If Proposition 64, the recreational marijuana legalization initiative, passes on Tuesday, medical marijuana will be sold tax-free in many jurisdictions the very next day, experts say. But under the measure, medical weed eventually would be subject to an even higher tax than it is now.
It's the opinion of state tax officials and the Legislative Analyst's Office that, under Proposition 64, medical marijuana users with a valid doctor's recommendation and state-approved pot IDs will get a full sales tax discount starting Nov. 9. That would amount to 9 cents saved on the dollar in the city of L.A. (and as much as 10 cents in other parts of the county). The only tax possible would be a medical marijuana–specific sales tax in cities that have such a thing. The city of L.A. does not.
Drew Soderborg, a managing principal analyst at the LAO, says that because the initiative doesn't specify a date for the medical marijuana tax discount, the assumption is that it starts the day after the election. However, if proponents are unhappy about this interpretation, they could take the matter to court. “It is important to note there could be legal disagreements about this,” he says.
But here's the rub: Under Proposition 64, a 15 percent sales taxes on all pot, recreational or not, would take effect in 2018.
State tax official Jerome Horton, the Los Angeles–area representative on the California Board of Equalization, argues that medical marijuana users, seeing a big tax increase coming in 2018, might pass on the chance to legalize recreational pot. “People who need it for medical reasons can still have access to it” if Proposition 64 fails, he points out. Horton has criticized the measure's taxes here and in this report (subscribers only).
Both recreational and medical pot would be subject to the 15 percent tax starting in 2018, but recreational buyers would also pay sales tax and any local recreational pot taxes. That means some recreational buyers in Los Angeles County could pay weed taxes as high as 25 percent.
“I think the negative impacts of this Proposition 64 [are] going to be extremely expensive,” Horton says. “If you don't have a med card, you'll pay as much as 10 percent more than those with it.”
He wrote in a letter last month to opponents of Proposition 64 that he estimates as much as 40 percent of the taxes proposed in the measure will go uncollected as a result of noncompliance and “black -market sales” that “will increase significantly.”
Horton says he's going to ask legislators to carry a bill he's proposing, the Cannabis Criminal Enforcement Act, in the new year. It would target gray-market revenue unreported to state and federal tax authorities, he says. “We need to do our best to protect California and the revenue that's supposed to be generated from marijuana.”
Proponents of Proposition 64 have said that, if it passes, the market will expand once people realize how easy it is to purchase marijuana. That convenience could offset the desire to secure a medical marijuana card. The Drug Policy Alliance, which helped draft the initiative, and the Yes on 64 campaign did not respond to requests for comment.