Taxes on recreational marijuana are volatile and unpredictable and states should not rely too heavily on that revenue, according to a study from Pew Charitable Trusts released Monday.
Revenue predictions on Michigan’s recreational marijuana have varied depending on the source. The Coalition to Regulate Marijuana Like Alcohol, the ballot committee that helped pass recreational marijuana, commissioned an analysis that showed the market would bring in $134 million annually by 2023.
The committee said at the time it was not looking to solve the state’s funding problems, but by ensuring some of the money goes to schools, roads and local governments, it could assist in funding top priorities.
The Senate Fiscal Agency last year released an analysis that showed the taxes would bring in $262 million by 2023.
Pew’s report said it is difficult to forecast how much revenue legal marijuana could generate. For example, Nevada brought in 40 percent more than it predicted after the first six months while California’s revenues were 45 percent below its projections.
Michigan’s marijuana taxes are relatively low compared to other states. Recreational marijuana will see a 10 percent excise tax on top of the 6 percent sales tax. Determining how to tax marijuana is a balance with officials looking to ensure consumers will come to the legal market versus staying on the black market, where product could be cheaper.
Other challenges for states include determining how long it will take the market to run smoothly. Officials with several states legalizing marijuana said it took time for local governments to regulate product and for businesses to get licensed and sell the product, something Michigan has seen in its regulated medical marijuana industry.
And while states like Alaska – which saw revenue increase from $2 million to $11 million in one year – might see early boosts in tax collections, forecasters expect the growth to slow.
The report suggested states could wait to spend marijuana tax revenue until it has already been collected or simply shore up savings with the funds.
“Policymakers should be careful not to assume that revenue growth from such a new and volatile market will be sustainable, especially since some sin taxes, such as cigarettes, have provided diminishing revenue over time,” the report states.