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Massachusetts Expected to Generate $64M in Recreational Marijuana Taxes in 1st Year

A new analysis projects that the legal marijuana market in Massachusetts will generate $64 million in state tax revenue in its first year.

Officials from the Massachusetts Department of Revenue have conducted an analysis on the state’s upcoming recreational marijuana market, projecting that it will lead to $64 million in state tax revenue in its first year of operation. The state’s revenue commissioner, Michael Heffernan, presented the department’s findings to the Legislature’s Committee on Marijuana Policy last week.

According to the analysis, in the first 12 months of the program, Massachusetts could expect to generate between $45 million and $83 million in tax revenue from recreational marijuana sales. An estimated $64 million would be the middle of that range.

While noting that it’s difficult to estimate the demand, volume, and pricing for legal marijuana, the Department of Revenue’s analysis said that after the state-regulated market’s ramp-up period, “annual taxable sales of marijuana in the program’s second year could range between $707 million and $1.312 billion. Those sales would generate between an estimated $93 million and $172 million in tax revenue.

Retail marijuana sales are now slated to begin on July 1, 2018 after lawmakers pushed the date out by six months to allow for more time to establish regulations. The law, approved by 54 percent of voters last November, allows adults over the age of 21 to possess up to 1 ounce of marijuana. The current law calls for a 6.25 percent sales tax, a 3.75 percent excise tax and a potential 2 percent “local option” tax, but lawmakers are considering changing the tax rate.

State Treasurer Deb Goldberg supports raising the tax rate to reach the rates implemented by states that already have operating markets.

“[The current 3.75 tax rate] stands in stark contrast to the excise rates applied in other states, such as Washington at 37 percent tax rate, Colorado at 29 percent, and Oregon and Alaska at 25 percent,” Goldberg said. “Our tax rate is even less than the other three states that legalized recreational marijuana in November. Our tax rate is just one policy area that must be considered carefully as changes to this law are discussed.”

Political director for the cannabis advocacy group Yes on 4 Coalition, Will Luzier, cautioned against raising the tax rate higher than nearby Maine’s, which has been set to 10 percent. Doing so could push people across state lines to purchase marijuana.

The DOR analysis also predicts that it’s likely an uptick and tourism and interested buyers in neighboring states could boost marijuana sales numbers.

“Given that, relative to Colorado and Washington, Massachusetts has more densely populated neighboring states with easy highway access to the state, it seems reasonable to assume that Massachusetts would have relatively larger visitor demand,” read the analysis.

The analysis, prepared at the request of state Sen. Michael Rodrigues, D-Westport, does note that there are other factors could affect the estimates.

“As more states legalize the recreational use of marijuana, the legal market may increase over time,” said the analysis.

A recent report from GreenWave Advisors suggests legalization could reach all 50 U.S. states by 2021 and cannabis research firm ArcView Market Research predicts the nationwide cannabis industry will grow to over $21 billion during that time period.

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