POT A BUDGET BALANCER?

Disagreement on Proposition 19's Revenue Potential

If voters in November pass Proposition 19 to legalize marijuana,
Californians will be inhaling a new tax and regulatory environment as
well. Voters are weighing it closely: A Reuters/Ipsos poll taken in
late June found that Proposition 19 was opposed by Californians, 50
percent to 48 percent.

A key element of the Regulate, Control and Tax Cannabis Act of 2010 is
taxation, coming at a time when the state has difficulty balancing its
budget every year. The deficit for the still-unpassed budget for
fiscal year 2010-11, which began July 1, is pegged at $19 billion.

California NORML, a pro-legalization group, estimates that
legalization could bring in from $1.2 billion to $1.4 billion a year
in tax revenue and reduced enforcement costs: "A basic $50 per ounce
(statewide) excise tax would yield about $770 million to $900 million
per year plus another $240 million to $360 million in sales taxes. In
addition, the state would save over $200 million in enforcement costs
for arrests, prosecutions and prisons. Additional benefits would
accrue from increased employment and spinoff industries." The state
Board of Equalization has made similar estimates.

But a recent study by the RAND Drug Policy Research Center called such
numbers into doubt. It found: "The pretax retail price of marijuana
will substantially decline, likely by more than 80 percent. The price
consumers pay will depend heavily on taxes, the regulatory regime
structure, and how taxes and regulations are enforced." It also said
tax revenue could be "dramatically lower or higher than the $1.4
billion estimate."

"I do give RAND a nod for saying that it is impossible to grapple with
legalization, because we have almost no information to work with,"
says Dale Sky Clare; executive chancellor of Oaksterdam University,
which was founded in 2007 to provide training for the cannabis
industry. It has campuses in Los Angeles, Oakland and Sebastopol. But
the RAND study was based on Assembly Bill 2254, which is currently off
the table. The bill, by Assemblyman Tom Ammiano, D-San Francisco,
would have legalized marijuana while imposing a new tax of $50 an
ounce. Proposition 19 only allows local governments to tax marijuana,
not specifying how much.

Clare said Proposition 19 well could prompt a large drop in marijuana
prices, meaning lower tax revenues than anticipated, but that will
likely bring a huge social benefit: "I really look forward to putting
the (illegal) drug cartels out of business." She added that, illegal
pot sellers face few overhead costs, besides avoiding law
enforcement.

Even though the tax revenue might not materialize as projected, the
initiative's other merits are worth fully understanding as the
campaign season moves forward.