Business & Economy

Senate panel passes 25 percent tax on pot

Tim Ashe

Sen. Tim Ashe, D/P-Chittenden County, chair of Senate Finance. Photo by Erin Mansfield/VTDigger

[A] Senate panel on Friday approved tax provisions for a marijuana legalization bill.

The Senate Finance Committee placed a 25 percent excise tax on the sale of marijuana. The tax, which would function like a sales tax, would be applied to retail sales of the drug. Tax receipts would go into a special marijuana fund; sales taxes are typically funneled into the education and general funds.

The legislation legalizes marijuana effective January 2, 2018. In the first six months of the fiscal year, a 25 percent tax would generate between $5.6 million and $8.7 million, according to estimates from the Joint Fiscal Office.

The tax would raise between $13.4 million and $20.8 million in 2019, the first full year the law would be in effect, according to Sara Teachout, a financial analyst for JFO.

The Shumlin administration estimates the cost to regulate the legalized sale of pot would be $2.2 million.

The estimates are lower than projections from a Rand study, which pegged tax revenues between $20 million and $75 million. That’s because Rand estimated the state would benefit from pot tourism; JFO used more conservative state estimates for the number of people from out of state who would purchase marijuana in Vermont.

Senate Finance also set up a licensing fee structure for retail sales outlets for the drug of $15,000 to $25,000. More than a dozen other administrative fees range from $100 to $1,000.

The legislation does not allow the sale of homegrown pot, nor does it allow edibles.

Nonprofit medical dispensaries that now are the only legal outlets for the purchase marijuana would be allowed to become for profit entities and would be the only source of certain pot products, including tinctures and edibles.

The committee voted 6-1 to approve S.241. The bill will now head to the Senate Appropriations Committee, which has jurisdiction over how revenue from marijuana taxes and fees will be distributed across state government.

Sen. Kevin Mullin, R-Rutland, was the only no vote in the committee. He expressed several concerns, including whether the proposed law would set up a closed market to benefit a few wealthy people.

Kevin Mullin

Sen. Kevin Mullin, R-Rutland. Photo by Erin Mansfield/VTDigger

The Department of Public Safety, which also houses the Vermont State Police, would begin issuing a limited number of licenses to up to 30 applicants in the spring and summer of 2017. Licensees could start selling Jan. 2, 2018, and the department could decide to approve more dispensaries through 2019.

No credit card sales, different prices for out-of-state purchasers

Charles “Chuck” Karparis, the senior vice president of lending at the Vermont State Employees Credit Union, testified Thursday. He signaled that VSECU may be the only banking institution in the state that would allow marijuana dispensaries to open checking and savings accounts.

“We do currently offer those accounts to Vermont’s medical marijuana dispensaries,” Kaparis said. “We’re really looking to see what the final law is to determine to what extent we can provide those services.”

Sen. Tim Ashe, D/P-Chittenden, asked how the state could avoid having dispensary owners showing up at the tax department with huge canvas bags full of cash. Kaparis replied: “We’re trying to make it so that if (marijuana) does become legal in the state of Vermont that we can provide financial services so that things like that don’t happen.”

Customers would still not be able to pay for marijuana with a credit card. However, members of VSECU would be able to write checks to the dispensary just like any other business. Dispensary owners could also pay any applicable taxes by check.

The committee decided 5-2 in a straw vote that it was best to legalize marijuana in steps rather than all at once. Ashe, who agreed with the rest of the committee, described the measure in football terms as a “first down strategy” for legalization as opposed to gunning for a “100-yard return.”

The committee passed an amendment 4-3 that prohibits dispensaries from selling non-marijuana products in a bundle with marijuana. Sen. Michael Sirotkin, D-Chittenden, presented the amendment, saying he did not want dispensaries to sell $50 t-shirts that come with a handful of free joints.

The committee rejected an amendment that would have allowed dispensaries to sell the same amount of marijuana to Vermonters and out-of-staters. The limit will be a half-ounce for Vermont residents and a quarter-ounce for out-of-staters.

By comparison, Colorado has a one-ounce limit for residents and a quarter-ounce limit for nonresidents. Washington has no residency limits on how much a person can buy.

Sen. Richard Westman, R-Lamoille, said it’s important to keep the limit as low as possible when marijuana is first legalized. “If you put an ounce (into the bill), you’re never going to put the genie back in the bottle to go lower,” he said.

Mullin said there was nothing to stop tourists from asking a Vermonter to walk in and buy the larger amount of marijuana for them.

The cost of pot legalization

The administration projects that the total cost of legalizing pot in the next fiscal year would be $2.21 million across the departments of Public Safety, Health, Tax and Agriculture, according to Finance and Management Commissioner Andy Pallito.

The largest share, $920,000, would go to the Tax Department to fund two positions and to build an IT system to implement the excise tax model. $500,000 is slated for the Health Department to fund education and prevention efforts, and $230,000 would go to the Department of Agriculture. Public Safety would get $470,000 to cover drug recognition training for police officers, the rule-making process, and lab equipment.

Financing for the implementation raised eyebrows in the Senate Appropriations committee. Pallito said the state would fund the initial $2.21 million investment with the anticipation of money coming in at the end of FY17 and in FY18.

The administration doesn’t have a clear picture of the total expenses in the following years, but based on preliminary reports from a wide range of agencies, Pallito said he expects the annual tab will be between $10 million and $12 million.

Sen. John Campbell said that the Senate is giving the bill a “fair shake.” The bill is still on track to work its way through the Senate before lawmakers break for Town Meeting Day, he said.

The Senate Transportation, Economic Development and Agriculture Committees are still planning to weigh in on the legislation, Campbell said.

The bill also still needs to clear Appropriations, which, Campbell said, “will be its biggest challenge.”

Editor’s note: This story was updated 9:22 a.m. Feb. 14 with additional information about the cost of regulating marijuana.

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Anne Galloway

About Anne

Anne Galloway is the founder and editor of VTDigger and the executive director of the Vermont Journalism Trust. Galloway founded VTDigger in 2009 after she was laid off from her position as Sunday editor of the Rutland Herald and Times Argus. VTDigger has grown from a $16,000 a year nonprofit with no employees to a $2 million nonprofit daily news operation with a staff of 25. In 2017, Galloway was a finalist for the Ancil Payne Award for Ethics, the Al Neuharth Innovation in Investigative Journalism Award and the Investigative Reporters and Editors FOIA Award for her investigation into allegations of foreign investor fraud at Jay Peak Resort.

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