International Cannabis Business Conference

Colorado Maverick Challenges Pot Taxes

If you purchase this Maui strain in a recreational pot store, it will cost you 12.9% sales tax. Rob Corry wants to change that.

Attorney Rob Corry has filed suit in state court in Colorado to stop taxation of legal cannabis sales. Corry is an activist-attorney, who's known for stunts like a joint giveaway and getting arrested for smoking weed at a Rockies game. Is this another publicity stunt or does Corry's lawsuit have legs?

Part of the suit in behalf of No Over Taxation is based on a Fifth Amendment argument that turning in taxes from marijuana sales would be a form of self-incrimination. Point 34 reads: "Proposition AA imposes a 15% state excise tax on the wholesale transfer or sale of marijuana from a cultivation facility to the retail store or infused manufacturer, and a 10% sales tax on the retail sale (which can be raised to 15% without voter approval). In order to pay these taxes and be in compliance, the consumer, cultivator or retailer are required to identify themselves as possessing, distributing or selling marijuana, all violations of the federal CSA.”

Read Rob Corry's Suit vs. Gov. Hickenlooper and the State of Colorado

Since legal sales began in Colorado on Jan. 1, the state has raked in $11.3 million in taxes on the recreational marijuana industry. Another $6.4 million came from the 2.9% sales tax on medical marijuana.

Corry's objection is more generally about being taxed. His suit also alleges that the tax rates are too high, and thus keeping the illegal market in operation.

A variety of this argument is being heard in federal court in Washington over the state's attempt to collect sales taxes from a Bellingham dispensary. The suit has been filed by Doug Hiatt, who opposed I-502, the initiative that legalized marijuana in Washington in 2012.

The particulars of the suits are different, however. The tax at issue in Washington State doesn't specify that the revenue comes directly from cannabis sales, while the Colorado taxes are specifically from cannabis sales.

Corry's objection is more generally about being taxed. His suit also alleges that the tax rates are too high, and thus keeping the illegal market in operation. Point 39 reads: "The excessive marijuana taxes were set too high. The excessive taxes are defeating the purpose of Amendment 64 by revitalizing the underground market and putting regulated marijuana businesses out of business. The tax rates of the Marijuana Taxes are higher than tax rates on any other product or industry in Colorado history."

Are these efforts just a libertarian reaction against taxes of any kind? Even back in the 2010 Prop 19 vote in California, taxing marijuana and the corporatization of cannabis were among the arguments which may have helped to suppress potential yes votes.

On the other hand, there's no question that the taxes in Colorado, and soon in Washington, mean that the prices of adult social use cannabis will remain relatively high. In Colorado, medical patients are not required to pay the 10% sales tax recreational buyers are hit with, jacking up the price. If it weren't for the medical part of the market, the state would make a lot more.

These concerns will remain and continue to mount as more states legalize cannabis, and as legal adult social use cannabis comes into conflict with already-existing medical cannabis businesses. Oregon's 2014 ballot, for example, is likely to have a legalization measure that includes taxes and fees.

Oregon only recently set up its regulatory system for dispensaries, several of which are now open. There are no taxes and fees for medical cannabis businesses in the state other than the annual application fee, and any possible local business license fee, so there's certainly an incentive for Oregon cannabis businesses to stay in the medical market if and when the adult social-use market is legalized.

On the other hand, supply might become more problematic. Growers in the medical cannabis industry have to work out arrangements with their patients to have permission to sell the cannabis, and the number of plants they can raise is strictly limited, whereas commercial growers under the New Approach Oregon scheme will have no such restrictions. It's believed that some of the more prolific growers may decide to focus on the new adult social use market, leaving the patients behind.

Mark Kleiman, who advised Washington in their run-up to commercial sales, which begins July 8, pointed out the problem as far back as April 2013: “I don’t think the legal market (state officials) are imagining will be able to compete with the medical market if it remains as wide open as it currently is."

No one can say how this is going to turn out, whether tax burdens will kill off the legal adult social-use industry, or if patients will be sacrificed in the name of tax revenue. One thing is certain: These questions will not go away.

Doug McVay

Doug McVay

Writer and KBOO radio host based in Portland, Ore. He's also editor of DrugWarFacts.org.