Getting into the Weeds Part IV

By Board of Equalization Member Diane Harkey

This op-ed originally appeared in the Riverside Press-Enterprise

As we enter 2016, our new industry and cash crop, marijuana, is the buzz in Sacramento. Over 30 new pieces of pro-marijuana legislation will be introduced this year, with little outside-the-beltway scrutiny. Big players are waiting in the wings to seize the marketplace with recreational use ballot initiatives. Medical marijuana businesses are leery of how wholesale legalization will affect their market, and cities are passing zoning ordinances to keep the “industry” out of their neighborhoods.

One consistent adage in politics is if you want to understand the why, follow the money. To be sure, there are billions of dollars at stake. Promoters tout that the state could eventually collect several million to billions in presently forgone taxes. But the structure legislated in 2015 ensures any taxes collected, with the exception of sales tax, will not add more to our state coffers but will fund a new state bureaucracy led by a yet-to-be hired Pot Czar.

The new bureaucracy’s mission will be to further industry participants’ regulatory needs, address negative impacts of cultivation, manufacturing and transportation of the products and generally to expand the market for marijuana. Commercializing marijuana similar to tobacco is anticipated to draw major corporate interests and increase usage under the guise of a regulated, safer and higher quality-controlled product. Gov. Jerry Brown’s 2016-17 budget calls for 126 new hires, 61 allocated to control environmental impacts.

With only 5 million people to our 38 million, Colorado is a petri dish for research on the effects of legalization with regard to increasing drugged driving, youth use, cartel activity and disappointing state revenue. Amazingly, our Legislature seems unwilling to address criminal resistance to and public safety impacts of increasing use, as California attempts to legitimize a multi-billion dollar underground and illegal industry.

More amazing yet, the retention of financial records that all other businesses keep still poses a major hurdle to legitimacy. Much like the marijuana industry itself, banks are fearful of money laundering charges and asset seizures by the federal government for what is still an illegal drug at the federal level. It seems irresponsible to underestimate local law enforcement funding needs to fend off criminal activity in our communities as the state attempts to collect taxes from permitted as well as black-market operators. These black-market individuals may not wish to pay their fair share of taxes or co-exist with the state’s legitimized operators.

Public safety concerns must be front and center since last year’s medical marijuana legislation was crafted to create a framework for the November 2016 recreational marijuana ballot initiatives. One well-funded initiative establishes the California Marijuana Tax Fund, which consists of all taxes, interest and penalties collected and paid to the state by the industry. It will not contribute to the state’s general fund, and can only be used to further the initiative. The proposed taxes are: (a) an excise tax of 15 percent of gross receipts collected by the dispensary/retailer; (b) a sales and use tax (in addition to excise tax) for recreational cannabis only (medical marijuana is exempt); (c) a cultivation tax of $9.25/ounce for flowers and $2.75/ounce for leaves.

Public universities are on board to score $10 million annually to study the public safety and criminal justice impacts of marijuana. The Highway Patrol gets $3 million to figure out how to detect drugged drivers. Grants to local governments could be approved for law enforcement, fire protection or other public health programs, providing the locals have not banned the cultivation or retail sale of marijuana.

It’s a pay-to-play system that punishes communities that obey federal law or simply do not want marijuana trade in their neighborhoods. The impacts of areas that embrace the trade could spill over into those communities that do not wish to participate, without recompense or recourse.

So, follow the money. The cannabis initiative pads the pockets of the industry participants, funds a growing bureaucracy, promotes the products and, when considering the potential cost or unintended consequences, has very little direct benefit to our existing state budget. If all goes according to plan and marijuana becomes our new “cash” crop replacing existing agriculture, California could be on its way to establishing the next big tobacco industry and the first banana republic in the nation.

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