The future of marijuana in Massachusetts

By Danny Cordova, Ryan Meuse, and Hannah Yoo

This past November, 1.8 million people voted to legalize marijuana in Massachusetts. What happens next for the state’s coffers?

To help answer that question, we can look into the pioneering states of Colorado and Washington, both of which fully legalized recreational marijuana in 2012. These states have laid out the groundwork for their new marijuana industries, and can lend a hand in shaping similar policies for Massachusetts.

Revenue from taxes

Although the terms and conditions for the sale of marijuana vary across states, they all benefit from increased tax revenue.

In Colorado, the sale of marijuana is subject to a 2.9 percent state sales tax, a 10 percent “retail special sales” tax, and a 15 percent excise tax for a total 27.9 percent tax. That means that if an eighth of an ounce of marijuana costs $30 in retail, the total price after taxes would be around $39. In Washington, the tax bill is even higher: a whopping 37 percent. Assuming the retail price was the same, that bag of marijuana would cost over $41.

In 2015, Colorado collected more than $129 million from sales taxes on marijuana alone, or 1.3 percent of its total sales tax haul, while Washington drew in $70 million.

Source: Massachusetts’s Tax Data, Colorado’s Tax Data, Washington’s Tax Data

Massachusetts’s plan is starkly different, however. Marijuana products and retail sales would be subject to the standard 6.25 percent state sales tax and a 3.75 percent excise tax would be tacked on. Cities and towns would also have the ability to add up to a 2 percent tax, bringing the potential tax total to 12 percent. That is less than half of Colorado’s tax rate, and almost a third of Washington’s.

Although there is a rhyme and reason to Massachusetts’s outside-the-box plan, they haven’t released any official information as to how much they expect to receive in tax revenue during the first year of sales.

The reason behind Massachusetts’s lower tax rate

The Commonwealth’s tax rate was arrived at after much deliberation, and it satisfies the balance between paying for the costs associated with the industry while making sure legal outlets can compete with illegal competitors.

In Denver, for example, the high tax rate helped keep unregistered dealers in business.

“A lot of people still just bought from their dealers,” said Cady Kubic, a South Hadley, Mass. native who lived in Colorado during the height of the state’s legalization movement. “It’s way cheaper. You get more for your money because you’re not paying all these crazy taxes.”

Kubic added that while many people might stop at dispensaries for smaller portions due to the convenience, they’d often turn to an unregistered dealer for larger quantities. This could have the adverse effect of reducing the state’s tax income as fewer goods are purchased through taxable channels.

Lawmakers also believe a lower tax rate helps achieve a public health objective: ensuring that more potent strains from unlicensed dealers do not catch someone by surprise. Users who buy from dispensaries know exactly what they are getting.

Lawmakers and legalization opponents worry that the proposed tax rate won’t be enough to fund the costs of getting this industry up and running in the state.

When will shops open?

When cannabis was legalized last November, advocates looked eagerly forward to January 2018, when retail marijuana shops could legally open in the state. (It remains illegal to sell marijuana and any other paraphernalia or edibles.)

However, legislators, with the governor’s approval, have extended that date to July 2018. The reason: we need more time.

The new deadline puts Massachusetts slightly behind schedule compared to Colorado, which legalized marijuana in Nov. 2012 and opened more than 37 stores across the state 13 months later. But Massachusetts will not be the first state to face a delay. Washington also pushed back opening day from spring to July 8, 2014 after issuing licenses to 25 outlets.

The extra time proved to be necessary.

“People wanted marijuana shops open, but [we] had to create a system that didn’t exist,” said Brian Smith, spokesman for Washington’s Liquor and Cannabis Board. “I can’t tell you how difficult it is to implement something that’s illegal at the federal level.”

According to Smith, the number of marijuana shops in Washington is capped at 556, to fit the adult population and consumption habits of particular areas. Colorado currently has 481 retail shops.

Jim Borghesani, spokesman for the state’s Yes on 4 campaign to legalize marijuana, said the number of dispensaries in Massachusetts is capped at 75 stores for the first year, but that ultimately, the newly formed Cannabis Control Commission would have the final say on that number.

Source: Current Status of All Registered Marijuana Dispensaries

But not everyone is disappointed about Massachusetts’s delay. A number of towns in Massachusetts are considering a temporary ban on marijuana shops in their communities, including Brookline, Hull, Chicopee, and Hopkinton. If approved, they would join cities like Westborough and Springfield who chose to opt out of retail shops.

This, however, is not the case for Amherst. Almost 75 percent of voters voted in favor of the ballot measure, and four medical marijuana dispensaries have already applied for permits here.

Geoff Kravitz, Amherst’s economic development director, said there’s no tax on medical marijuana so those dispensaries would not generate money for the town. But the law does allow for medical dispensaries to later convert to recreational ones.

“There’s potential for them to be recreational, but as of now, they’re solely medical,” Kravitz said. “The town doesn’t oppose recreational to be open in town, but we want to do it in a thoughtful manner.”

Kravitz has been playing with some numbers. When a per capita analysis of revenue of the total number of sales in Colorado, Washington, and Oregon is applied to the population of Amherst, total sales look anywhere between $2.5–6 million over the course of a year.

“And we’re currently allowed up to a 2 percent local option tax, which means that the town would get $50,000 to 115,000, but I didn’t estimate how much could come from neighboring communities or neighboring states, so that’s just sort of base numbers,” Kravitz said.

There’s no timeline for when residents will see Amherst’s first dispensary; the town is still negotiating host community agreements. But the Zoning Board of Appeals thinks it could be difficult for a third medical dispensary to demonstrate an additional need in Amherst after the first two dispensaries are approved. That’s certainly not a cap, but it’s something to keep in mind.

What about home growth?

Massachusetts will allow individuals over the age of 21 to possess up to six marijuana plants for personal use. For households with more than one adult, that number increases to 12.

Amendment 64 allows adult individuals to possess six plants in Colorado. When marijuana was originally legalized in Washington state, it was prohibited for residents to grow marijuana plants, but a law has been proposed to allow adults to grow up to six plants each. Alaska, the third state to legalize marijuana, allows residents to possess six plants as well.

The number legalized states have in common is six, six plants. It would not be a surprise to see Massachusetts stay true to the original proposals set in 2016.

However, Massachusetts legislators went on to suggest that that may not be the case. Massachusetts Sen. Jason M. Lewis proposed to reduce the amount of plants per household from 12 to six.

“If you know what you are doing, that’s a very significant amount of marijuana you can grow,” Lewis told WBUR. “That’s more than is allowed in virtually in any other state.”

Looking at examples that was set out by previous states, the original proposal of 12 plants per household may be reduced to six, similar to other states, as long as there are contradicting interpretations of the election night results.

Our prediction

Massachusetts is most likely to set low taxes so buyers will opt to pick up from dispensaries rather than unlicensed dealers. An eighth of a pound of marijuana will cost around $30 with a tax rate of $3.60, an amount most people would most likely be willing to pay for convenience and “legality.”

Buyers can purchase from the 75 dispensaries that will be approved to sell in Massachusetts by next November. Amherst will most likely see one medical marijuana dispensary opening within the next year, but most likely no more than two dispensaries.

If Massachusetts legislators are smart, they’ll also reduce the number of plants per household from 12 to six, since clearly, policy makers had no idea how much marijuana 12 plants could really produce, way more than any household could consume for themselves recreationally and medically.

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