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Economists: Cannabis tax revenue could net $52M
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Economists: Cannabis tax revenue could net $52M

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Marijuana Initiative Economics

Medical marijuana products are displayed Tuesday at Flower, a dispensary in Missoula that also has a location in Kalispell. A new economic study projects a windfall of about $52 million in state tax revenue if voters approve recreational legalization proposals in November.

Economic researchers project marijuana sales, if legalization proposals are approved by voters in November, could reach a quarter-billion dollars four years after the market opens, with a windfall of roughly $52 million in state tax revenue.

The Bureau of Business and Economic Research, an economics research center at the University of Montana, released a study Tuesday on the market and tax revenue potential of recreational cannabis in Montana if voters were to pass Initiative-190 and Constitutional Initiative-118, companion proposals on the ballot Nov. 3. The first initiative would legalize, regulate and tax marijuana sales and set the age of buying it at age 21. The separate constitutional initiative must be passed by voters to legalize the age for buying pot within the state constitution.

The study was commissioned by New Approach Montana, the campaign to pass the initiatives. The Bureau of Business and Economic Research did not endorse or oppose the passage of legal weed, but wrote in conclusion that evidence from other states shows Montana has potential to generate "significant tax revenues" from the new industry.

New Approach has long trumpeted legalized and taxed marijuana as a new stream of revenue to embrace while coal taxes are down and COVID-19 has cratered the state economy. Dave Lewis, former budget director for three Montana governors and senior adviser for the New Approach campaign, said in a release on Tuesday the anticipated tax revenue could also hush any talk about a state sales tax.

"Montana has taken a serious hit from the pandemic," Lewis said. "These initiatives could not be coming at a better time."

Patrick Barkey, director of the BBER, said the campaign's claims of a helpful new stream of revenue are "in the right direction," but added it's no silver bullet.

"The spirit of what is being said is absolutely correct, and I think the numbers speak for themselves as to what kind of revenue estimates are logical," Barkey said Tuesday. "Fifty million (dollars) could be a life saver, but it's not going to dig Montana out of the largest recession we've ever had, and I don't think there's a proposal out there that would. Neither would doubling the cigarette tax or anything like that."

The largest driver of growth in sales and tax revenue would be visitors to the state, according to the bureau's report. If the initiatives pass, recreational marijuana would go on sale in 2022. Sales to state residents were projected to actually slip from $187.5 million in 2022 to $176 million in 2026, due to an expected price drop in marijuana prices over time while the number of marijuana consumers is expected to stay level. Sales to "nonresident leisure visitors," however, are projected to climb from $5.9 million to $16.8 million in the market's first four years. That boost comes from survey evidence from other states, Barkey said, that an increasing fraction of tourists will visit cannabis dispensaries.

The result drives up projected sales from both residents and visitors from $217.2 million in 2022 to $259.8 million in 2026, producing a tax revenue hike from $43.4 million to $52 million in four years. 

The analysis draws on the National Survey on Drug Use and Health to show the number of people and fraction of the Montana adult population who say they have used marijuana in the last month have grown over the last decade, from roughly 50,000 to about 110,000. Additionally, the survey reported 14.3% of adults in Montana said they had used marijuana in the last 30 days, compared to the national average of 9.3%.

While New Approach has made its pitch to those eyeing the state budget's needs, the effort to legalize includes a moratorium on new recreational marijuana business licenses until 2023, a year after retail would begin. That means anyone with a medical marijuana license gets a year to stake out the new market before "Big Weed" gets a chance.

Bobby Long, CEO of Flower, a medical shop with dispensaries in Missoula and Kalispell, said he feels that assurance isn't quite air-tight. There's still plenty of time for out-of-state businesses to come in, get a medical license and stake their own claim before the moratorium. Big business could also just buy out any in-state business, before or after the moratorium, he said. 

The medical industry has survived 16 years on a hostile path to this point, from running wild with minimal regulation, to suffering a ham-fisted backlash by the Republican-led Legislature and later the Montana Supreme Court. The industry kick-started the market open again in 2016, and in 2017 the state Legislature passed the regulatory system that exists today, and even that required tweaks in the 2019 session.

The skepticism Long speaks with about the recreational prospects comes from that experience.

"The positive economic impact it does have is undeniable. With COVID, maybe it is in the cards, now is the time," he said. 

"If my patients or customers can continue to get medicine at a good price, and they're not overpriced, then great, but I'm a little wary of this initiative."

No changes to Montana's existing medical marijuana system were a part of the analysis from the Bureau of Business and Economic Research. So far seven states prohibit marijuana for any use, while 11 have legalized recreational. Montana and the remaining states permit marijuana consumption for medical purposes. The report does note that the growing acceptance of marijuana legalization by states in recent years "makes further loosening of legal restrictions in Montana a real possibility."

"The experience of other states has shown that legalized cannabis does have potential to generate significant tax revenues from its activities," the report said in its conclusion. "This report offers support for the truth of this in Montana as well."

The study is available online at bber.umt.edu.

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The campaign to reject marijuana legalization quickly mobilized, raising more than $78,000 and burning through $61,000 in advertising, including 18 billboards near Montana's largest cities. 

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