Extras on Excise: Start Sales Sooner or Raise the Rates? Two States' Approaches to Using Recreational Marijuana to Raise Revenue


Marijuana Leaf

On Nov. 8, 2016, voters in Massachusetts and Nevada elected to legalize the recreational use of marijuana for adults aged 21 and over. However, even though voters in both states chose to legalize marijuana on the same day, the actions taken by each state to implement their recreational marijuana programs have varied dramatically over the following nine months.

In Nevada, voters passed Question 2, which was designed to implement recreational sales in the state beginning Jan. 1, 2018; nevertheless, Nevada’s Department of Taxation moved quickly to pass temporary regulations—and subsequent emergency regulations—allowing Nevada’s recreational market to open six months early, on July 1, 2017.

The Department’s spokesperson, Stephanie Klapstein, explained to the Las Vegas Sun that Nevada hopes to benefit from additional tax revenue—generated from a 15 percent excise tax on wholesale sales of recreational marijuana—in addition to hopefully identifying potential issues before the state more fully establishes the industry on Jan. 1, 2018.

In Massachusetts, the recreational marijuana timeline is moving in the opposite direction.

Massachusetts voters approved Question 4, which established that recreational sales would begin in the state on Jan. 1, 2018. However, on Dec. 30, 2016, Gov. Charlie Baker (R) signed S.B. 2524, which delayed the licensing of marijuana establishments (including marijuana cultivators, marijuana testing facilities, marijuana product manufacturers, marijuana retailers, and any other type of licensed marijuana-related businesses) until July 1, 2018.

In addition to delaying the start date for the recreational market in the state, the Massachusetts legislature also made major changes to the tax rate on recreational marijuana when compared to the voter initiative from November.

While Question 4 imposed a 3.75 percent excise tax on retail sales of recreational marijuana, on July 28, 2017, Baker signed H.B. 3818, which increased the statewide excise tax to 10.75 percent. The bill additionally amended Mass. Gen. L. ch. 64N, § 3, by increasing the local sales tax option for municipalities from two percent to three percent.

When combined with Massachusetts’ 6.25 percent sales tax, the maximum tax rate on recreational marijuana moved from 12 percent, as passed by Question 4, to 20 percent, as amended by H.B. 3818.

As reported by U.S. News & World Report, the new rate was a compromise between the House, which wanted to increase the overall tax rate to 28 percent, and the Senate, which wanted to retain the 12 percent total rate established in Question 4.

In addition to amending recreational marijuana’s tax rates, H.B. 3818 also amended Mass. Gen. L. ch. 94G, § 3, regarding local control over marijuana establishments.

Question 4 initially mandated that any locality wishing to ban or limit the number of marijuana establishments within the locality’s limits must obtain voter approval of the proposed ordinance or bylaw; H.B. 3818, § 23, amends this language to give more authority to localities’ governing boards.

Specifically, the bill allows any city or town in which the majority of voters voted against Question 4 on the November ballot to completely ban or limit marijuana establishments without voter approval (though the bill retains voter approval for limitations or prohibitions in any cities or towns in which a majority of voters voted in favor of Question 4).

Lawmakers’ reactions to this shift in decision-making power have greatly varied. The Boston Globe reports that state Sen. Bruce E. Tarr (R) stated the amendment could set a “very dangerous precedent,” in addition to inviting litigation, while state Sen. William N. Brownsberger (D) called legal concerns over the amendments “nonsense.”

Regardless of the potential future of H.B. 3818, one certainty is that the landscape of marijuana legality, taxation, and licensing is ever-changing. Be sure to follow Bloomberg BNA’s products to stay abreast of news and updates surrounding the industry.

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Which state do you think is taking the better approach to recreational marijuana?

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