After a three month sales tax “holiday,” recreational marijuana consumers in Oregon began paying a 25% sales tax on January 1, 2016. Yes, you read that correctly: 25 PERCENT.
For those of you who went to public school and didn’t bother augmenting your economics education any further, this means that the actual price of recreational marijuana in Oregon is increased by 25% before consumers can purchase it.
As you can imagine, this leads to several problems, all of which hurt consumers and businesses. Consumers are hurt by having to shell out 25% more money than they would otherwise have to, driving down the amount of money they have to spend on other things. Businesses are hurt by having to raise their prices 25% unless they want to pay the sales tax themselves, an option some have taken. Of course this 25% hit slams right into their bottom line, giving them less money to pay employees or reinvest in their business. Most businesses simply cannot afford to add this massive expense, so they pass on the cost to the consumer.
To make matters worse, the businesses being hurt — for the time being — are all medical marijuana dispensaries, which are the only businesses allowed to sell recreational marijuana until the state of Oregon gets the recreational side of things up and running later this year. At that point, the recreational businesses will have to exact a 17% sales tax under the auspices of the Oregon Liquor Control Commission.
Those versed in basic economics know what these excessive taxes are going to do to the legal cannabis market: shrink it. And since there is already a well-established black market for cannabis, that’s where many consumers will end up going.
This defeats one of the main purposes of legalization: to create a legal market that will undercut the black market and take profits away from criminals who think killing rivals is a sound business plan.
So enough complaining; what’s the solution? Well, lower taxes of course. This will allow recreational sellers to drop their prices, which will bring more consumers to the legal market. It’s a very simple concept, which is why it’s not surprising that the government doesn’t quite grasp it.