The state with one of the most successful cannabis program phase ins has a plan that could solve an issue that has been dogging even the best U.S. companies on a daily basis.
Nothing motivates politicians more than a new source of revenue.
And despite whatever personal misgivings you might have about taxation in general, the more motivation politicians have to legalize or to even expand programs that seem to be working well, the better.
Let’s face it, even though the end of cannabis prohibition in the United States is inevitable, smart cannabis investors like yourself would love to get there sooner than later.
A bevy of legislation, whether allowing for full-recreational or medical-only use, continues to channel vast pools of spending into legitimate streams of revenue and pulling entrepreneurs and innovators into previously unexplored areas of tremendous growth. We’re likely to see yet another state, New Jersey, legalize use and start to set up a program as early as this Friday.
In fact, states that have legalized either medical or recreational programs already are starting to see a boom effect set in. Taxable sales in the markets that haven’t over-taxed cannabis (re: California), have widely exceeded expectations.
That’s no doubt influencing some of the more recent clamoring to lay claim to the stream of cannabis taxes. Just last week, for example, the Rudin Center for Transportation Policy and Management in New York published a report urging for the legalization of recreational cannabis because its tax revenues could essentially fix mass transit in the Big Apple.
But the most interesting piece – or most lucrative for publicly traded cannabis companies doing business in the U.S. – isn’t even the domino effect on legalization legislation.
One state appears ready to fix a particularly onerous obstacle holding back cannabis business. And it might just set the standard for all other states to follow while we wait for federal re-scheduling or full legalization.
This is the game-changer I’m talking about…
Tax Revenue Fueling Millions in Needed Improvements
Politicians finding their motivation to support cannabis reform by stumbling across a new source of tax is nothing but good news for cannabis investors. That’s because the faster and more broadly cannabis prohibition is repealed, the quicker cannabis stock prices will reflect the massive opportunity of moving from less than $20 billion to over $100 billion in sales in the U.S. alone.
And the temptation to tax is understandably huge.
Michigan, the most recent state to legalize recreational use, is sticking a 10% tax on recreational sales which is expected to pull about $200 million per year into state coffers to start.
Michigan’s expectations aren’t likely far off the mark. Colorado and Washington, where recreational sales have been legal for a few years, collect between $250 and $350 million in taxes and fees – and Michigan is more populous than either.
Colorado, famously, has been fixing its schools with legal cannabis sales revenue.
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Nevada is also in the process of pouring $25 million into local schools. That plan is enabled almost entirely because the state brought in $70 million in taxes on cannabis sales during its first full year of recreational sales.
The state has been a sort of model case in legal cannabis sales aside from the supply shortage hiccup that happened in the first two weeks of retail operations in the state – when the governor had to declare a state of emergency to ensure medical patients could get their supply. Nevada taxes its customers and businesses around the same level Michigan is considering, less than half what California regulators wrongly thought was a good idea. And the program has been a massive success since, with stellar results expected for this quarter once it ends.
But Nevada isn’t satisfied – nor should it be. It’s about to create a template for other states to follow yet again…
Nevada Could Make State-Backed Cannabis, Hemp Banking a Reality by 2019
Because of the ongoing federal prohibition of marijuana, most of the largest banks in the country will not do business with companies that “touch the plant.” And for the same reason, some upstart financial institutions ran into problems trying to create banks because they couldn’t get support from any of the Federal Reserve districts.
As such, cannabis in the United States is mostly a cash business. This is problematic for many reasons, not the least of which is companies having to literally bring giant bags of cash to municipal buildings or state agencies for quarterly or annual tax payments. No parties want this for the sake of efficiency, transparency, and/or safety.
Plus, businesses have to spend a small fortune on security at dispensaries and grow operations because it is known, especially by criminals, that these locations have a ton of cash on site (not to mention plenty of marijuana).
Nevada has seen the positive and dramatic effect legal cannabis is having on the state. So it’s working to solve this ongoing issue for cannabis companies doing business there and those downstream.
Lawmakers are already making a hard push to set up a state-backed banking institution that will service its companies so it can be able to do things like electronic payments or even write checks to suppliers, landlords, and so on.
This progression makes all the sense in the world – It just hasn’t gone into effect anywhere as yet.
California lawmakers apparently offered up similar legislation first, earlier this year. But given its track record on its slow program rollout, Nevada will almost surely beat it to the punch. California still has much work to do on its own program. Thankfully, the state with a larger cannabis market than the whole of Canada seems to be trying to do just that in at least one area. And I’ll be back later this week to tell you all about it.
In any case, look for Nevada to iron out the details for this early in its 2019 legislative session – a very preliminary proposal was already processed by the state in November to grease the skids. The state has blazed a trail that others followed before. Its earned reputation tells us that it’s going to do so again, only to be quickly copied by other states that want the benefits that banking will bring but don’t know how to get started.
And that’s our next domino effect trend in cannabis.
Thanks for being an important part of the National Institute for Cannabis Investors,
Executive Director, National Institute for Cannabis Investors
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4 responses to “Why Smart Cannabis Taxation Inspired the Fix for Industry’s Biggest Problem”
December 10 2018