Public Finance of Legal Marijuana The Colorado Experience Alice Wheet Assistant Director for Budget, Office of State Planning and Budgeting April 19, 2018 New Mexico Association of Counties
A Brief History Medical Marijuana Legalized 2000 Citizen s initiative; Approved by voters as a constitutional amendment (A-20). Medical Marijuana Regulated and Commercialized 2010 Medical Marijuana Code enacted. Licenses businesses and creates new regulations. Retail Marijuana Legalized 2012 Citizen s initiative; Approved by voters as a constitutional amendment (A-64). Called for regulation. 2013 Retail Marijuana Taxes Authorized Referred measure (Proposition AA) approved by voters, adding an excise (wholesale) tax and a special sales tax. Retail marijuana code enacted. 2014 Retail Marijuana Sales Begin Licenses were first limited to existing medical dispensaries. New businesses could seek licensure in July, starting sales in October.
Where do the taxes come from? Medical and Retail Marijuana State Tax Structures Retail Marijuana Cultivation Facility 15% Excise Tax* Retail Marijuana Store 15% Special Sales Tax (as of July 1, 2017)* Retail Consumer Medical Marijuana Cultivation /Caregiver /Home Grow Medical Marijuana Dispensary 2.9% Sales Tax Medical Consumer *Additional varied local excise and sales taxes
Can local governments tax marijuana? County and City Special Taxes Counties and statutory cities given explicit authority to collect voter approved special taxes on retail marijuana. A special sales tax is in addition to any county or city general sales tax or special district taxes. Two counties have approved special sales taxes as of 2017: Adams County (3%) and Pueblo County (3.5%) 11 counties had approved special excise taxes Several cities collect special taxes on retail marijuana A county tax applies to retail marijuana sales in a county if there are no municipal taxes. If there are municipal taxes, county taxes can only be collected if the county and municipality enter into an intergovernmental agreement.
How much does Colorado collect? Marijuana Tax Revenue 300,000,000 250,000,000 200,000,000 150,000,000 100,000,000 Retail 2.9%-0%* Retail 10%-15%* Retail Excise 15% Medical 2.9% 50,000,000 *Tax rate change effective July 1, 2017 0 FY 2014-15 Actual FY 2015-16 Actual FY 2016-17 Actual FY 2017-18 Projection FY 2018-19 Projection
How much does Colorado collect? Marijuana Tax Revenue FY 2014-15 FY 2015-16 FY 2016-17 FY 2017-18 FY 2018-19 Revenue Source Actual Actual Actual Projection Projection Retail Excise 15% $24.0 $42.6 $71.4 $72.4 $73.4 Retail 10%-15%* $41.9 $67.1 $98.4 $170.0 $193.2 Retail 2.9%* $11.8 $19.4 $28.1 $4.8 $0.7 Medical 2.9% $10.4 $12.2 $12.4 $11.4 $11.2 Total all Tax Revenue $88.1 $141.3 $210.4 $258.6 $278.5 In millions *Tax rate change effective July 1, 2017
Business and Licensing Fees 1800 Total Marijuana Business Licenses Fee Revenue FY 2014-15 FY 2015-16 FY 2016-17 FY 2017-8 Medical Fees 9,427,005 10,153,825 7,735,241 7,904,454 1600 1400 1200 1000 940 1,364 1,458 994 1,551 1,544 1,468 1,215 Retail Fees 4,545,830 5,047,507 5,206,399 5,734,214 800 600 542 Total 13,972,835 15,201,332 12,941,640 13,638,668 400 200 221 0 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 Around 30 different licenses and 75 different fee types Total Medical Total Retail
FY 2016-17 Total State Budget $210.8 million 0.78% Marijuana Tax Revenue Total State Budget $27.1 billion (All fund sources)
What do we spend it on? 15% Excise Tax on Retail Marijuana $72.4 M 15% Special Sales Tax on Retail Marijuana $170.0 M 2.9 % Sales Tax on Medical Marijuana $4.8 M first $40 million anything over $40 million B.E.S.T. Public School Capital Construction $40.0 M 10% Local Share $17.0 M 90% State Share $153.0 M General Fund Of the 90% State share, 28.15% minus $30 million is retained in the General Fund in FY 2017-18; 15.56% is retained in FY2018-19 and thereafter $13.1 M 71.85% of the 90% State Share $109.9 M Public School Permanent Fund $32.4 M Public School Fund (K-12 Education) $30.0 M $30 million in FY 2017-18 12.59% of the 90% State Share in FY 2018-19 and thereafter Marijuana Tax Cash Fund $114.7 M
What do we spend it on? Marijuana-Related Programming Overarching Goals for Marijuana Tax Cash Fund Regulation & Enforcement Marijuana Tax Cash Fund (MTCF) Youth Prevention Statewide Coordination Public Health and Safety FY 2016-17: $124.2 million FY 2017-18: $114.7 million Behavioral Health Treatment
Marijuana Tax Cash Fund F Y 2017-18 Budget By State Department Public Safety 1,550,794 Regulatory Agencies 304,225 Revenue 1,591,805 Transportation 950,000 Agriculture 2,209,783 Public Health and Environment 20,730,746 Local Affairs 22,477,965 Education 20,419,330 Governor's Offices, including OIT 1,726,647 Health Care Policy and Financing 750,000 Higher Education 3,300,000 Human Services 38,742,488 Law (Attorney General) 1,036,766 Labor and Employment 165,296 Judicial Branch 1,571,728 Total: $117,527,573
Marijuana Excise Tax School Capital Construction 15% Excise Tax on Retail Marijuana first $40 million B.E.S.T. Public School Capital Construction Assistance Fund (12.5% of which is for Charter Schools) Each year, the first $40 million collected from the retail marijuana excise tax goes to the Public School Capital Construction fund to help meet part of an estimated $18 billion dollar need for Colorado s schools. From there, it goes to a program called Building Excellent Schools Today, or BEST. Marijuana revenue is not the only fund source for BEST- in fact, even if every dollar collected from cannabis sales went to BEST, it would still require additional funding to meet the needs of the state s schools. The BEST grant program prioritizes health, safety and security issues such as asbestos removal, new roofs, building code violations, and poor indoor air quality. BEST grants are competitive, awarded annually and in most cases must be supplemented with local matching funds. *Dedicated in the Constitution voters approved in 2013 with Proposition AA
Marijuana Excise Tax Public School Fund Anything more than $40 million collected in excise tax each year is deposited in the Public School Permanent Fund. This fund is established in the constitution. The interest earned on the revenue in this fund is deposited into the Public School Fund, which can be used for the maintenance of schools. It supports the state share of districts total program funding. anything over $40 million In FY 2015-16, about $2.3 million was added to the Public School Permanent fund from marijuana excise tax. For FY 2016-17, it is expected to be about $32 million. In FY 2015-16, the interest deposited into the Public School Fund (from all sources not just marijuana) provided a total of $56.7 million to schools. Public School Permanent Fund *Authorized in statute (state law)
Sources of Funding for K-12 School Finance In FY 2016-17, total funding for school finance was $6.4 billion, with the state contribution at $4.1 billion, or 65 percent of the total, and the local contribution at $2.3 billion, or 35 percent of the total. General Fund makes up the majority of the state contribution. In the same year, it was $3.6 billion, or 87.3% of the state contribution. The State Education Fund contributed $467 million, or 11.3%, and the Public School Fund contributed $56.7 million, or 1.4% of the state contribution. When you look at the total budget for schools, marijuana excise taxes contribute only a very small portion. Local 35% Local Contribution General Fund Public School Fund State Education Fund State 65%
Marijuana Sales Tax 15% Special Sales Tax on Retail Marijuana 2.9 % Sales Tax on Medical Marijuana 10% Local Share 90% State Share Public School Fund (K-12 Education) $30 million in FY 2017-18 12.59% of the 90% State Share in following years General Fund Of the 90% State share, 28.15% minus $30 million is retained in the General Fund in FY 2017-18; 15.56% is retained in FY2018-19 and thereafter 71.85% of the 90% State Share Marijuana Tax Cash Fund (MTCF)
What do we spend it on? Regulation and Enforcement Department of Revenue Marijuana Enforcement Division, $8.9 million and 87.6 FTE (separate funding source from fees) Taxation Group, $1.2 million Department of Agriculture $2.2 million and 12.0 FTE Hemp and Seed Certification Pesticide Control Department of Local Affairs $6 million in Grants to Law Enforcement Agencies for Unauthorized Gray Market Grows Regulatory Agencies $360,000 for enforcement of Medical Board complaints Statewide Coordination Governor s Office Approx. $100,000 and 2.0 FTE
What do we spend it on? Public Health and Safety Marijuana Public Education Campaign ($4.6 million) Local Public Health Agencies ($1.7 million) Marijuana Impaired Driving Campaign ($1 million) Healthy Kids Colorado Survey ($745,000) Epidemiological Surveillance ($300,000) Laboratory Certification ($1.3 million) Poison Control ($60,000) Law Enforcement Training ($1.8 million) Public Safety Intelligence Support ($60,000) Local Government Retail Marijuana Impact Grant Program ($1 million)
What do we spend it on? Youth Prevention School Health Professionals ($12 million) Substance Abuse Prevention Grants for Local Communities ($9 million) School Bullying Prevention Grants ($2 million) Dropout Prevention and Student Reengagement Grants ($2 million) Tony Grampsas Youth Services Program ($2.4 million) Juvenile Diversion Programs ($400,000 for early diversion in Judicial Districts and $2 million for deeper criminal justice involvement)
What do we spend it on? Behavioral Health/Substance Abuse Treatment Offender Services/Jail-based treatment ($7.5 million) Adult co-occurring disorder treatment ($3 million) Community Substance Use Disorder Treatment ($12 million) Mental Health Crisis Response System ($4 million) Adult Diversion Programs ($5.5 million) Permanent Supportive Housing and Rapid Re-housing ($15.3 million) Screening, Brief Intervention and Referral to Treatment ($750,000) Substance Use Disorder Treatment in State Hospitals ($560,000)
Local Example Denver Effective Tax Rates for Consumers As of July 1, 2017, the retail marijuana tax rate in Denver is 22.15%. The medical marijuana tax rate in Denver is is 7.65% Denver standard sales tax: 3.65% Denver special retail sales tax: 3.5% Colorado state special retail sales tax: 15.0% 22.15%
Denver Marijuana Revenue Sources ($ in millions) $50.00 $45.00 $40.00 Total revenue approx. 3% of General Fund $36.83 million $43.25 million $7.42 $47.09 million $7.42 $35.00 $30.00 $25.00 $20.00 $15.00 $10.00 $5.00 $0.00 $22.16 million $6.45 $5.39 $2.84 $2.27 $5.21 $30.18 million $6.99 $7.98 $4.36 $3.20 $7.65 $7.73 $10.52 $4.13 $4.36 $10.09 $13.43 $3.42 $5.55 $13.43 $15.12 $3.42 $6.01 $15.12 2014 Actuals 2015 Actuals 2016 Actuals 2017 Projected 2018 Projected Special Sales Tax-Retail State Shareback Licensing Fees Standard Sales Tax-Retail Standard Sales Tax-Medical Courtesy of the Budget and Management Office, City and County of Denver
Millions Denver Marijuana Revenue Deferred Maintenance $25 Budgeting of the 3.5% special retail tax and state shareback Opiod Program $20 Affordable Housing $15 Deferred Maintenance Education Enforcement Regulation $10 $5 $- Opiod Program Affordable Housing Affordable Housing Affordable Housing Education Education Education Enforcement Enforcement Enforcement Regulation Regulation Regulation 2016 2017 2018 Courtesy of the Budget and Management Office, City and County of Denver
Contact Information Alice Wheet Governor s Office of State Planning and Budgeting 111 State Capitol Denver, CO 80203 alice.wheet@state.co.us 303-866-2067 www.colorado.gov/ospb
Revenue Forecasting Early Projections Consumption patterns from national surveys (SAMHSA) Visitor consumption allowable purchase and similar Colorado usage Medical patient consumption assumed 25% convert to retail after first year Frequency from outside analysis Forecasted population growth Economic and control variables Average market rate (estimates from Colorado Futures and RAND Corporation analysis of HB 1318)
Revenue Forecasting Market Size and Demand Study Completed in July 2014, will be updated in 2016 Assessed the market through combination of: Survey results State demographical information Related literature Colorado-specific primary source data Joint project of Marijuana Policy Group and University of Colorado to develop in-depth market intelligence on marijuana market pricing, competition, and economic outcomes. Key Findings: Resident consumption patterns Visitor/tourist consumption: 44% in metro area and 90% of mountain communities Medical marijuana caregivers supply a significant portion of marijuana Black market vendors supply the remaining demand. Conversions from medical consumption to retail consumption is relatively low. Demand for retail marijuana is primarily from out-of-state visitors and from consumers who previously purchased from the Colorado black and gray markets.
Revenue Forecasting Average Market Rate As of January 1, 2017 Average Market Rate Pound of Flower Pound of Trim Immature Plant Wet whole Plant Seed $1,816 $505 $10 $209 $2