Monday, July 23, 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.[*]  

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

$5/gram 
$1.25

2nd Sale: Processor à Retailer

$10/gram
$2.50

3rd Sale: Retailer à Consumer

$15/gram
$3.75
$1.78
Total Tax

$7.50
$1.78

Total State Tax = $9.28.  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.

5 comments:

Jared Allaway said...

Thank you for posting this! :)

Brian G said...

If the tax scheme was so simple, such a tax would not be prohibitive in its effect on market costs. The issue here is that this three-stage example is overly simplified. One only need to look at tobacco to see how many stages of handling it goes through from farm to consumer.

Tricia Smith said...

that is 5.00 under street price not bad! It will not hit the books too many greedy people want prohibition to last so they can charge 15-20 a gram. Five states of the 13 have their shit on the ballots I hope all five states pass the GOOBERMENT won't know who to sue first!!!! or they will finally give up and do away with prohibition and give into the WILL OF THE PEOPLE!!!!!

KEB said...

Unfortunately, Ms. Smith's attitude is that of many recreational users. Throw the medical patients under the bus so that recreational users can have legalized pot. I am firmly against cannabis prohibition. However, if I502 passes we will not have any sort of legalized licensing scheme for years, if ever, and in the meantime we are stuck with I502s draconian DUI provision, "sin" tax for medical patients, and more confusion for law enforcement and local jurisdictions. What price are you willing to pay to send a message, that will likely not ever be heard?

Rachelle Daley-Turner said...

I'm voting NO!on I-502