When marijuana becomes legal for recreational use in January, customers could be shocked by the high cost of getting high.
That’s because taxes on legal marijuana might eventually add 45 percent, or more, to the cost of the product in San Diego.
There will be a 15 percent “excise tax” on marijuana sales state-wide. Add state and local taxes of 7.75 percent in the city of San Diego, plus another 5 percent marijuana tax, approved by San Diego voters, last year.
That “Cannabis Business Tax” will increase to eight percent on July 1, 2019, and the city council can increase the tax to a maximum of 15 percent at any time after July 2019.
According to a Fitch Ratings report, pot farmers will also be taxed $9.25 per ounce for marijuana flowers, and $2.75 per ounce for leaves.
That cost will passed on to consumers.
The Fitch report warns that additional taxes, added to the cost of the product, could dampen demand for legal marijuana sold by licensed dispensaries.
“If we continue to impose too many regulations and (taxes) on marijuana, then we’ll continue to have the black market,” said Kelly Cunningham, senior economist at the National University System in La Jolla.
Cunningham said research reveals that taxes of up to 50 percent on marijuana now sold legally in other states has pushed some users to buy their pot from illegal dispensaries or street dealers, who don’t pay taxes, and have lower, or no, overhead costs.
He pointed to studies that show a tax rate of 33 percent in Colorado has hindered that state’s effort to wipe out the black market for marijuana.
Cunningham said basic economic rules of supply-and-demand and competitiveness will determine what happens in San Diego, but he thinks even a 33 percent tax will encourage some customers to buy their pot on the black market.
Zack Lazarus, co-founder a licensed Otay Mesa dispensary, disagreed.
He predicts that despite a more expensive product, local customers “will be (buying) from licensed, regulated, controlled facilities, where it’s safe, and you’re able to get your cannabis without any issues.”
Lazarus said his industry will educate voters on the positive impact of the taxes they pay.
For example, he said revenue from the state’s 15 percent excise tax will pay for youth programs, public safety and environmental clean-ups.
“I think it’s great that we’re giving back to the health, safety and welfare of the community,” Lazarus said. “I think it’s wonderful that we’re creating jobs off this taxation.”