxpayers, given to schools, or set aside for some other purpose.

If Proposition BB passes, the growth of the marijuana industry will only lead to future tax hikes, as government agencies look to expand.

Governments, at both the state and federal levels, have a tendency to spend additional revenue without ever planning ahead for inevitable future costs. It makes far more sense to plan for this new industry still in its infancy to have some growing pains in the future.

Proposition BB should be tabled and a new proposal ought to be debated on for another year. That prudent move would allow enough time for lawmakers and taxpayers to gather additional tax revenue and information before rushing into a hasty, ill-conceived decision.

Michael McGrady is studying political science and criminal justice at the University of Colorado–Colorado Springs and has previously worked for the U.S. Department of Defense and numerous political campaigns. Justin Haskins is editor of The Heartland Institute, a free-market think tank headquartered in Arlington Heights, Illinois. Follow him @TheNewRevere.

[Originally Published in The Denver Post]