San Antonio Express-News (Sunday)
BILLION- DOLLAR PITCH
Smart Money: Legalizing — and taxing — marijuana could help fill state’s revenue shortfall.
From a state revenue perspective, winter is coming. It's time to tap an obvious new source of revenue: legalized marijuana.
I start from an assumption — one I don't think is crazy — that the combination of COVID-19 and the oil and gas slump will leave the Texas state budget in a cold, damp, dark hole.
In July, the Texas comptroller's office warned that the state's tax revenues could come in $4.58 billion short of budget estimates. The comptroller projected drops in motor vehicle sales, oil production, natural gas production, alcohol sales and hotel occupancy of 13, 31,
42, 20 and 32 percent, respectively.
We are in dire need of new tax revenue. How much could we potentially raise from marijuana legalization and taxation?
I previously estimated marijuana's potential tax revenue for Texas nearly five years ago — about $500 million — as a kind of semi-joke, advocating for an education-earmarked cannabis tax I branded “Tokes for Tots.” It's not a joke anymore.
Look, legalization is coming. Maybe not before New Mexico and Oklahoma legalize pot and make it painfully, super obvious that Texas is a laggard in collecting this source of new tax revenue. But it's coming.
Morris Denton told me last week that cannabis legalization is “a billion-dollar bird's nest that's just lying there on the sidewalk on Congress Avenue, just south of the Capitol in Austin.”
Who is Morris Denton? He runs Texas Original Compassionate Cultivation, one of just three licensed businesses in Texas for medical cannabis. Clearly, he sees potential and wants this to happen. And a billion dollars? I love that as a headline — it's simple, memorable. Bird's nest? Great visual.
The problem is that he's deeply underestimating the tax potential for the state.
The comptroller's office responded to my query about whether they have prepared tax revenue estimates for legal cannabis with this: “Not at this time. That is something we would examine should the legislature consider legalizing cannabis and making it taxable.”
So I guess that leaves your boy, me, to come up with reasonable estimates. It's actually quite easy. Ready for some quick math?
Colorado reported $303.5 million in marijuana sales taxes in 2019, or $52.50 in revenue per capita. Washington state reported $395.5 million in marijuana sales taxes in 2019, or $51.94 in revenue per capita. Assuming a round number of $50 per capita
in revenue in Texas on a population of 29 million people, there’s your $1.45 billion in annual state tax revenue right there.
Alcohol taxes in Texas raised $2.6 billion in the 2018-19 fiscal year. Could marijuana taxes raise more than $2.6 billion over a two-year biennial budget? I don’t see why not.
Now, some nuances and limits to my strident arguments:
The status quo holders of power in the state are not currently considering what I believe is an obviously fiscally sound strategy. Lt. Gov. Dan Patrick has repeatedly vowed to block both legalization and decriminalization of marijuana efforts.
The outgoing Texas House Speaker Dennis Bonnen acknowledged the revenue potential of a marijuana tax, but said he would vote against it personally. Despite that, the state’s Republican Party platform has endorsed decriminalization, even if their platform falls short of outright legalization and taxation.
In July, in an interview with the Texas Tribune, Comptroller Glenn Hegar said he did not believe the Texas Legislature would vote to legalize and tax marijuana.
The Cannabis Voter Project tracks Texas’ elected official views on legalization.
Using their official-by-official information, I count just 29 percent of the state’s congressional delegation as supporting legalization.
The Cannabis Voter Project does not track state legislative officials’ views, and those would be the most responsible for this change.
So that’s the status politically, which does not suggest legalization and taxation is imminent. But if my column has one unifying theme, it would be this: The inexorable power of money to sharpen agendas and shape outcomes.
When Hegar revisits the state’s budgetary hole in a few months, will it even seem politically responsible to not legalize and tax marijuana? It’s not the only financial solution, of course, but rather seems one prudent step among many that the state needs to take.
I have assumed in my estimate a heavy tax on marijuana sales, comparable to Colorado and Washington. I think that’s the right way to go, but obviously that’s a debate still to happen in the future.
Heather Fazio, director of Texans for Responsible Marijuana Policy, believes eventual legalization should not necessarily follow the Colorado or Washington model.
“In states that have moved forward with adult use, we have seen a lot of big government, with high barriers to entry and a high burden of regulation,” Fazio said. “Our government (in Texas) has a tradition of lighter touch, lighter taxation. That’s why we talk about reasonable regulation.”
Despite my enthusiasm for high marijuana taxes as a revenue generator, Fazio warned me: “If taxes are as high as they are in Washington, we’re going to incentivize people to go to the same person where they’ve previously gotten their cannabis, keeping the black market going.”
I guess we can burn that bridge when we come to it.
The next official warning about any budget shortfalls will come in January 2021, in advance of the next biennial legislative session. At that point, we will have more clarity on whether the comptroller’s office came in high or low on revenue estimates. Given that neither oil and gas nor the COVID-19 economy have shown clear signs of recovery yet, the revenue problem may be just as, or more, obviously difficult by January.