Massachusetts could see $50 million windfall from legalizing marijuana

Massachusetts election officials approved four ballot questions for the November ballot this week, including one that would legalize and regulate marijuana in a manner similar to alcohol.

Legalization in Washington and Colorado produced millions in tax revenue for those states, but would it be just as lucrative for the Bay State?

A 118-page report released last March by the Special Senate Committee on Marijuana roughly estimated that the state would collect about $50 million to $60 million in annual marijuana taxes and fees within the first few years of the proposal’s enactment. That ssumes about $500 million in annual, legitimate sales. The report estimates the costs associated with running the new marijuana regulation regime would cost about $20 million to $25 million a year, leaving $25 million to $40 million for the state’s general fund.

But not everyone agrees with that analysis: that figure is much lower than the kinds of revenue seen in Colorado, where the state collected $76 million in marijuana tax and license fees in only its first year of legalization, 2014, and then $135 million in 2015.

The state, with about 80 percent of the population of Massachusetts, saw just under $1 billion in sales of legal marijuana last year, according to the Denver Post.

“We think [the Senate report] is a flawed analysis,” Jim Borghesani, a spokesperson for the Massachusetts Campaign to Regulate Marijuana Like Alcohol group, which supports the ballot initiative. “We just don’t think that the numbers in the Senate report are credible.”

Borghesani points to another report produced by ArcView Market Research released that same month, which projects a $900 million recreational marijuana industry in the state by 2020.

The proposal would impose a 3.75 percent excise tax on retail sales of marijuana on top of the general 6.25 percent sales tax in the state, also allow local governments to tack on an additional 2 percent tax, should they chose. Under those conditions, the number could be twice as much: over $100 million in annual revenue for the state by 2020, just two years after the proposed enactment date of January 2018.

That report only focuses on marijuana sales themselves and not the likely auxiliary economic benefits from related industries, which many proponents believe will be significant, the Boston Globe reported. Such businesses have already reportedly started up in Massachusetts, touting innovations like a cellphone case that makes joints easy to roll on the go and software that can securely track marijuana shipments.

“That report determined by the year 2020 that we’d see at least $100 million in [marijuana tax and fee] revenue, based on almost a billion dollars in sales,” Borghesani said “We think that is much more in line with the actual market than the Senate report.”

State Sen. Jason Lewis, who chairs the special marijuana committee that authored the report, was not available for comment, but his chief of staff Zachary Crowley fielded some questions about his committee’s math.

Lewis opposes Question 4, saying he’d prefer a system similar to how New Hampshire sells liquor — via state-run stores — instead of private retailers motivated by market forces.

“It’s a back-of-the-envelope-type calculation; we’re painting a broad brush,” Crowley said. “But there’s good data behind it.”

Crowley said the report assumed Massachusetts would eventually have a billion dollar market for marijuana—similar to the size of the market for Colorado—but that only part of that figure would be in the non-black, taxable market: about $500 million.

Crowley said legislators, who traveled to Colorado to study how legalized marijuana worked in person, extrapolated what they knew about that state’s marijuana economy to the Bay State.

“We looked at reports in Colorado that suggested more of that market was black, or grey markets,” he said, pointing to a Fall 2015 study by the Colorado Institute of Health, though data shows $1 billion is the size of the legal, taxable market in Colorado.

He said other studies released since the report’s findings have jibed with the report’s calculations.

“[Others later said] a half-billion dollar market was reasonable, and I felt rather proud of our amateur economic efforts,” he said.

Borghesani, unsurprisingly, disagrees.

“This program, the regulate and tax system, is working well in Colorado and other states where they’ve decided prohibition isn’t the way to go,” Borghesani said. “We think this system will work in Massachusetts, too.”