What happened to the other $21.5 million in Colorado marijuana taxes?

What happened to the other $21.5 million in Colorado marijuana taxes?

VicesOctober 20, 2014

Look! We found the missing $21.5 million in over-projected recreational marijuana revenue.

When Colorado legalized recreational marijuana, promising $40 million annually in excise tax money designated for school construction, everybody envisioned shiny, new drug-funded educational institutions, not a “Reefer Madness”-inspired campaign featuring rat cages that look strikingly similar to prison cells for children.

Nonetheless, in a state spending a mere $8,724 per student, leadership thought it reasonable to invest no less than $2 million in its new “Don’t Be A Lab Rat” campaign, which placed 12-by-8-by-8-foot cages featuring anti-marijuana propaganda on public property and in public schools. They swear that wasn’t tax money they spent bypassing the school-to-prison pipeline by putting the prisons in schools, but then they dodge details when confronted with the fact that at least $450,000 came directly from Denver city and county coffers. Either way, that’s a blatant waste of taxpayer money on drug-war scare tactics that historically fail every time … and it’s election season. Oops.

Colorado’s leaders showed their respective hands, and that kind of bluffing comes with consequences. Falling $21.5 million short of lawmakers’ $33.5 million six-month projections, recreational marijuana generated only $12 million total in its first six months, and July 2014 marks the first time Colorado’s recreational marijuana sales were higher than medical marijuana sales.

Nevermind that the state must overestimate revenue projections because it’s legally required to pay back to the people anything beyond its estimate. It appears these leaders were either educated in the state’s under-funded schools or simply prioritized their own bottom lines over children, constituents and businesses while mismanaging a potential cash-cow vice industry their D.C. colleagues, as well as the federal government, oppose.

We’ll let you decide if they designed the system to fail.

While it’s true corporations count as people in the United States, the separate and nowhere-near-equal treatment of marijuana-related businesses indicates marijuana business is to corporation what homosexuals, blacks, Hispanics, immigrants and women are to constituents — at least as far as governmental regulation and policy are concerned.

For example, the federal Financial Crimes Enforcement Network, part of the Department of Treasury, requires banks to know at all times that their marijuana-related business clients comply with federal 2013 “Cole Memo” priorities, thus turning banks into regulatory agencies for underage consumption, cartels, overconsumption and transferring marijuana across state lines. No other vice industry encounters this.

Due to risk and extra work, banks often charge hundreds or thousands of dollars in fees for the service, if they’ll service marijuana clients at all, says Robin Roberts, the president of Pike’s Peak National Bank and an independent candidate for lieutenant governor.

“Everything we do is tied to the federal government, so the fact that marijuana is still illegal at the federal level is enough for most banks just to say ‘no way, we’re not going to get involved in banking these businesses,’” says Roberts. “In the case of marijuana-related businesses, often times it’s because of moral reasons that are hidden behind the fact that it is illegal at the federal level.”

Marijuana-related businesses also pay heavy taxes and penalties but can’t deduct normal business expenses, including payroll, per Reagan-era IRS Tax Code 280e.

“So (marijuana-related businesses) pay their taxes in cash and they pay a penalty … to the Colorado Department of Revenue,” says Roberts. “Where does the state deposit that money? Into Chase Bank or Bank of America.”

To be clear: The state can deposit marijuana money, but the state’s marijuana-related businesses and the banks who wish to treat them like other legal clients must jump through hoops to bank at all. It’s a fight to have payroll and debit cards, to take credit cards and even to file taxes.

“(Banks) are scared,” says Greg Glennie, manager of the Boulder Green Room, a recreational marijuana dispensary. “Banking has been difficult for everybody in the industry since day one. I don’t envy the regulators. It’s not easy.”

This complicates business’ ability to stay afloat and above-the-board in a world of constantly changing regulations, he says. Regulations not used to punish other such vice industries.

“If you can’t deduct your business expenses against your income, imagine what that does to your business model … to your taxable income,” Glennie says. “The cost of goods sold is deductible, the expenses are not. … What would be a profitable business would become a break-even business or a non-profitable business due to that one item.”

That’s a lot of cash just hanging around these already at-risk businesses, and it presents a danger to employees, says Chris Woods, president and founder of Terrapin Station. He’s found a bank to work with his company, and he says the fees pose far less of a problem than not being able to bank.

“To be able to have accountability and a clean audit trail in our books, it’s invaluable so we can show regulators and governments that money is being accounted for properly,” Woods says. “The public safety issue of not having piles of cash, I mean, you can’t put a price on that.”

Instead, the price passes through to consumers. In 2012, when the public voted to legalize recreational marijuana, leadership promised to treat it like alcohol. Everyone agreed the drug should be well regulated and could be taxed at an unprecedented rate of 27.9 percent, no matter the quantity, to keep the drug away from children as it paid for their education.

To compare the pot taxes to booze taxation, however, a 72-ounce six pack of beer sees a nickel in excise tax, or a flat 8 cents per gallon, plus 2.9 percent sales tax on the purchase itself. Recreational marijuana’s legalization included a 15-percent excise tax for schools, a 10 percent sales tax with which the government would regulate weed, and the 2.9-percent sales tax. Tobacco is typically taxed at a similar rate per pack, but it doesn’t see regulation comparable to that of marijuana. Alas, Coloradans can’t yet grab a pack of joints at the gas station with their morning coffee.

Recreational marijuana’s cost and acquisition hurdles cripple its sales, with ounces running no less than $200-$250 each, at house-quality (think house wine), plus $59.80-$69.75 in taxes. Most people buy in slightly pricier eighths or quarters of ounces, not full ounces, making a $250 ounce appear reasonable, especially as the quality still kicks the shit out of cartel bricks.

Alas, the best bang for a buck comes from the state’s well-established medical, home-grow and black-market marijuana operations. Anyone who’s been a smoker in Colorado for more than a week knows it’s only out of desperation that one buys a recreational, “bargain” $35 eighth, at most, but only if that guy with a med card who lives with so-and-so is out of town. Colorado’s Marijuana Policy Group estimates about 23 percent of its estimated number of marijuana users in Colorado have medical cards.

Combine those generous patients with an ever-graying black market in which Colorado’s legally aged public may now grow up to six plants per person, and recreational didn’t stand a chance. It’s low-risk, high-reward sales for home growers, as long as landlords or housing associations aren’t a problem.

Spoiled by dank-ass local grass, low- to middle-income smokers needn’t invest in recreational weed, especially when buying in bulk. Without paying inflated prices, instead shopping locally from friends, gray-market users enjoy more flexible pick-up or delivery hours and, often, more generous portions of better weed. It’s wasteful to buy recreational.

Gray-market distribution gets iffy legally, but that’s not stopping anybody looking to buy reasonably priced, quality weed. Word of mouth on a $125 ounce of top-shelf kush spreads faster than naked pictures of Jennifer Lawrence, and with far less pomp and circumstance. Most regular Colorado marijuana users get high-quality ounces for somewhere between $125 and $200, tax free, and put that money right into a friend’s pockets instead of further funding state leaders’ financial mismanagement.

Consequently, when lawmakers over projected $33.5 million in marijuana revenue, they didn’t stand a chance at coming close, even with demand considerably higher than projected. The boom couldn’t happen under the implemented system, especially with the DEA breathing down everybody’s necks.

And in a state like Colorado, lawmakers knew that going into this. So perhaps they didn’t do this for the kids, or for marijuana users and businesses, or to eliminate the cartel presence once and for all.

The United States has the highest known incarceration rate in the world, and it got there when players including then-Vice President Dick Cheney invested in prisons, then signed contracts with clauses requiring incredibly high imprisonment rates to avoid paying low-capacity penalties to said prison companies. To direct business and economy, U.S. leaders created the international war on drugs and hemp long before Cheney, however. This tracks back as far as Hearst and crew using connections to destroy the hemp industry, which he did not own, and promote paper, which he owned. The subsequent drug war now fills prison beds to the tune of nearly 1 percent of the country’s population, even in the green state of Colorado.

More than 50 percent of federal prison inmates were convicted of drug offenses, according to the Federal Bureau of Prisons, with marijuana accounting for 27.6 percent of those convictions. Those numbers don’t account for people who commit other crimes for drugs. In the last 25 years or so, Colorado police made more than 210,000 marijuana-related arrests, and not one of the resulting prisoners will be released because the United States also keeps its prison numbers high by refusing former criminals retroactive ameliorative relief, which would mandate the release of prisoners convicted of laws that no longer exist.

Former DEA spokeswoman Belita Nelson, says decreasing marijuana arrests exacerbates that system’s functionality, a system in which cartel and DEA overlap almost indistinguishably. Though crime in Colorado dropped by a third in the past decade, a contractual occupancy requirement of 90 percent covering three for-profit prisons here cost taxpayers $2 million last year, according to an In The Public Interest report.

“The war on marijuana is perpetrated around the prison system,” Nelson said. “We’ve got to keep them full, or we have to pay back money if you don’t fulfill your X number of prisoners. That’s how they work.

“They make you think they’re law enforcement, and the corruption is over the top. They don’t want to win the war on drugs. They want the money.

“As it was put to me when I was in service, by an agent, ‘Marijuana is our cash cow. We know it’s safe, but we’re not giving it up.’”

One of our favorite Dunafonisms , spoken by Glendale Mayor Mike Dunafon, sums it up nicely: “Any time somebody says ‘It’s for the kids,’ check your wallet; it’s not for the kids.”

Nobody’s in it to save the next generation. The state promised more tax revenue to youth marijuana use prevention and deterrence ($45.5 million) and substance abuse treatment ($40.4 million) than to actually improving schools and education. Colorado’s unusually low property taxes alone — which pay for schools in most states — as well as more than $1 billion in funding cut from the state’s schools in the last decade mean Colorado falls in the 10 lowest-paying states, at $8,724 per student, with the best states falling in the $18,000 range, according to the U.S. Census Bureau. For perspective, the national average spent per pupil is $10,600.

But leadership wants to devote $85.9 million to alleged anti-drug efforts.

Instead of investing in education, the state’s leadership took public money, which includes 15 percent of the 10-percent sales tax on marijuana as well as the full 15-percent excise tax, to go ahead and just put the prison cells in schools, at the cost of $2 million. That number would have been much higher had Boulder Valley School District not politely told Hickenlooper and Sukle Advertising and Design to fuck off.

Consumers did the same thing with recreational marijuana, flipping recreational taxes the bird by buying illegally.

Colorado voters value their power to incite change. They’ve already proven it. They value leadership that serves constituents, and they’re fed the fuck up. They see the logic in legalizing marijuana, and they will not facilitate further corruption in the industry to keep the money flowing in the direction of wealthy lawmakers.

A truly successful approach to managing legalized marijuana would bring it fully above board, direct tax money to improving Colorado’s future and cripple prison industrial complex as well as the cartels, both illegal and federally endorsed. New, forward-thinking leadership could pass laws freeing “criminals” convicted of acts voters agreed aren’t crimes.

That’s a lot of broken ties and political promises with a lot of wealthy and influential powers, and it only further highlights the dismal state of the state and country’s prison, legal and governmental systems. But if the bulk of voters and their children must struggle to succeed, it’s time to burn bridges.

Colorado’s voters — 34 percent of whom remain independent or unaffiliated — needn’t choose the lesser of two evils this year. Coincidentally, with more than two gubernatorial candidates on the ballot, one could win with as little as 34 percent of the vote. To put this frankly: Incumbent Gov. John Hickenlooper and Republican contender Bob Beauprez can’t handle Coloradans’ forward thinking, so it’s up to even the “but it’s not a presidential election” voters to fix this shit, now. Believe in the power of constituency, and vote like everyone’s future depends on it.

To contact the author of this article, email Brandy Simmons at brandy@therooster.com.