Colorado Expects to Reap Tax Bonanza From Legal Marijuana Sales

By JACK HEALY  FEB. 20, 2014

DENVER — For Colorado’s new flock of recreational marijuana growers and sellers, Thursday was Tax Day — their first deadline to hand over the taxes they had collected during their inaugural month of sales. And as store owners stuffed cash into lockboxes and made the nervous trek to government offices, new budget numbers predicted that those marijuana taxes could add more than $100 million a year to state coffers, far more than earlier estimates.

The figures offered one of the first glimpses into how the bustling market for recreational marijuana was beginning to reshape government bottom lines — an important question as marijuana advocates push to expand legalization beyond Colorado and Washington State into states including Arizona, Alaska and Oregon.

In Colorado, where recreational sales began on Jan. 1 with hourlong waits, a budget proposal from Gov. John W. Hickenlooper estimated that the state’s marijuana industry could reach $1 billion in sales in the next fiscal year, with recreational sales making up about $610 million of that business.

“It’s well on its way to being a billion-dollar industry,” said Michael Elliott, executive director of the Marijuana Industry Group, a Colorado trade association. “We went from 110,000 medical marijuana patients to four billion people in the world who are 21 and up.”

In the budget proposal that Mr. Hickenlooper released Wednesday, his office said the state could collect about $134 million in taxes from recreational and medical marijuana for the fiscal year beginning in July. He proposed to spend $99 million on programs including substance-abuse treatment, preventing marijuana use by children and teenagers, public health and law enforcement.

“This package represents a strong yet cautious first step toward ensuring a safe and responsible regulatory environment,” Mr. Hickenlooper wrote in the proposal.

In Washington, where retail sales of marijuana are expected to begin in June, budget forecasters estimated Wednesday that marijuana could bring the state nearly $190 million in taxes for the four years beginning in the middle of 2015. That money would go to a variety of health and substance-abuse programs, and the state’s general fund.

“Every governor and legislator in the country will be like, ‘Hey, check out these numbers,’ ” said Reuven Carlyle, a Democratic state lawmaker from Seattle who is chairman of the House Finance Committee.

For marijuana advocates, taxes were one of the major selling points of legalization. They have said that expanding the market for the federally prohibited plant could give states money for school construction, health care, substance-abuse programs and public health. Colorado’s legalization measure said $40 million in tax revenue would go toward school construction, and in November, voters across this otherwise tax-averse state overwhelmingly approved 25 percent taxes on recreational marijuana.

But opponents, and some skeptical economists, say the dreams of a windfall are far too optimistic. They worry that the higher costs of enforcement and regulation could outweigh any tax revenue from marijuana sales.

Officials in Colorado and Washington warned that the marijuana revenue numbers were only their best guesses for the moment and could shift, depending on marijuana prices, demand, the number of cities that prohibit marijuana retailers and other factors. In Washington, where retail sales have not begun, Mr. Carlyle said it was far too early to say how marijuana might affect the state’s pocketbook.

“Many of us have been emphatic at trying to temper expectations,” he said.

Across Colorado, Thursday was one of the most nerve-racking days of the year for marijuana businesses. Some sellers have hired third-party companies to handle their finances, but many run almost entirely on cash because so few banks are willing to do business with them.

To pay their sales taxes — often their largest expense of the month — owners said they had set aside tens of thousands of dollars in secure locations and driven in pairs to deposit it with government officials. Brooke Gehring, owner of Patients Choice, a chain of dispensaries, sent an armed guard with the employee who ferried $140,000 in taxes to several local and state agencies.

Caitlin McGuire, an owner of the Breckenridge Cannabis Club, said she tucked her tax payments into a lockbox several days ago and made the drive to Denver from Breckenridge, Colo., with a co-owner of the business.


“We just try to be as discreet as possible,” she said. “You feel like you’re walking around with a target over your head.”