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I-502 Taxation of Medical Cannabis and Recreational Marijuana

I-502 Taxation of Medical Cannabis and Recreational Marijuana

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Published by 420leaks
Document obtained by John Novak through a public records request to the Washington State Department of Revenue.

It includes a statement from LCB claiming 92% of medical cannabis patients are unqualified, yet gives no proof.

It also makes price estimates on the cost of cannabis from the current model vs the recreational model. Their estimates show the price of cannabis will be somewhere between $16-20 per gram.

Tax structures to equalize are also discussed, including excise taxes, forcing dispensaries to purchase from recreational license holders, or just completely ending the medical cannabis laws outright .

Read more about this secretive MMJ Work Group at http://420leaks.org/?p=363
Document obtained by John Novak through a public records request to the Washington State Department of Revenue.

It includes a statement from LCB claiming 92% of medical cannabis patients are unqualified, yet gives no proof.

It also makes price estimates on the cost of cannabis from the current model vs the recreational model. Their estimates show the price of cannabis will be somewhere between $16-20 per gram.

Tax structures to equalize are also discussed, including excise taxes, forcing dispensaries to purchase from recreational license holders, or just completely ending the medical cannabis laws outright .

Read more about this secretive MMJ Work Group at http://420leaks.org/?p=363

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Published by: 420leaks on Oct 16, 2013
Copyright:Attribution Non-commercial

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1
Equalizing the Market for Medical Cannabis and RecreationalMarijuana
1
 
Purpose
The purpose of this document is to provide options for addressing thedisparate regulatory systems for medical and recreational marijuana and the potential tax leakage resulting from the dual systems. The document provides background on the medical and recreational marijuana systems in Washingtonand Colorado. It also provides several general options for addressing the
challenges with Washington’s current dual market model
.
Background
In November 1998, Washington voters approved ballot initiative 692 whichallows qualifying patients to legally use medical cannabis. No state agency ischarged with regulatory oversight of medical cannabis. The LCB estimates
that 92% of Washington’s medical cannabis users do
not meet the definition
of “qualified patient” and are abusing the
unregulated medical cannabissystem. Before July 1, 2014 the Washington State Institute for Public Policymust conduct a cost-benefit analysis of the medical cannabis laws and rules.Initiative Measure No. 502 (I-502) was adopted by Washington voters in November 2012. I-502 requires the Washington Liquor Control Board (LCB)to regulate the production, distribution, and sale of recreational marijuana inWashington state. LCB is also responsible for collecting the 25% marijuanatax imposed up to three times in the chain of production and sale. TheDepartment of Revenue (Department) is responsible for collecting businessand occupation (B&O) tax, retail sales tax (RST), and use tax in connectionwith marijuana-related business activities.
Current law
I-502 creates a tightly regulated recreational marijuana market that is in directcompetition with the unregulated medical cannabis market. In addition, therecreational market is at a substantial tax disadvantage. Medical cannabis isonly subject to RST. Recreational marijuana is subject to a marijuana excisetax of 25% on at least two tiers of the supply chain, and is also subject toRST.
2
The result is that the consumer price for recreational marijuana willlikely be significantly higher than that of medical marijuana.
1
 
We have found no information indicating that medical cannabis is substantively different than marijuana used for recreational purposes
. “Cannabis” and “marijuana” are used interchangeably throughout this memorandum
.
 
2
If an LCB licensed marijuana producer is also a licensed processor, the 25% excise tax is only due twice; once onthe sale from the producer/processor to a licensed marijuana retailer and again on the sale from the retailer to theconsumer. In that instance, the sale of recreational marijuana to the consumer in
Table 1
(
infra
) will total: $16.64.
 
2The different tax treatments of recreational marijuana and medical cannabisare reflected below in
Table 1
:
3
 
Initiative No. 502:Recreational MarijuanaRCW 69.51A:Medical Cannabis
Tier 1Producer sells to Processor
Cost of goods sold = $10.00
 plus
25% Producer tax = 2.50
Processor pays = $12.50Dispensary sells toqualifying patient
Cost of goods sold $10.00
 plus
6.5% WA RST = .65
Tier 2Processor sells to Retailer
Cost of goods sold = $12.50
 plus
25% Processor tax = 3.13
Retailer pays = $15.63Tier 3Retailer sells to Consumer
Cost of goods sold = $15.63
 plus
25% Retailer tax = 3.91Retail price = $19.54
 plus
6.5% WA RST = 1.27
ConsumerPays$20.81 $10.65
 
Proposedchanges toMedicalCannabis underSB 5887 and HB1789
There will almost certainly be a substantial price disparity betweenrecreational marijuana and medical cannabis. The high level of taxationimposed on recreational marijuana is a disincentive for recreational users tomigrate from an unregulated, largely untaxed, medical cannabis market to aregulated, highly taxed, recreational marijuana market.On February 8, 2013, Representative Ross Hunter introduced HB 1789 which imposes a 25% excise tax on medical cannabis. Also, on March 27 Senator Ann Rivers introduced SB 5887 which adds regulatory provisions and excise taxes to the medical cannabis RCW chapter. Summaries of how both bills propose to regulate medical cannabis, and how they compare to the regulationof recreational marijuana under I-502, are in
Table 2
below:
HB 1789 Specifies Omits
1.
 
A 25% marijuana excise tax onthe privilege of engaging withinthis state in a business operatingas a medical cannabis dispensary,2.
 
Exempts pharmacies from the tax,and3.
 
Makes the tax payable to theDepartment of Revenue1.
 
Regulatory control andsupervision of the medicalcannabis supply chain,2.
 
A tax rate comparable to I-502,i.e. collective 50% -75%,
 plus
 RST, and3.
 
Regulation of medical cannabiscollective gardens.
3
 
The prices in this table do not include the cost of business “mark 
-
up” most business generally add to the selling
 price of tangible personal property.
 
3
SB 5887 Specifies
 
Omits
1.
 
The LCB must license medicalcannabis producers, processors,and dispensaries,2.
 
A 20% medical cannabis excisetax on each wholesale sale of dried medical cannabis to amedical cannabis processor or medical cannabis dispensary,3.
 
Imposes a 10% medical cannabisexcise tax on retail sales,4.
 
Authorizes the DOR to adoptrules for tax collection5.
 
Defines key terms: cannabis,collective garden, medicalcannabis dispensary, processor,and producer,6.
 
Specifies where medicalcannabis can be used,7.
 
Requires that a qualifying patientmust be at least 18 or asupervised minor and visit therecommending health professional at least twice a year,8.
 
Exempts sales of medicalcannabis from RST and use tax,9.
 
Requires mandatory safetyinspections and recordkeeping of medical cannabis dispensaries,10.
 
States health professionalrecommendations for medicalcannabis are valid for only 365days (90 days for minors),11.
 
Provider recommendations muststate cannabis will benefit the patient,12.
 
License and renewal fees arecommensurate with the costs of administering the medicalcannabis licensing program, and13.
 
Establish other rules needed toensure the safety and security of medical cannabis and medicalcannabis products1.
 
A tax rate comparable to I-502,i.e. collective 50% -75%,
 plus
 RST,2.
 
Regulation of medical cannabiscollective gardens.
These bills can be amended to provide the LCB with much more authority toregulate the medical cannabis supply chain. One example of how SB 5887can provide greater market parity is to mandate that medical cannabisdispensaries purchase cannabis and cannabis-infused products from LCBlicensed recreational marijuana processors. HB 1789 will require substantialamendments to lessen the perceived differences in how recreational marijuanawill be, and medical cannabis is, regulated.

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