Nevada's Half-Hearted Marijuana Legalization Guarantees A Healthy Black Market

[Ron Strider]

Are Nevada officials actually trying to preserve the state's marijuana black market?

In the first four days that Nevada residents could legally purchase marijuana for recreational uses, state retailers made $3 million in sales—and lined the state government's coffers to the tune of a cool $500,000 in tax revenues, according to the Las Vegas Sun.

Actually, that can't be right. Allowing for rounding, that only accounts for about 15 percent of sales—which is the state excise tax on the first wholesale sale. Nevada also imposes a 10 percent retail excise tax on recreational sales, and then adds in sales tax, which varies from just under 7 percent to over 8 percent according to where you are. Let's call the total tax take about 32 percent of legal recreational marijuana sales. That's a really high tax rate to impose on any industry—especially one that was thriving (albeit illegally) and entirely untaxed less than two weeks ago.

The confusion is understandable, given that Nevadans voted to legalize pot just last November and state officials dragged their feet on complying until the last minute. The market for marijuana is currently operating under emergency regulations issued July 6 after booze distributors went to court to protect a temporary, legally guaranteed monopoly on recreational marijuana sales guaranteed them by last year's ballot measure. In June they won an injunction prevent the state from authorizing competing licensees and the whole process threatened to founder.

"State officials are clearly rushing into this hoping no one will notice how sloppy implementation is actually going," Rafael Lemaitre, a former top staffer in the Obama administration's Office of National Drug Control Policy, told the Sun.

That the state might need to make room for more retailers to hang out their shingles is evident from reports of hours-long lines for people to make legal purchases.

Undoubtedly, many people were willing to endure long lines because of the novelty of legal marijuana sales and the festive nature—fireworks!—of the holiday weekend launch. But novelty wears off. You have to assume that Nevada pot connoisseurs might soon tire of long waits when they could certainly get quick delivery from whichever underground entrepreneurs had their business before July 1—especially when calling old dealers could also bypass that high tax.

Nevada isn't exactly inventing the wheel here, either. Other states have legalized marijuana in the past, and their experiences offer lessons to anybody willing to learn.

"Colorado and Washington both initially levied tax rates of over 30 percent and struggled to reduce the size of the black market," the Tax Foundation's Lindsey Lassiter and Matthew Stadnicki recently noted. "Nevada could face similar troubles stamping out the black market."

To keep people from reverting back to their reliable and responsive black market dealers, Lassiter and Stadnicki recommend that the state focus on a lower, relatively easily implemented retail sales taxes. Reduced burden and simplicity would encourage compliance. So, they say, would reducing the tax differential between the legal recreational market and the legal medical marijuana market, so that supply doesn't get diverted from the one to the other. If Nevada lawmakers don't make some changes, well…

Nine months after Colorado legalized recreational sales, PBS reported that black market marijuana remained far cheaper than the legal stuff, and stifling red tape made it difficult and expensive to open an aboveground business. Little has changed since then, except that the state has actually tightened regulations and recently hiked the marijuana sales tax by 50 percent.

"It seems kind of odd that at the same time they're trying to do something about the black and gray markets they're going to ratchet up the taxes and drive more people to the black and gray markets," former state Sen. Pat Steadman (D-Denver) commented earlier this year.

Washington state also tried its luck with sort-of legalization of marijuana that bound the market in restrictions and burdened it with high vice taxes (37 percent excise tax). Lawmakers and regulators channeled their inner commissars and tried to create a centrally planned market with caps on production and sales outlets. Lower prices and easier access—including home delivery—were two big competitive edges possessed by illegal dealers that led Seattle Weekly to conclude last September that "four years after legal weed, Seattle's black market still thrives."

State lawmakers recently voted down legalization of delivery services—a change that would have eliminated one major advantage possessed by underground vendors.

So…What's Nevada's excuse? Having seen states elsewhere enter into legalization of marijuana half-heartedly, and preserve a healthy black market as a result, it's impossible for lawmakers to claim they can't predict the outcome of their efforts to nominally legalize a product while retaining some of the worst aspects of prohibition via intrusive taxes and rules.

Then again, officials in Colorado and Washington have been living with the results of their bad choices, and seem unwilling to undo the damage. If you're incapable of learning from your own experiences, it's unlikely that you'll suddenly see lessons elsewhere.

Whatever the motivations of officials in Nevada and their counterparts in other states, you can anticipate that "legalizing" marijuana while burdening it with tight rules and high taxes will have legal dealers competing with underground vendors for a long time to come.

News Moderator: Ron Strider 420 MAGAZINE ®
Full Article: Nevada’s Half-Hearted Marijuana Legalization Guarantees a Healthy Black Market - Reason.com
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[TorturedSoul]

Let's call the total tax take about 32 percent of legal recreational marijuana sales. That's a really high tax rate to impose on any industry–especially one that was thriving (albeit illegally) and entirely untaxed less than two weeks ago.

Ever buy a gallon of gasoline? :rolleyes3

Yes, that's a high rate of taxation.

On the other hand, consider:

(Customer)"<COUGH> <COUGH> Hey, this is some really great bud. But why do you have to charge me $100 for a quarter-ounce? I just read in 5T0И3Я magazine that it only cost like $27 to $52 per ounce to grow this stuff!"

(Dealer)"Well, you see, it's illegal to grow this stuff. They put people in jail every year for it. Here I am, trying to feed my family and add to my collection of coffee mugs shaped like animal heads, and every day I have to wonder if The Man is going to kick down my door, shoot my dog, and drag me out in handcuffs in front of my wife and kids, right? So I charge what I do because of my personal risk."

(Customer)"Oh, okay, that makes sense. Here's my money."

Right? That's how it goes when you're buying illegal products. Now, in a few states like Nevada, cannabis has become a legal industry. GREAT! So... Are people selling cannabis there for less than $100/ounce (pre-tax)? LMFAO, no. Greedy b@stards...

Gripe about the state gouging people if you want, but the state is just one entity out of many that's got their hand in your pocket on this one, folks. And if you are buying from someone that has a big warehouse grow instead of a closet- or bedroom-sized one, you can bet that it costs even less to produce.

I hate to call it a seller's market when most of the people who buy cannabis retail have the ability to grow their own. If you don't like the prices, stop buying it (FFS!). A product like this ought to be {cost to produce} + 12% to 20% markup for profit. And, yes, plus tax.

Speaking of that tax, yes, I'd be a little angry, too. But if I complained and the Governor, himself, laughed in my face and told me to look at how much every other hand that touched the baggie profited from it, I'd certainly understand. Besides... I just looked at a report from 2013, titled "Best- and worst-run states: Survey of all 50." Let's see, Nevada...

46. Nevada

> Debt per capita: $1,548 (6th-lowest)
> Budget deficit: 37.0% (2nd-largest)
> Unemployment: 11.1% (the highest)
> Median household income: $49,760 (24th-lowest)
> Pct. below poverty line: 16.4% (19th-highest)

Nevada was arguably the hardest hit state during the collapse of the housing bubble. Home values fell by more than 50% between 2007 and 2012, the largest decline in the country. And years after it started, Nevada is still reeling from the housing crisis. The state had one of the highest foreclosure rates in the country last year, at one in every 37 homes. The 2012 unemployment rate of 11.1% was the worst in the country. The state's violent crime rate of 607.6 incidents for every 100,000 residents was worse than all but one other state. The state also suffers from low health insurance coverage. More than 22% of the population was without health coverage in 2012, worse than any other state except for Texas. This rate may improve in 2013. The state opted to provide its own health insurance exchange site rather than rely on the widely criticized national exchange site, healthcare.gov. According to the Las Vegas Sun, the state's health care exchange site has been functioning relatively smoothly and hasn't received the same kind of criticism as the national site.

A big budget deficit - along with HIGH unemployment, low average household income, and a large percentage of people below the poverty line is not a good combination. It looks like the residents aren't earning much (across-the-board average), so income from taxing individuals/families is going to be low. High unemployment in a state kind of infers that there isn't a huge amount of healthy businesses that the state can collect taxes from. And with 16.4% of the residents of Nevada living below the poverty line, it's obvious that a lot of people are on the dole there. These people aren't paying much (if any) taxes, and they're being supported by everyone else's taxes. Et cetera.

If I was the state's governor, I'd be looking for reliable sources of income, too.

On a personal level, I would very much prefer to see things like alcohol, tobacco... and recreational cannabis get taxed instead of things like, IDK, FOOD. We can live without the first three. But food seems pretty necessary to me. Along with clothes, shelter, and the like. If I'm just barely able to feed myself, I might stretch a pack of cigarettes to last the whole week. People with more strength and hope might quit altogether. Ya can't quit eating, believe me I've tried, lol.

Note that I typed recreational cannabis. I am not in favor of taxing anything that is used as medicine, not even an aspirin. But I've always been in favor of the so-called "sin taxes." And that's coming from someone who smokes cigarettes, enjoys cannabis for more than just its medicinal benefits and, yes, used to try to single-handily empty the local liquor store. I'd rather pay tax on stuff like that then hear even one more story about some old-fart couple that go through life malnourished because they deal with the sales tax on food (for example)... by buying even less of it.

Aside from all of that, my general though on tax... is that it should be a lot higher for ALL of us, all around the country. Why? Just counting the portion of OUR debt that is referred to as the "federal" debt, the amount in 2014 was $17,800,000,000,000. Yep, almost 18 trillion dollars (and, BtW, foreign entities owned just over one third of that amount). Around that time, there were approximately 320 million people living in this country. Hmm... So if every man, woman, and child were able to write a check for that debt, we'd all be writing a check for $55,625. Each. And. Every. One. Of. Us. And, again, that'd just be to pay off the federal debt - not to pay for services such as maintaining the country's infrastructure, providing for defense, paying for food and shelter (and, as I've read, fookin' cell phones, WtF?!?) for the poor, et cetera. If you assume that your kids cannot reasonably be expected to cough up over $55K, then what does that make the debt load for every adult citizen?

And government costs money, each and every year. Admittedly, no small part of the reason that it costs so much money is because of wastage, corruption, pork barrel spending (see: Corruption!), and a generally bloated & inefficient bureaucracy. But, hey, lol, if taxes get raised high enough, I have a feeling that We the Sheeple... will get off our lazy @sses and do something about that. So higher taxes are, in the main, a "win/win" situation. Lowering taxes don't do anything other than get the politicians (that are happy to take advantage of people's ignorance and stupidity) (re)elected. Well, and send our country and everything in it even farther down the crapper.[/RANT]

Tax that chit until it costs $600 per quarter-ounce, lofl. We'll get to see a lot more grow journals. Okay, that's me being a bit of a smart-@ss. However... If you don't want to pay the cost of retail cannabis, grow your own. I think I might have read - once or twice - that it's so easy even a ~TS~ can do it . I have a feeling that if people stop paying $100/¼-ounce (and even more?), that the sellers will drop their prices. Unless they're just in the industry because they want to get rich quick. And, well, f*ck those people.