Fear of tax evasion is one reason Gov. Paul LePage wants to veto the adult-use cannabis bill.
The two-term Republican thinks Mainers who aren’t really sick will flock to the medical market because adult-use cannabis would be taxed at a higher rate – an effective tax rate of about 20 percent compared to medical’s 5.5 percent sales tax. LePage has worried that setting up two marijuana programs could lead to tax evasion and black market diversion since voters first legalized recreational marijuana in 2016. He cited it in his veto letter last year, when he scuttled the Legislature’s first adult-use market bill.
“The drafters of this bill chose to ignore the significant effects that this new program – one with different levels of regulatory oversight and a different tax structure – will have on the existing medical marijuana program, its patients and the public health and safety of the Maine people,” he wrote.
He warned lawmakers about “exploitation of loopholes in medical marijuana regulations to broaden the sales base for medical marijuana, which has a much lower tax rate,” and urged them to take steps to roll the two programs into one uniform set of regulations and tax rates.
Last week, he told a local television station that he would veto the adult-use bill because it had not abolished the medical marijuana program. In a rhetorical aside, LePage asked why anybody would be willing to pay a higher tax on recreational marijuana when they could buy medical.
But bill supporters argue that only sick people who need a lot of marijuana to treat chronic health problems would buy enough cannabis to save more on taxes than they will spend on the first-time medical certification, which usually runs about $200.
So where is the tipping point? Rough calculations suggest that it’s not worth buying a medical card if you do not really need one unless you smoke more than 221 cigarette-sized joints over the course of a year.
“We have combined as many parts of the adult-use and medical markets as we could, but we don’t think we should tax medicine at the same rate as recreational,” said Sen. Roger Katz, R-Augusta, the co-chairman of the recreational marijuana committee. “Even if you thought you might get around the taxes, which I don’t think most people would do, you’d have to smoke an awful lot to make it worth your while.”
LePage, a longtime foe of legalized marijuana, has said he intends to veto the bill, which headed to his desk Tuesday fully endorsed by lawmakers. He successfully vetoed legislation last year that would have established the groundwork for a retail, recreational industry in Maine. In 2016, Maine voters approved adult-use cannabis in a referendum vote and lawmakers have been grappling with how to create regulatory oversight ever since.
Taxes are one of the issues that have divided lawmakers. There is a lot on the line for states like Maine, which analysts predict can expect to collect $23 million a year on adult-use marijuana taxes once the market is up and running. Maine’s eight licensed medical marijuana dispensaries remitted $24.5 million to the state in sales taxes in 2017, with caregivers likely doubling that.
This calculation is based on the following assumptions, which are pulled from testimony given during legislative workshops on the adult-use and medical marijuana bills since voters passed the citizens initiative that legalized recreational cannabis in 2016:
• An ounce of good cannabis popular for medical and recreational use will cost $250, pre-tax.
• With tax added, the recreational ounce will cost $300, and the medical will cost about $264.
• Ounce for ounce, medical enjoys a $36.25 tax advantage over adult-use marijuana.
• The tax savings has offset the $200 medical card costs after buying 5.5 ounces of medical.
• That is equal to 220 cigarette-sized joints, with each one weighing about .7 grams.
Legalize Maine, the nonprofit that wrote the legalization referendum question, estimates about 5 percent of state residents, or 65,000 people, qualify as heavy marijuana consumers, smoking as many as three cigarette-sized joints a day, or a little more than 2 ounces a month.
This group would reach the threshold where shelling out for a medical card to qualify for that tax savings would be worth it before St. Patrick’s Day. From that point on, they would save $72 each month by buying medical marijuana instead of recreational.
In comparison, 20 percent of Mainers are casual once or twice a week smokers, the group claims.
Casual consumers, which would number about 260,000 people, could make an ounce last for as long as three months. They would never reach that tipping point where buying the first $200 medical card would be worth it just to avoid a tax, according to the Legalize Maine analysis.
Among other factors influencing where people will likely buy is distance and variety.
Those who live in towns that have banned adult-use retail stores might see that number drop when they factor the cost of fuel to drive to a distant retailer versus the cost of buying from a local caregiver. Retail stores may not sell many medical marijuana strains.
This math will also change as Maine’s adult-use market gets up and running and prices drop.
If Maine follows the path blazed by other legalized states, the price of marijuana will decrease as the state issues more commercial cultivation and retailing licenses.
In Colorado, marijuana prices fell from $2,000 a pound in January 2015 to $1,200 a pound in December.
Most importantly, 221 joints means different things to different people. Newcomers who smoke on weekends or on special occasions can stretch an ounce, or the equivalent of 40 joints, out for two months, while it might last a heavy user just two weeks.
Medical patients who buy the marijuana to extract the oil and turn it into a concentrated oil or salve might run through the 5.5 ounces much faster, said Sen. Eric Brakey, R-Auburn, one of the authors of a pending medical marijuana reform bill.
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