By Brian Bahouth
Reno – The Guinn Center For Policy Priorities released a “Nevada Budget Overview” yesterday in which the bi-partisan Nevada think-tank offers a concise and insightful description of Nevada’s budgetary process and a detailed analysis of the state’s 2017–2019 budget; and a noted budgetary forecasting question mark is the revenue the state can expect to yield from marijuana taxes.
On December 6, 2016 the Nevada Economic Forum (a panel of five economic and taxation experts from the private sector) met to submit its revenue projections to the Governor and the Legislature. In January, Nevada Governor Brian Sandoval released a detailed state budget for 2017-2019. Nevada’s 79th biennial, 120 day legislative session got underway on February 6, and by June 5, lawmakers must use the Forum’s projections and reconcile spending priorities in a series of bills.
But as the Economic Forum convenes on Monday May 1 to offer its last revenue projection before the end of the legislative session, the amount of tax revenue the state can reliably expect from marijuana tax is hazy.
The voter approved Ballot Question 2 imposes a 15 percent excise tax on the wholesale sale of adult use cannabis, and a bill active in the Legislature, at the behest of Governor Sandoval, adds a 10 percent tax at retail sale of recreational marijuana, but those taxes will not become effective until January 1, 2018, when the Nevada Department of Taxation must adopt final regulations for the recreational marijuana program and begin issuing business licenses. For the first 18 months of 2018, only medical marijuana businesses already licensed in Nevada can apply for a recreational license.
There are currently more than 50 medical marijuana dispensaries operating in Nevada, and Senate Bill 302, if made law, would open them to the general adult public as soon as July 1 of this year. The bill as currently written would impose a total temporary excise tax at retail sale of 30 percent. The temporary measure would sunset when the permanent regulations take effect on January 1, 2018.
State regulators in Oregon radically underestimated the amount of marijuana tax revenue the state would glean in 2016 after lawmakers enacted a similar early start program. In October 2015, a year after Oregon legalized adult use of cannabis, the state opened roughly 350 medical marijuana dispensaries to the general adult public with a 25 percent tax on recreational marijuana. Officials initially estimated marijuana tax revenue to be between $2 and $10 million, but after final accounting, nearly $60.2 million had been collected in 2016.
In Oregon they opened six times as many dispensaries as are in Nevada, but roughly 40 million people visit Las Vegas a year, and by contrast, some 9 million people visit Portland, Oregon’s largest single tourist destination; so marijuana tax revenue in Nevada is something of a wait and see that could have an effect on funding for the state’s schools and other programs. Almost all marijuana tax in Nevada is earmarked for education, and the state spends roughly a billion dollars a year on K-12 funding. Governor Sandoval has budgeted for roughly $144 million in marijuana tax revenue over the 2017-2019 biennium, so marijuana taxes need to make up 5 to 7 percent of the state’s education funding.
From the Guinn Center briefing:
“The Governor’s Finance Office has maintained that it underestimated expected revenues intentionally in order not to build too much money into the budget if the program underperforms. However, if revenues are lower than expected, money to be deposited in the Distributive School Account—that is, the residual balance from fees and the wholesale sales tax, after administrative costs and the entire retail sales tax—would be backbilled to the General Fund. The implication here is that, if the legalization of marijuana does not bring in the expected revenue, the impact on K-12 education could be a reduced amount of funding, and the effect on the General Fund could be less money for other programs.”
The regulation and taxation of marijuana in Nevada is a foray into largely uncharted territory, and thereby uncertainty is inherent as the system grows and eventually normalizes, but in tight budgetary times, accurate revenue forecasts are important, and the accuracy of Governor Sandoval’s marijuana tax revenue estimate remains to be seen, but if other states to legalize the adult use of cannabis are any consolation, the demand for legal marijuana remains strong.