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Wisconsin marijuana revenue projections valid, but overly optimistic
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Experts, generally speaking, had no quarrel with the state’s math, but questioned the implementation schedule in the estimates.
That is, the assumptions in the plan may be too rosy, so less money would be generated in the 2021-23 budget window.
In any case, the issue is a nonstarter for raising revenue, since legalized marijuana lacks support in the Republican-controlled Legislature.
Gov. Tony Evers proposed that Wisconsin keep up with three of its neighbors and legalize marijuana, but the plan has already gone up in smoke.
The GOP-controlled Legislature’s budget-writing committee on May 6, 2021 removed legalizing marijuana -- and hundreds of other provisions -- from the governor’s proposed 2021-’23 spending plan. In making the changes, and starting fresh, the panel created a gap of about $3.4 billion.
With that gap, and polls showing general public support for legalized marijuana, it brought to mind a claim from Evers that we had set aside:
"Regulating and taxing marijuana — much like we do alcohol — would generate more than $165M in revenue starting in 2022," Evers tweeted April 14, 2021.
In all, 36 states have medical marijuana programs (including Iowa), while 14 states -- including neighboring Illinois and Michigan -- have legalized marijuana for recreational use:
But what about the money?
Is Evers correct that his plan would add $165 million to the state’s coffers in the upcoming budget?
When asked for backup to the claim, Britt Cudaback, Evers’ communications director, pointed us to the state’s "Budget in Brief" document, released in February 2021, which includes more detail on how his plan would work.
Under the plan, the state Department of Revenue would issue permits to those wishing to sell recreational marijuana.
"The Governor’s proposal imposes a 15 percent excise tax on the sales price of each wholesale sale by a permit-holding producer to a permit-holding processor," according to the budget document. "In addition, the proposal imposes a 10 percent excise tax on the sales price of each retail sale. Retail sales, except for medical use, would be subject to the sales tax."
So, how did the governor arrive at that $165 million figure?
According to Cudaback, the budget office looked at data from other states, including Colorado, which was the first state to legalize marijuana, and made adjustments for population and "reported marijuana usage."
She noted that other states have relied on Colorado’s data in developing their own budgets, and noted that the estimates were on the conservative side, meaning they could be closer to the low end of potential tax revenue.
According to the Evers figures, if sales were to begin Jan. 1, 2022 -- roughly six months after expected passage of the budget -- $165.8 million would be reached if tax collections were $19 per-capita. That is, if -- on average -- every person in the state bought enough marijuna to generate $19 in annual tax revenue.
Here is the math: $19 per capita per year x 5.8 million population x 1.5 years = $165.8 million.
That includes a projected $65 million from taxes on sales at the wholesale level, $67.1 million from retail taxes and $33.6 million from the sales tax.
It’s difficult to compare states because of their varying size and different taxing structures around marijuana sales.
For instance, Illinois has a lower excise tax, but far higher sales taxes on recreational marijuana, and more than double Wisconsin’s population. According to the Public Policy Forum, a non-partisan think tank that has analyzed the Wisconsin budget, Illinois likely collected around $175 million in revenue in its first year of recreational implementation.
That’s not much more -- despite twice the population size -- than what Evers is anticipating.
The administration's estimate appears to imply a pretty rapid implementation, the Policy Forum said.
Nevada, meanwhile, has a 15% tax on wholesale sales and a 10% tax on retail sales, so its framework is generally similar. In fiscal year 2020, with just over half of Wisconsin’s population, Nevada collected $105.2 million. That said, the Policy Forum notes Nevada’s unique tourism industry -- i.e., legalized gambling -- may make it a poor basis for comparison.
Andrew Reschovsky, University of Wisconsin-Madison Professor Emeritus of Public Affairs and Applied Economics pointed out that "forecasting revenue from a new tax is always difficult."
He said the State Budget Office has taken the "sensible" approach and based its estimates on the experience of other states that have already legalized marijuana sales. But that doesn’t mean it’s sure to come true.
"The Administration’s forecast, like all revenue forecasts, is based on a set of assumptions," he wrote. "While some of the Administration’s assumptions may result in an under-estimate of tax revenues, I do worry that the state may be overly optimistic about the time needed to implement the issuing of both medical and recreational marijuana retail sales licenses and the time needed to open retail outlets throughout the state."
In other words, the state may not be able to get a system up and running in time to meet the Jan. 1, 2022 date the budget projections are based upon.
"Based on the experiences in Massachusetts and California, this may be an overly optimistic estimate of the time it takes to license and open retail sales outlets," Reschovsky wrote. "If the rollout process is in fact slower than anticipated, revenue during the next biennium may be lower than the Administration’s forecast."
Evers tweeted "Regulating and taxing marijuana — much like we do alcohol — would generate more than $165M in revenue starting in 2022.
Experts consulted by PolitiFact Wisconsin, generally speaking, had no quarrel with the state’s math, but questioned the implementation schedule baked into the estimates. In other words, if legalized marijuana were to go forward, it may not generate the revenue Evers claimed because it may take too long to get a licensing system in place, and to license and open retail outlets.
In a nutshell, the Evers projections are plausible, but may be overly optimistic.
For a statement that is accurate but needs clarification or additional information, our rating is Mostly True.
Twitter, Gov. Tony Evers, April 14, 2021
Email exchange, Britt Cudaback, Evers communications director, April 30, 2021.
Email, Public Policy Forum, May 10.
Email, Andrew Reschovsky, University of Wisconsin-Madison Professor Emeritus of Public Affairs and Applied Economics, May 4, 2021
Milwaukee Journal Sentinel "With budget vote, Republicans will create a $3.4 billion gap that will have to be closed this summer," May 6, 2021
Milwaukee Journal Sentinel, "Wisconsin budget battle begins: GOP lawmakers plan to remove 280 items from Gov. Tony Evers' proposal," April 30, 2021.
Milwaukee Journal Sentinel "Wisconsin will soon become an island surrounded by legal weed," June 6, 2019.
Chicago Sun Times "State’s weed windfall from taxes rivals booze haul — and could surpass it next year," Dec. 15, 2020.
State of Wisconsin "Budget in Brief," Page 115, Feb. 2021.
The Thrillist," Puff, Puff, Passed: The Progress Toward Legal Weed In All 50 States," April 19, 2021.
The Tax Policy Center "How do marijuana taxes work"
State of Nevada Marijuana Tax Revenue
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Wisconsin marijuana revenue projections valid, but overly optimistic
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