High rate may undermine Shapiro's weed tax bounty
(The Center Square) – Gov. Josh Shapiro has recreational cannabis on his mind, though legalization advocates worry the tax rate could be too high.
Details remain scant, but the governor’s proposed budget includes an adult-use cannabis tax in the form of a 20% wholesale tax, assuming that sales would begin in January 2025. The commonwealth would then realize revenues starting in fiscal year 2024-25.
The budget estimates that Pennsylvania would harvest $16 million in 2024-25, growing to $189 million annually by 2027-28.
However, legalization advocates warn that the tax burden might be too much to undermine the illicit market. With an excessive tax, the black market for cannabis could keep thriving.
“I certainly have a concern about the proposal of a 20% tax on wholesale prices; that number is certainly high,” said Meredith Buettner, executive director of the Pennsylvania Cannabis Coalition. “A wholesale tax most often gets passed on to consumers in the cost of goods … we want to make sure that the pricing structure and the tax structure is set up to pull folks out of the illicit market and into the regulated market.”
Still, Buettner was optimistic about the inclusion in the governor’s budget.
“We’re thrilled to see an adult-use cannabis tax as a proposed tax in the budget book,” she said. “It signals that the governor is thinking about adult-use legislation and the revenue benefits of that legislation for the commonwealth.”
A number of legalization bills have been proposed in the General Assembly by Democrats and Republicans alike, but none have come close to reaching the governor’s desk in recent years.
Federal law, among other issues, has made a number of Pennsylvania lawmakers hesitant to legalize marijuana for recreational use, as The Center Square previously reported.
Despite federal prohibition, though, nearby states such as New York and New Jersey blow through the complications to legalize it. Maryland legalized recreational use in 2022 and a legalization bill in Delaware cleared the House this week.
Pennsylvania’s slow approach could be a benefit, however, as lawmakers can learn from the missteps of other states.
“We want a comprehensive bill that takes all things into consideration and doesn't try to piecemeal a solution to enacting adult-use legislation,” Buettner said. “The creation of a new regulatory body to oversee the program is super important."
"Cannabis is a complicated topic, and having a regulatory body that’s solely focused on the implementation and enforcement of a cannabis program is super important," she added.
Other states have tried to spread regulatory authority among multiple agencies — with less-than-ideal results.
“Take Oregon for example," Buettner said. "They tried to keep their medical program and their adult-use program separate, and unfortunately, the cost of being compliant with two separate organizations is too much for operators."
Consequently, Oregon’s medical cannabis providers have all-but-disappeared in favor of recreational cannabis. Only one medical dispensary remains in the entire state, Buettner noted.
Ensuring that taxation isn’t too onerous and the regulation isn’t selfdefeating also matters because of the potential negative consequences of legalization. A 2021 analysis from the Independent Fiscal Office noted that marijuana-related visits to emergency rooms went up in states after legalization, as did calls to poison control and DUI citations.
However, the report also noted that “decreased illegal activity facilitates a reduction in public safety resources dedicated to marijuana arrests and court filings, which may lead to criminal justice cost savings.”