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Blog Post · April 8, 2016

Video: Lessons on Marijuana Regulation

California may have much to learn from the first two states to legalize recreational marijuana—Washington and Colorado—if voters statewide approve legalization in November.

Patrick Murphy, coauthor of a PPIC report analyzing the experience of these states, presented its findings yesterday in Sacramento. The main takeaway: California should create a tightly regulated market—for medical and recreational uses—to control legal marijuana from “seed to sale.” The market should be flexible so that regulation can be adjusted as the state learns from experience—as both Washington and Colorado did.

Following Murphy’s presentation, regulators from Washington and Colorado and report coauthor John Carnevale, a drug policy consultant who has worked with four federal “drug czars,” talked about experiences of the two states. The panelists emphasized the need to start planning now to determine the information that would be needed for regulation because little is known about marijuana markets—the illegal one and the legal one for medical marijuana.

Taxation? Carnevale said, “It’s complicated.” Marijuana legalization involves balancing competing state goals—reducing demand among underage users and raising revenue for the state, for example. The price of legalized marijuana can have a range of effects on the illegal market: if the price of legal marijuana is low, the illegal market might disappear; a high price might help boost illegal sales; or the illegal market could continue as it is. Beyond that, taxes can be imposed at different points in production, licensing, and sales process.

“You can make this as complicated as you want in terms of the tax policy,” he said. “But, on the other hand, you have to somehow enforce that tax policy.”

In Colorado, the revenue from recreational marijuana sales is aimed at dealing with the effects of the law—for example, public health and addiction, said Lewis Koski, deputy senior director of the Colorado Department of Revenue.

Koski said that in 2014–15, the first year of legalization, the state collected $88 million in taxes for both medical and recreational marijuana. Halfway through this year, Colorado has collected almost as much.

Revenue generation was a big part of the argument in favor of legalizing marijuana in Washington, said Rick Garza, director of the Washington State Liquor and Cannabis Board. The state has no income tax and relies on “sin taxes”—tobacco, alcohol, and now cannabis—to generate revenue. Before the vote on legalization, the governor’s budget office estimated that the amount of revenue that would be collected over five years was between zero and $2 billion.

“You catch the zero part?” Garza asked. “No one else did. Everyone thought we were going to collect $2 billion.”

Washington state currently expects bring in be $1.25 billion over five years.


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