Tuesday, June 5, 2012

I-502: Tax Revenue at the Expense of Affordable Patient Access

     Supporters of I-502 boast of projected state tax revenues of more than $500 million annually.  During tough economic times, this fiscal boost appears encouraging, but at what cost to medical cannabis patients?
     Patients currently pay sales tax on medical cannabis, despite the fact that “prescribed” medicines, like antibiotics, insulin and oxycodone, are exempt from sales tax.  I-502, unfortunately, goes a step further, and in addition to sales tax, imposes a 25% excise tax (“cannabis tax”) on every transaction involving cannabis.  Thus, tax is imposed on each wholesale purchase and every retail purchase of cannabis. This “pyramiding” of the cannabis tax is unlike sales tax, which is generally imposed only on the final retail transaction.   
So why is this pyramiding of the tax so significant?  I-502 sets up a licensing structure for the production, processing, and sale of cannabis, resulting in potentially three transactions of cannabis from the grower to the patient: (1) grower à processor; (2) processor à retailer; (3) retailer à patient.  For example, assuming a gram of cannabis is priced at $5/gram by growers; $10/gram by processors; and $15/gram at retail, the total cannabis tax paid is $7.50.[*]  

Price per Gram
Cannabis Tax
Sales Tax
1stSale: Producer/Grower to à Processor


2nd Sale: Processor à Retailer


3rd Sale: Retailer à Consumer

Total Tax


Total State Tax = $8.93.  This total does not include other applicable state and local taxes, including business and occupation tax.

      Although I-502 moves in the right direction with regard to the decriminalization of cannabis, its taxing scheme is harmful to patients.  The 25% cannabis tax is ultimately passed on to patients by way of higher prices for medicine.  Washington voters passed laws permitting the medical use of cannabis out of compassion for the sick and disabled.  This taxing scheme flies in the face of that compassion.  At the very least, I-502 should have include tax relief for medical cannabis patients.   An open and honest discussion on the impact of this onerous taxing scheme on medical cannabis patients must join the discussion on the implications of I-502.

[*] Purchase and resale by an independent processor may be excluded, reducing the total cannabis tax paid to the state.

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