Neglect the pandemic increase in marijuana gross sales — Colorado now collects fewer marijuana tax {dollars} than it did in 2018.
About half the nation now has joined Colorado in legalizing leisure marijuana, with a complete of 24 states and Washington, D.C., regulating hashish. The unfold of legalization has taken a toll on Colorado’s extra established market, with the wholesale value of authorized marijuana falling to its lowest recorded stage, in keeping with state funds paperwork.
However a brand new evaluation by Joint Finances Committee employees discovered that there’s one other issue responsible for the decline of Colorado’s marijuana trade: the rise of intoxicating hemp.
In 2018, Congress legalized hemp via the federal Farm Invoice, a change that was geared toward permitting its use for issues like textiles, not leisure medication.
There’s a restrict on how a lot THC might be current in legalized hemp. However the federal adjustments have nonetheless resulted within the creation of a $2.2 billion quasi-legal marketplace for intoxicating hemp merchandise, together with THC-infused seltzers, brownies and gummies that are actually popping up in fuel stations, farmers markets and CBD shops throughout the nation.
“You’ve put a fairly strong regulatory construction in place round marijuana, and you’ve got this product that’s kind of laughing within the face of that construction,” Craig Harper, the JBC employees director, informed lawmakers at a funds listening to final week.
California’s governor just lately issued an emergency order banning intoxicating hemp merchandise, whereas Colorado in 2023 handed a invoice to limit them to licensed marijuana sellers. Intoxicating hemp is produced by changing CBD derived from hemp, which is authorized, into chemical compounds just like the THC contained in hashish.
State attorneys common, together with Colorado’s Phil Weiser, are pushing Congress to place stricter limits on hemp, saying their very own efforts to crack down on the trade have been stymied by authorized uncertainty.
However within the meantime, Colorado’s authorized marijuana sellers are seeing much less client curiosity of their extremely regulated merchandise.
Marijuana gross sales — and the tax income they generate — peaked in Colorado within the 2020-21 funds 12 months, when the state collected $424 million in gross sales and excise taxes. That fell 41% to $248 million within the 2023-24 funds 12 months.
For years, funds officers have warned that the increase instances wouldn’t final as soon as client conduct returned to pre-pandemic ranges. Right this moment, nevertheless, marijuana tax collections have even fallen under what they generated in 2018 and 2019 — and it’s not clear if we’ve reached all-time low.
The governor’s Workplace of State Planning and Budgeting expects income will lastly stage off this funds 12 months, growing barely to $267 million, then $285 million subsequent 12 months. However Colorado Legislative Council Workers isn’t so certain; they’re projecting tax collections to fall once more this funds 12 months to $242 million, earlier than ticking as much as $250 million subsequent 12 months.
Not all of that cash winds up within the Marijuana Tax Money Fund, both. In final 12 months’s funds, lawmakers had about $131 million within the fund to spend on issues like well being providers and regulation enforcement. The remaining will get transferred to colleges and native governments.
Marijuana taxes are among the many few sources of state funding that may develop with out restriction in Colorado, as a result of voters exempted them from the Taxpayer’s Invoice of Rights income cap.
So in a 12 months the place the TABOR cap goes to pressure the legislature to make round a billion {dollars} in spending cuts, the marijuana tax downturn stings.
Final funds cycle, lawmakers already needed to minimize providers funded by marijuana taxes — together with a $20 million fee to BEST, a public faculty building grant program that the JBC voted to delay till the 2025-26 funds 12 months.
Count on extra cuts within the 2025 legislative session.
For starters, Gov. Jared Polis has proposed chopping the BEST fee once more — however even which may not be sufficient to stability the marijuana fund funds.
As of now, JBC employees initiatives that lawmakers should minimize a further $19 million in marijuana spending from Polis’ funds request to keep away from dipping into the fund’s reserves. And that’s underneath the extra optimistic forecast from the governor’s workplace. If the legislative employees forecast is nearer to actuality, lawmakers may need to chop greater than double that quantity.
Colorado’s not alone; different states that have been early legalizers of marijuana have seen revenues plummet as properly. Gross sales have fallen 3.3% this 12 months in Washington state, which legalized the drug in 2014, whereas California’s gross sales declined 3.4%, in keeping with Hashish Enterprise Occasions. However no state noticed a decline as giant as Colorado’s 8% drop, which noticed the trade lose $100 million in annual gross sales.
The downward pattern has put new stress on funds writers to enact new guardrails round how the cash might be spent.
After voters legalized leisure marijuana in 2012, the Basic Meeting handed a regulation directing the tax {dollars} it generated to a handful of areas associated to drug use: prevention and remedy packages, public well being and security, and efforts to guard youth from medication.
However over time, lawmakers have expanded the potential makes use of for marijuana taxes to as many as 21 classes, together with housing, entrepreneurial packages, trial courts and veterans providers.
“My first few years within the legislature, it was seen as, oh, that’s the place you go to pay to your payments, as a result of there’s not sufficient common funds,” stated JBC chair Jeff Bridges, a Democratic senator from Greenwood Village. “It wasn’t a superb factor. And now there’s a bunch of stuff in there that possibly shouldn’t be in there.”
