When Taxpayers Welcome Taxes

DESCRIPTIONPhoto: Neeta Lind

It’s not often that you see a quote like this.

Referring to a new tax that will fall squarely on the shoulders of his business and just a few others, Steve DeAngelo said in a CNN article,

And we decided to step up to the plate and make a contribution to the city in a time of need.

Remarkably, DeAngelo is not just willing to pay this new tax, he actually led the effort to get the tax approved. His business will now have to pay $350,000 in additional taxes next year because of the new tax.

Why is DeAngelo so eager to pay these taxes? I’m almost certain it is not because he is an altruist.

The real answer, I suspect, is that he is generating $19 million a year in revenues selling in a market (medical marijuana) that is barely legal. And DeAngelo probably suspects that taxation will increase the likelihood that his business remains legal, for two reasons.

The first reason is that taxing a good implicitly says that the government acknowledges the legitimacy of the activity; we tax legitimate goods, and we fine and imprison those who sell illegitimate goods. Second, while experts suggest that marijuana itself is not very addictive, new sources of tax revenue surely are addictive! So once the revenues start coming, government won’t want to turn off the spigot.

I’m curious to hear from blog readers who have information on how much these medical marijuana clubs charge. I wouldn’t think it would be very expensive; marijuana on the street is as cheap as can be.

Can someone explain to me how one club generates $19 million in revenues a year? There must be a lot of sick people out there.


Eric

I read in a recent NYTimes article that an eighth of medical marijuana costs $102 in California, which is twice as much as the street price, or so I've heard.

Tom Jones

The prices in the clinics are comparable to street prices for high end cannabis in large urban areas (maybe even a little cheaper). The quality is high, and the supply is endless. There is a modern day gold rush going on in California. The government may be bankrupt, and industry may be escaping to states like Texas, but many are moving to Northern California to cash in on this cash crop.

Marijuana prohibition was enacted originally as a tool to drive out Mexican laborers after WII. Now all it does is flood our prisons, and drain out treasure. How senseless is this prohibition? Hopefully we are in the same place as we were in the 1930's (and I pray it is not economically), and we abolish this senseless and costly prohibition. We waste our money and resources the longer this enforce these racist and draconian prohibition.

Ari

Although I dont have the section in front of me, the Tax code gives the right for the IRS to tax any illegal business, and even allows an illegal business to deduct the costs of business as would a normal operation, except narcotics. SO basically a drug dealer needs to pay tax on his revenue and cannot deduct the cost of product. Point being tax doesn't necessarily legitimize the business. However, the business owner here is probably correct regardless.

BSK

I don't know prices, but even if it is more expensive, there is more that you are getting than just the marijuana. Generally, the quality is far better, there is no threat of prosecution, and you have a guaranteed supply.

James

I'd imagine that it'd be relatively easy for anyone to get medical marijuana, almost like getting a fake ID to buy alcohol - of course not THAT easy, but relatively easy for obtaining a drug that is usually illegal.

Plus, being able to acquire weed "legally" through medical marijuana without any fear of getting caught may make people very willing to pay the premium, which is as Eric said about double the street price.

jimshyne

My addiction began in earnest when I reached eighth grade. It demanded to be fed on a daily basis for the next thirty years. The addiction of which I speak was not to marijuana, but to the game of basketball, for which I had an unquenchable thirst .The good news was that it paid for my college education and provided a constructive, socially acceptable outlet for no small amount of rage over being raised in a financially strapped family headed by a tragically alcoholic father.

The bad news was a host of irreversible spine and joint problems which have put me in daily chronic pain for over twenty years. I decided long ago that opiate based pain medication was a route I would simply not ever go down; in my effort to combat a level of pain that at times caused me to black out behind the wheel of my car.

The best solution for me over time has been to have a taste of " mother nature" when the pain becomes unendurable, as it sometimes does. While I am not a daily marijuana user, I can state with conviction born of experience that cannabis, totally apart from its mood elevating effects, is an efficacious substance for people who suffer from chronic pain and it should be legalized in every state in the country.

The tax benefits reaped would make its legalization more than worthwhile given the financial morass the country is in these days.

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Travis

From what i've read it's not 19 million from the one club, it's from the 4 recognized clubs that operate in Oakland. Oakland is a big city.

Aside from that, I think it's worth mentioning that pot is already taxed under the state tax system, this is only a city tax increase that is being proposed (from $1.2 to $18 per $1000).

It should be interesting to see how this all pans out, regardless. I think it would make a lot of the Oakland city officials upset if the fed were to come shutting down their rev stream by shutting down the dispensaries. (Which the DA for the ND of Cal. feels strongly that they are per se illegal, because they are all operating for profit.)

Jackie

Pot smokers have said loudly and for many years that they would be happy to pay taxes on their cannabis to have it legalized. I for one would welcome the economic shift from costing us money to making us money.

@Tom Jones - pulling any possible connection to accuse people of racism is never appropriate. It was outlawed so the paper/cotton industries didn't have to compete with a superior product.

NB

Tom and Jackie are both right. Many reasons were used to justify criminalizing a plant that grew wildly and freely in the US.

Kevin

It's not that experts 'suggestions' - any expert will tell you that marijuana is not addictive and cannot be addictive, regardless of its potency. It's only when you add fearmongering politicians into the mix that you get such unfounded rumors.

It's not that easy to get a fake medical marijuana ID. At a club/bar, generally the bouncer doesn't scan your ID and check it against a database, which is what they do in states that have medicinal marijuana laws. Every system has holes, but this one is much more robust than people give it credit for.

@Jackie, if you look at the history of drug policy, it actually is pretty racist. Pretty much every recreational drug that is illegal today was legal over a century ago, and many were used by the elite and ruling class. Paper and cotton may have been the lobbying motivations of Hearst, but that certainly was not the tactic used (racist propaganda), and racism and drug prohibition are inseparable nowadays .

I dislike the tendency to read racism where it does not apply, but the issue of drug policy is certainly one where it does. Look at the extremely disproportionate number of minorities who are in jail for nonviolent drug charges compared with the rates of use. (For example, contrary to popular belief, crack use is not drastically higher among blacks than whites).

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Kevin

And it should be emphasized that, even if the price in a club is greater than the street price, there are a lot of people (especially patients) who'd trade the higher price for the security and convenience of an authorized, taxed club.

Travis

Do any of the experts know whether these clubs offer "Organic" pot? That's something I've been wondering about for some time.

Chris

I am a medical marijuana patient/user and have been to multiple dispensaries in both Orange County and San Diego County. I have seen prices range from $45-$65 per 1/8th ounce. I have seen prices for a full ounce start at about $300.

I agree with Kevin regarding the willingness of patients to spend more for the security and convenience of a "legal" club.

Joe

Pot club prices are in parity with street prices. only you generally get a much better selection.

Yahoo! I hope they take the money.

I also hope that , with the billion dollar or so cut to the California prison system, the first people they release early are non-violent marijuana offenders.

PS... it is absolutely not physically addictive. Not to say you won't get psychologically addicted to it, but it's nothing like tobacco. Not even close.

htb

This isn't responsive to your actual question, but getting a "recommendation" is apparently trivial in my pro-marijuana area of California.

According to a local attorney (who supports this and has referred clients to her), a local physician parks her car on the street in front of a marijuana shop most mornings, and writes (for free, or a few dollars) a recommendation for unlimited marijuana to anyone that asks for one.

We also have a much more ethical marijuana organization that limits itself strictly to people that have well-documented, very serious, and usually terminal health problems (usually late-stage cancer and AIDS), but only about 1 in 1,000 residents qualify under that rule.

michelle

being from the bay area i'm just your girl to help you out. all clubs are different. they are all run a little differently and have different pot much of the time and different prices. and eighth can run anywhere from $30 to $100 depending on the club, the city, the number of choices there, the quality and so on.

and @ Travis: the feds DO come in and shut down clubs in california. it's incredibly irritating. but it hasn't stopped the ones that aren't stomped to keep running, or new ones to pop up.

bonze

"I wouldn't think it would be very expensive; marijuana on the street is as cheap as can be."

Say what? Marijuana prices are ridiculously inflated!

Tobacco costs about $7/ounce. Why should marijuana cost $300/ounce? This is a premium added to compensate for the risk of imprisonment for growing and selling it.

dan

In Amsterdam coffee shops, I seem to remember prices being fairly similar to what the first comment said for the highest quality stuff - and I was glad to pay them.

Martin

Are we sure he doesn't own a chain of stores?

Claremont

Steve's assumption that the motivation for paying this tax is not altruistic is certainly justified, and I reacted the same way.

The government is just like the mafia- pay them off sufficiently and they will leave you alone. Any group or industry making lots of money on their turf which isn't paying protection money or otherwise contributing is just another source for revenue. For just one example see the move to regulate and tax yoga instructor schools- state governments see a profitable industry, then move in and ask for their cut.

The difference between this and other examples is that medicinal marijuana sellers are willing to pay this tax voluntarily, because like Steve said, it gives them legitimacy and the state will come to depend on their cushy revenues. Groups like yoga instructors aren't inherently "outside the law" and have nothing to prove or justify the way marijuana sellers do, so they are not going to voluntarily submit to this taxation.

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