Is Colorado’s 20-plus percent tax rate on the sales of marijuana for personal use prompting some users to return to the black market?
It’s a question some have started to ask, since other heavily-taxed substances such as cigarettes have made their way onto the black market in recent years as smokers look to skirt high taxes on tobacco products in states like New York.
In the case of cigarettes, if someone buys 800 cases of cigarettes in Virginia and consumes them in New York, High Times estimates that person could conceivably save about $4 million. In Virginia, cigarettes carry a low tax rate, but each pack of cigarettes sold in New York costs $4.35 in taxes alone.
There’s an additional $1.50 tax for cigarettes sold in New York City, which probably explains why a recent study by the Tax Foundation found that almost 57 percent of cigarettes smoked in the state are illegal.
In Arizona, too, a cigarette tax of about $2 per pack has prompted smokers to travel to states such as Nevada, where the tax is around 80 cents per pack, and New Mexico, where the tax is $1.66 per pack. Cigarettes sold on American Indian reservations are also cheaper.
According to Ashley Sneddon of Travelers Today, “Marijuana from a dispensary will cost you around $400 an ounce, whereas getting marijuana straight from a dealer is somewhere closer to $60-$237 for a home-grow, depending on the quality and where you acquire it.”
An eighth of an ounce of marijuana legally purchased at a licensed dispensary in Colorado costs about $70, compared to $20 or $25 for the same amount of marijuana on the black market.
In Colorado, there is currently a 10 percent state tax, a 2.9 percent state sales tax and sometimes a 15 percent wholesale tax on marijuana. The money goes toward building schools and funding marijuana enforcement laws, as per the legalization legislation, but some marijuana users say it’s just too high.
As Jacob Sullum pointed out when the first legal personal use sales began in January, the high taxes were imposed on marijuana sales in order to fund regulation efforts that would keep the federal government from raiding the state. But he also said that as more and more users grow tired of paying $90 in taxes alone for an ounce of marijuana, they will return to the black market.
However, black market drug dealers aren’t exactly posting high profits. Thanks to legalized personal use in Colorado, one drug dealer told Travelers Today that he could make almost as much money now flipping burgers at McDonalds as he could selling marijuana.
“Once you could pull in $60,000 a year, but these days it’s more like a minimum-wage job,” the dealer said.
But it’s not just the high taxes that have kept some users from returning to buy their marijuana supply from the black market. Some users have expressed concern that registering as a marijuana user may result in the Drug Enforcement Administration coming after them.
Adding to the list of reasons why users continue to turn to the black market is that lines are long at many shops, which must close by 7 p.m., and many shops are running out of marijuana.
Whether the state will decide to lessen the tax rate on marijuana in order to keep the DEA from raiding the state’s pot shops is a debate lawmakers and legalization activists will need to have, as no one wants to go back into the “cannabis closet” days of prohibition.