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California: Where will $1 billion in cannabis tax revenue be spent?

If you probe why the polls show a majority of California voters supported a statewide effort to legalize recreational marijuana, increased tax revenue inevitably comes up.

UC Irvine student Giovanni Chavez, like many backers of legalized pot, says he’s primarily concerned about personal liberty and studies showing disproportionate prosecution of minorities for drug offenses.

But after watching state and local governments struggle through recurring budget crises, the aspiring political consultant said state-regulated marijuana sales would provide a new and needed stream of tax dollars.

“We could use the extra revenue,” said Chavez, 21. “And the fact that we would be able to interfere with the black market is huge.”

Supporters of legal recreational marijuana use point to Colorado, which legalized cannabis for adults in 2012. There, taxes and fees on weed are helping to build schools, repair roads and stabilize city budgets.

But critics of Proposition 64, California’s legalization initiative, point out tax revenue from legal weed would be dispersed much differently here.

Letitia Pepper, a Riverside attorney who uses medical marijuana to treat multiple sclerosis but is a vocal opponent of the measure, noted none of it would be dedicated to the general operations of local governments or schools.

Proponents acknowledge California’s measure includes key differences in how pot funds could be used. But they add that local governments and students still can benefit from the measure.

An estimated $1 billion in new tax revenue will be directed toward specific new or expanded programs such as drug-use prevention and treatment, helping at-risk youth, law enforcement, environmental clean-up and research.

Jason Kinney, spokesman for the Yes on 64 campaign, said the restrictions on public use of the new tax monies was intentional. If public agencies were allowed to balance their general spending budgets with marijuana taxes, he said, it could create an incentive for them to encourage a bigger marijuana industry.

“The state of California shouldn’t be forced to rely on increased marijuana usage to address future K-12 education, infrastructure and other ongoing budget obligations,” he said.

Instead, Diane Goldstein of North Tustin — a retired police officer who campaigned for Proposition 64 — argued that tax revenue from the measure will be wisely used to offset some financial and social harms of the failed war on drugs via increased investment in education, research and treatment.

REVENUE PREDICTIONS

Right now, hundreds of pot businesses operating in California — some with local permits and many without — are paying state sales tax of close to 8 percent.

In 2015, the state took in $58 million in sales tax revenue from some 974 registered dispensaries, including nearly 400 in Los Angeles County and 70 to 80 each in Orange, Riverside and San Bernardino counties, according to Board of Equalization data.

That revenue is on track to nearly double this year.

Under Proposition 64, all marijuana sales will be taxed an additional 15 percent starting Jan. 1, 2018, on top of levies on regulated growers of $9.25 per ounce for dry flowers or $2.75 per ounce for leaves. Medical cannabis patients will be exempt from the state sales tax.

The independent Legislative Analyst’s Office predicts Proposition 64 state tax revenues will total from the high hundreds of millions of dollars to more than $1 billion each year.

That’s less than 1 percent of the state’s annual budget, or about what California brings in annually now from taxes on tobacco products.

Keith Humphreys, a Stanford University professor who served on a state commission that studied approaches for legalizing marijuana, summed up the financial impact of Proposition 64 this way: “It’s not going to make us if we do, and it’s not going to break us if we don’t.”

Tax revenue from legalized weed will first be used to cover “all reasonable costs” incurred by the state to administer and enforce the recreational cannabis regulations, according to the ballot measure.

The Department of Consumer Affairs, which will oversee the new marijuana marketplace, doesn’t have an estimate yet of those administrative costs, according to spokeswoman Veronica Harms.

The much smaller states of Oregon and Washington spend about $6 million and $8 million a year, respectively, on their medical and recreational programs.

Colorado, which has the oldest and most robust recreational marijuana market in the nation, is budgeted to spend $16.3 million regulating legal marijuana this fiscal year, according to Robert Goulding, spokesman for the Colorado Department of Revenue.

The program “pays it own way,” Goulding noted, with industry taxes, licenses and fees covering administrative costs while helping fund such things as school construction, youth education programs and poison control centers.

Still, Proposition 64 opponents, including Orange County Sheriff Sandra Hutchens, say they’re concerned that tax revenue from legal marijuana sales won’t cover harder-to-quantify effects on public safety and health issues.

LOCAL BENEFITS

One statewide Colorado levy on pot provides cities with money to use as they choose. That allowed Denver to add $29 million to its general fund budget in 2015, the Denver Post reports.

While Proposition 64 doesn’t provide new, dedicated revenue directly to cities and counties, proponents say there are still ways local governments can benefit from the measure.

California cities that permit recreational marijuana businesses can increase income from sales taxes.

There also will be opportunities for governments, schools, public safety agencies and nonprofits in cities that welcome the cannabis industry to compete for hundreds of millions a year in grants that will fund substance abuse programs, offset enforcement costs and more.

Opponents of legalized pot argue all law enforcement agencies should be eligible for such grants, because the ballot measure will permit cultivation and personal consumption of marijuana at residences across the state.

“They’re still going to have to deal with the problems of home grows and use, but there’s no money available to them,” said Andrew Acosta, spokesman for the No on 64 campaign.

Kinney called such criticisms “disingenuous.” He pointed to a Legislative Analyst’s Office estimate that the state will save tens of millions of dollars each year in criminal justice costs if marijuana is legal.

The measure also says cities and counties can ask voters to approve extra local taxes on cannabis.

At least 18 California cities have already approved such levies on medical marijuana shops and farms. Among those is Santa Ana, which expects to collect $1.5 million in pot dispensary fees and taxes this year.

POT TAX BREAKDOWN

After covering administrative costs, here are some uses for the remaining tax revenue:

• $10 million annually for 11 years for public universities in California to evaluate the effect of legalization and recommend policy changes, if needed. Research will cover topics such as public health, public safety and prices.

• $3 million annually for five years to the CHP to develop protocols for determining when drivers are impaired by marijuana, with no good test available now.

• $10 million, increasing to $50 million annually by 2022, for grants to local health departments and nonprofits that support addiction treatment, job placement, mental health treatment and other services for communities such as Compton and Oakland that have been hard-hit by previous drug policies.

• $2 million annually to the UC San Diego Center for Medical Cannabis Research to study marijuana as medicine.

The remaining revenue will be divvied up to include:

• 60 percent to prevent young people from abusing substances by offering grants to schools and county health programs, funding treatment programs, helping at-risk youth and more. Estimated at $450 million or more a year.

• 20 percent to help state environmental agencies restore waterways affected by cannabis cultivation and protect public lands from being used for marijuana activities. Projected to be upwards of $150 million annually.

• 20 percent to the CHP to train officers for detecting DUIs and to offer grants to local law enforcement, fire protection or public health programs in regions where cultivation and sales are allowed. Expected to be some $150 million or more each year.

Starting in 2028, legislators could funnel revenue to other programs. But they could never reduce the dollar amount going to youth programs, environmental agencies or law enforcement.


This article was first published at DailyNews.com.