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Colorado's marijuana income bountiful, but where does revenue go?

By: Peter Marcus
August 21, 2017 Updated: August 22, 2017 at 6:56 am
Caption +
FILE - Employee David Marlow, right, helps a customer, who smells a strain of marijuana before buying it, at the crowded sales counter inside Medicine Man marijuana retail store, which opened as a legal recreational retail outlet in Denver on Wednesday Jan. 1, 2014. Colorado began retail marijuana sales on Jan. 1, a day some are calling "Green Wednesday." (AP Photo/Brennan Linsley)

A marijuana industry group recently reported the sensational headline that Colorado had taken in a half-billion dollars in pot taxes since recreational stores opened in January 2013. But the windfall hasn't been what some voters anticipated - perhaps because it is spread across so many recipients.

The money has gone to schools as promised but also this year to help balance the state budget by offsetting a separate tax break for businesses, to help fund multiple state agencies and departments, including money for public safety, law enforcement and the judiciary. Also new, a program to help the homeless with housing.

Colorado cities and towns that approved legal sales have passed their own sales taxes to be collected on top of state taxes. Municipal spending of pot funds is often highly visible - streets repaired, new fire trucks, local students receiving scholarships, downtowns spruced up.

At the state level, spending is fully documented, just not as transparent. Even state budget writers grapple with explaining how marijuana revenue is collected and where it goes.

There are two major revenue streams flowing to the state from legal recreational marijuana:

- A 15 percent excise tax on wholesale marijuana as it moves to retail stores for sale, projected to earn $86.3 million this fiscal year.

- A 15 percent special sales tax on marijuana sold in retail stores, projected to bring in $182.2 in fiscal 2017-18.

The state is projected to take in about $282 million in total marijuana revenue (including $12.6 million from it's 2.9 percent sales tax on medical marijuana) in the current fiscal year, which began in July, according to the governor's office. The state budget is $26.8 billion.

That means marijuana taxes make up only about 1 percent of the state's annual budget.

While huge sums of money, marijuana taxes haven't proved a cure-all.

To understand marijuana taxes, one must start with the 2012 ballot when voters approved recreational marijuana after being promised the taxes would benefit schools. The money has gone toward schools, but not in the way many assumed and not to the extent of compensating for a more than $800 million education funding shortfall.

"There was a misunderstanding on what the definition of education was," said Henry Sobanet, Gov. John Hickenlooper's budget director, of the 2012 vote. "It was generally called education when it was education construction."

Marijuana was never intended to solve the state's school-funding crisis.

Voters were told in 2012 that $40 million of the money would go to schools. That happens every year. But the money goes into the Building Excellent Schools Today, or BEST fund, which essentially funds school construction and facilities.

The money for the BEST fund comes from the excise tax on wholesale marijuana. Any excise tax money that exceeds the $40 million goes into the Public School Fund, which is used for everyday K-12 education.

The governor's budget office says that last year about $30 million in spillover went into the Public School Fund, and projections for the current fiscal year are as high as $46 million.

In the grand scheme of a $6.6 billion annual state school budget, $46 million is a relative drop in the bucket.

Where the money flows

Separately, voters in 2013 approved the special sales tax on retail marijuana, now maxed out at 15 percent after the Legislature used marijuana money this fiscal year to help balance the state budget.

The sales tax is split between the state and local governments. Up until the current fiscal year, the state kept 85 percent and locals received 15 percent. But state lawmakers this year changed the split to 90 percent for the state and 10 percent for local governments in an effort to make up for revenue losses in other areas.

That means about $18 million will be distributed this year across Colorado's municipalities, distributed proportionately to local sales.

With the state's 90 percent take, a percentage was placed in the General Fund to offset a new credit given this year for businesses paying taxes on business equipment. This $16 million represents perhaps the biggest diversion of marijuana revenue to balance the state budget.

The rest of the retail sales tax money - about $117 million - goes into the Marijuana Tax Cash Fund.

The fund assists multiple state departments, including agriculture, education, the governor's office, health care policy and financing, higher education, human services, judicial, the attorney general's office, labor and employment, local affairs, public health and environment, public safety, and transportation. But the stated goal is to ensure that marijuana revenue is spent primarily to meet the costs of legalization, including regulatory oversight, youth prevention, behavioral health treatment, and public health and safety, including enforcement.

Sobanet said that Hickenlooper "has been really clear" that he doesn't want the survival of state programs to depend on marijuana use.

As for the multitude of expenditures already funded by marijuana, Sobanet said, "I don't think it will be an easy deviation away from the areas we've been in so far."

But during this year's legislative session, the governor did expand the horizon for the use of marijuana revenue. His office heavily lobbied for $15.3 million from the Marijuana Tax Cash Fund to go to the Department of Local Affairs to fund affordable housing construction grants and loans.

Hickenlooper, to the chagrin of legalization proponents, has maintained there remains a nexus between marijuana use and homelessness.

The appropriateness of legal marijuana and government's dependence on the taxes it produces is still a full-throated argument.

For those groups who continue to oppose marijuana, an expansion and growing reliance on tax revenue could spell doom for any possibility of reversing legalization.

Smart Approaches to Marijuana, a national anti-marijuana group, said the cannabis industry is trying to protect its own self-interests.

"Like the tobacco industry before it, the Colorado marijuana lobby is touting marijuana as the panacea for every contemporary challenge Colorado faces," said Kevin Sabet, president of Smart Approaches to Marijuana. "The truth is, the health and safety costs caused by the commercialization of marijuana far outweigh any revenues collected. It's time for the marijuana industry to face the truth - they lied to voters and have failed to live up to their promises."

Pueblo County Commissioner Sal Pace, a Democrat and marijuana legalization supporter, had strong words for those who criticize governments for utilizing cannabis revenue. "They think they're fighting the last great social fight . and it's their responsibility to control every other human being and tell them exactly how to live their lives," Pace said of legalization opponents. "This is the last fight in the destruction of America in their eyes. You can't compromise with people who are ideological."

Pueblo is using cannabis revenue to fund its local college scholarship program, among other initiatives.

Mason Tvert, who co-directed the successful 2012 campaign to regulate and tax marijuana for adult use, said Colorado voters are receiving what they voted for.

"It is funding everything from school construction to substance abuse treatment to fighting homelessness. While it might not fix every school or help every person who needs it, it is having a significant and positive impact on our community," said Tvert, who now works for VS Strategies, a marijuana consulting firm.

Proponents and opponents of legalization agree that transparency around state collection and spending of marijuana taxes is essential.

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