Trenton stands to be disappointed by weed tax revenues because #economics. | Rooney

By Matt Rooney

Today is Black Friday, Save Jerseyans, but N.J. Democrats are much more excited for ‘Green Monday’ (Nov. 26th) when both the Assembly and Senate’s respective committees plan to advance legislation to legalize recreational marijuana use throughout the Garden State as first reported by Save Jersey.

“Green” not because of the weed but the tax dollars they hope will follow. Trenton-types are drooling over $1 billion in theoretical annual revenues. They hope to accomplish it with a 12 percent sales tax baked into the new legislation (pardon the pun) along with an option 2 percent excise tax for local governments. A battle over $$$ is reportedly what’s been holding it up and still could if Sweeney and Murphy can’t meet in the middle (Sweeney balked at Murphy’s desired 25 percent rate). 


Hold up.

Trenton has a long history (on both sides of the aisle) of latching onto unrealistic revenue estimates. The gas tax hike trap is a recent example. The challenge is even greater when you’re dealing with a volatile, new revenue stream like weed. Almost five years after Colorado’s legalization? Annual revenues have JUST hit $200 million and appear to be slowing, a far cry from the $300 million pro-legalization advocates are suggesting we should expect practically overnight here in New Jersey.

The real challenge for Trenton: economics, something most Democrats have trouble understanding, and New Jersey’s own crop are certainly no exception to the rule. Ask our friends in Colorado, another state that like our own is trending “blue” at a rapid pace. Their pot market is in trouble; the Colorado Department of Revenue’s Marijuana Enforcement Division reports that marijuana prices dropped by a third over the past 12 months.

From The Denver Post:

“Marijuana prices are collapsing in Colorado and in other legalization states (e.g., Oregon, where the price can go as low as $100 per pound) because a legal business is dramatically cheaper to operate than an illegal one. Because states generally set their marijuana tax rates as a percentage of price, their revenue per sale sinks in direct proportion to the fall in marijuana prices. Ironically, in a bid for more tax revenue per marijuana sale, Colorado increased its marijuana tax rate from 10 percent to 15 percent last year, only to see the anticipated added tax revenue wiped out by falling prices in a year’s time.

And this trend could soon accelerate as prices continue to deflate: 

States may have failed to anticipate this problem because of misleading predictions about the effects of legalization. Pro-legalization economist Jeffrey Miron projected in 2010 that marijuana prices would only fall 50 percent when prohibition was repealed, leaving the drug at a price that would yield high tax revenue. That was clearly a rosy scenario.

A starker prediction made by drug policy analyst Jonathan Caulkins looks more prescient every day: He forecast that legalized marijuana will eventually fall in price to the level of other easily grown, legal plants such as wheat and barley, such that a joint might sell for a nickel or even become a complimentary item akin to beer nuts at the bar. If that comes to pass, taxes based on a percentage of price might not even cover the costs of the government’s regulatory system for legal marijuana, meaning that rather than helping states’ bottom line the industry would be an outright drain on the public purse.”

[Emphasis added.]

Like I said… this is all Econ 101 stuff. Our Democrat ruling majority’s members should’ve opted for a less social justice-y course load back in school and none of this would be a surprise!

So here’s my prediction, Save Jerseyans: New Jersey will legalize pot this December (or not too far into 2019, before the anniversary of Murphy’s inauguration), but it will quickly become apparent that the state wasn’t quite ready for what’s coming and, in no time at all, our politicians will be considering HIGHER taxes on weed than the ones contained in the current proposal.

Is any of this an argument against legalization? Not necessarily.

It is yet another reason to take everything Trenton tells you with a grain of salt (or an entire shaker) if blockbuster new revenues for state government happen to be YOUR top reason for supporting legalization of recreational use which, if recent polls are any indication, is quite a few of you? Uh-huh.