The Taxing of a Revolution: Oregon Takes a New Road
Oregon is being closely watched by reform advocates and entrepreneurs alike nationally as its recreational market inches toward realization. Oregon has been largely viewed as a Legalization 2.0 model after the continued problems, lawsuits and controversies of neighboring Washington state. In fact, it is the issues that still plague the definition and redefinition of The Evergreen State’s market post I-502 that Oregon is clearly trying to side-step as it gets the recreational green rush going.
“The Oregon market is shaping up to be one of the most exciting in the nation,” said Leslie Bocskor, the founding Chair of the Nevada Cannabis Industry Association.
That said, Oregon faces the same problems every other legalizing state has to date in that local authorities want more power to control and tax the mighty green beast entering their midst. As soon as Measure 91 had been passed, the Oregon League of Cities began lobbying for more control, if not taxation rights.
It appears that the legislature has now come up with what many in the industry are heralding as a new model. Marijuana businesses may be taxed at 20 percent in the state for their recreational transactions, with 3 percent of that amount staying local. While there were those who argued that this would drive recreational users into the black or grey—read medical—market, in general, the industry itself has come back swinging that this is actually a rather good, if not workable, compromise, particularly in a state like Oregon which is not so ready to ignore the needs and voices of its medical community and those who serve them.
“Regulations and increased taxes are necessary for the industry to grow and be sustainable. On the other hand, taxes should not be so high as to further strengthen the black market, or prohibit customers from purchasing due to high prices,” said Julianna Carella, the CEO of Auntie Dolores, an edibles company in California.
However, Carella is one who does not believe that the tax model now being proposed in Oregon is the right one. “In our opinion, there should not be such a disparity between the taxes imposed on recreational users versus medical users,” she said. “Ideally, medical cannabis patients would pay very low or no taxes and recreational users would pay slightly higher yet reasonable tax rates.”
This may very well be the road that Oregon eventually takes. The new model also looks more like a Colorado market than a Washington one in that medical users in the Mile High State pay regular state sales taxes on their marijuana purchases. This is still an unwieldy compromise that will also dissipate after the rescheduling of marijuana at the federal level. Marijuana is the only widely used drug that is still not covered by health insurance and users must pay sales taxes on it. That said, this is and will continue to be one of the thornier issues facing both the industry and medical users going forward.
“Ideally there would be more uniformity of regulations and taxation across the states, so that we can move past the already fragmented approach to cannabis regulations,” Carella said, “which ultimately becomes more of an administrative challenge than a workable system for a rapidly growing industry.”
“The legislature is in a tough position,” Bocskor said. “Medical is growing in Oregon. And with the legalization of adult use and the date of July 1st approaching rapidly, they need to get in front of it to prevent a wildly expanding gray market. The discussions about tax are the easiest one for them to have now, as they try and see what needs to happen to have a smooth transition into adult use coinciding with medical, and then the eventual regulation of both markets.”
This move is also an attempt to raise a conversation that has so far been tough to crack for every legalizing state, including Colorado. Marijuana taxes are, in every state, being applied to municipal expenses, if not outstanding debt, and municipalities seem to want a direct slice of this from the get go. In Illinois, for example, dispensary owners faced local communities who wanted to levy permanent profit sharing and a one-time “donation” to the community before granting licenses.
In Washington state, however, the consolidation of the market under one recreational banner has also created the very real specter that communities who do not wish to have recreational marijuana stores can essentially bar access for medical users. And despite heady rhetoric in Washington about removing all marijuana business taxes—echoing a national Republican theme coming out of Kansas about eliminating business taxes on all industries—leaving medical users with a tax of 37 percent is also unacceptable.
It seems unlikely that this scenario would play out in Oregon, precisely because of Washington’s precedent. Medically oriented businesses in Oregon are also forming lobbies to protect the industry, if not patients, from exactly the kind of market development now going on in the state of Washington.
The new proposal currently in front of the Oregon legislature, would replace the 3 percent harvest tax that was baked into Measure 91 and quite obviously is setting the ground for some kind of medical industry taxation and regulation structure that is one that incorporates the new recreational market.
That said, Oregon does not appear to be throwing Washington’s baby out with the bong water. As Bocskor stated, “I think Oregon will do what it can to protect the market while managing the issue of having both a medical and adult use market.”
What this means in terms of a now emerging model that encompasses a bifurcated medical and recreational market is also very interesting right now. Bocskor said, “There will be a single body tasked with regulating both markets. Differentiating factors will have to be discussed, defined, and codified to allow for patients to get the access they need, at prices that are fair, in a regulated and ethical market. This will have to be done while providing a business friendly environment, or we will just be creating domestic black markets where the bootleggers will rise again.”
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