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February 15, 2011 at 6:23 PM

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Marijuana: the state's take

Posted by Bruce Ramsey

If marijuana were legal, how many people would buy it? The state of Washington now has an official estimate: 10 percent of the adult public.

Its value to state and local government in Washington, according to my back-of-the envelope calculation: an immediate $300 million a year.

Here is how I get there. Says the Liquor Control Board:

It is assumed that ten percent of persons age 21 and over will consume legalized cannabis: five percent of those legal consumers will consume an average of two grams a day; the other ninety-five percent will consume an average of two grams a week. It is also assumed that one third of buyers will purchase discount products at $3.43 a gram; one third will purchase mid-range product at $10.00 per gram; and one third will purchase premium product at $15.60 per gram.

The estimate is from the Washington State Liquor Control Board, which based them in part on a study by the U.S. Department of Health and Human Services, “Results from the 2007 National Survey on Drug Use and Health: National Findings.”

Are these assumptions any good? I don’t know, and I don’t know how the Liquor Board would know. I asked Seattle attorney Douglas Hiatt, a leader in Sensible Washington, the group that will be collecting signatures this spring for a voter initiative to legalize marijuana.

Hiatt broke out laughing. “What were they smoking?” The use, he said, would be “a much higher figure than that.”

Maybe so. These are fuzzy numbers. But let’s stick with them, because that’s what we’ve got. The Liquor Board had to come up with something for an estimate on the revenue impact of House Bill 1550. If passed, it would legalize marijuana, regulate it by the state, put a 15 percent tax on it, and sell it through the state liquor stores to customers over 21.

I wouldn’t bet on this bill passing, and I don’t think Gov. Chris Gregoire would sign it. She told me several months ago, “I am not interested in legalizing marijuana.” But it says something about our political climate that the bill has been introduced, that is has had a public hearing, and that the following Representatives have put their names on it: Mary Lou Dickerson, D-Seattle, Roger Goodman, D-Kirland; Dave Upthegrove, D-Des Moines; Jamie Pedersen, D-Seattle; Sherry Appleton, D-Poulsbo; Mary Helen Roberts, D-Lynnwood, Eileen Cody, D-Seattle; Louis Moscoso, D-Mountlake Terrace; Deb Eddy, D-Kirkland; Tami Green, D-Tacoma; Jeannie Darneille, D-Tacoma; Joe Fitzgibbon, D-Burien; and Andrew Billig, D-Spokane. All Democrats, mostly from Puget Sound country.

Now for the official estimate: The total sales volume of marijuana in the first year through the state liquor stores would be $581.5 million, including the 15 percent cannabis tax and the Liquor Board’s markup.

The state estimates that in the first year the retail sales tax, charged on the total above including the cannabis tax (a tax on a tax!), would be $36.5 million for the state and $12.9 million for local government. Add $5 million in farmers’ licenses and $1.8 million in B&O tax. The state doesn’t estimate the cannabis tax, but of $581.5 million it would be about $75.6 million. Add the various taxes together and you get $132 million.

Don’t forget the Liquor Board’s profit. If you look at its financial statements, and take out the taxes on liquor, wine and beer, and look at gross sales, product expenses and costs, the Liquor Board’s net profit on sales (not markup) is 34 percent—a figure vastly higher than in private sector retailing. Assume the state monopoly makes the same net profit on its marijuana business, and you have $172 million.

Add the $172 million in profit to the $132 million in taxes, above. Total: $304 million to government, in the first year. And from there, onward and upward.

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