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How Far Does Colorado’s Tax Money Go?



Marijuana Tax Revenue

Fredlina Gutierrez wanted to go to college to study music, but she didn’t qualify for enough financial aid to cover her tuition. Her mother, Fredlina Atencio, was in school at the time and the two women — the first and second in their family to go to college — were told they couldn’t both receive the maximum financial aid.

That didn’t stop Gutierrez. The 20-year-old Denver native now studies psychology at Colorado State University in Pueblo.

Cannabis helped pay her way, but Gutierrez did not make money by selling it. She received $500 per year in scholarships from the Pueblo Hispanic Education Foundation that wouldn’t have been there if not for a tax on recreational cannabis in Pueblo County. That scholarship, combined with others, means Gutierrez pays only $55 out of pocket to go to school each year.

Gutierrez is not alone. She’s among more than 840 students in Pueblo who received a scholarship funded by marijuana tax revenue in the last three years. Students received more than $1.3 million in scholarships from marijuana taxes and matching funds.

That’s less than half of a penny for every dollar of new revenue that Colorado has been able to spend thanks to tax money from the recreational sale of marijuana — which recreational users can now buy legally in 10 states and grow and possess legally in the District of Columbia.

Colorado has the longest history of taxing recreational marijuana in the United States, along with Washington. Both states legalized recreational sales in 2012. Colorado voters had high hopes that marijuana tax revenue would solve its financial woes. Six years later, the state remains strapped for cash. It faces a budget hole so significant that some school districts are moving to four-day school weeks.

DOPE Magazine spent three months investigating how Colorado has spent its tax money. The magazine interviewed more than 20 public officials, marijuana consultants and voters, and examined dozens of pages of budget documents and other public records to understand where taxes collected from the sale of cannabis end up.

Colorado’s marijuana tax fund contributed more than $205 million to state programs and services from 2016 to 2018. More than 75 percent of that money went to state-run marijuana regulation, enforcement, public education, substance abuse treatment and youth use prevention. The rest went to education and to local governments that allow recreational sales in their towns. In 2018, the state directed at least $2.5 million from the marijuana tax to go toward opioid and other substance abuse prevention programs.

Local officials across the state have praised the tax as life-changing.

“With these funds, it really allows us to tailor to the needs of our community, to help it to grow and to make sure our community continues to thrive,” says Christina Trujillo, executive director of the Pueblo Hispanic Education Foundation.

Despite marijuana money’s contribution to local communities, many Coloradans are asking why the new money hasn’t fixed their schools and why it hasn’t covered the state’s budget holes. They’ve objected in town hall meetings when their local elected officials have asked them to raise local taxes to qualify them for more money.

Some say they feel like they were lied to during the campaign to legalize recreational cannabis. They say that proponents of legalized cannabis over-promised how far the tax money would go.

But state officials and marijuana advocates say campaigns were honest about the amount of money marijuana taxes would raise. They say the problem is that residents don’t understand how far that money goes. While the marijuana revenue is significant, it pales in comparison to the costs of the projects that it’s going toward.

“Even if you’re throwing in a bathtub of water, if you’re throwing it into an Olympic-size swimming pool, it doesn’t make a difference,” says Andrew Livingston, director of economics and research at Vicente Sederberg, a national marijuana law firm that also lobbies and consults governments and industry on policy.

A Three-Front War

 In October 2012, just a month before Colorado voters were to decide whether or not to legalize recreational marijuana, television ads funded by pro-marijuana groups urged them to ensure that marijuana money went to Colorado schools instead of “criminals in Mexico.”

“We all know where the money from non-medical marijuana sales is currently going,” the ad says. “It doesn’t need to be that way.” Images of teachers writing on chalkboards, school buildings and projections of over $100 million in revenue flashed across the screen as the ad told citizens to “vote for the good guys.”

A month later, Coloradans passed Amendment 64, making the state one of the first to legalize recreational marijuana. However, legislators did not pass the promised tax until the following year. Colorado state law requires any new tax to go before the voters for approval.

Barbara Brohl was then the executive director of the state’s revenue department, tasked with running the marijuana licensing. After Amendment 64 passed, then-Governor John Hickenlooper asked Brohl to co-chair the state’s marijuana task force. Her staff got her a plaque that says “Barbara Brohl: Queen of Cannabis.” Brohl says she’s always tried to remain true to that title.

“Think about the timing of this,” says Brohl, who now works as a marijuana policy consultant. “We didn’t know if we were going to have the ability to tax marijuana businesses [that] were going to open two months later.”

The taskforce sent a report to the state legislature, the governor’s office and the attorney general with recommendations that would guide marijuana-related legislation.

Rep. Jonathan Singer, D-Boulder, sponsored one of the bills in November 2013 to get voters to approve taxing marijuana. In his campaign to get the tax passed, Singer emphasized the importance of using the marijuana money to cover the costs of legalization.

“I wanted to make sure we kept [cannabis] out of the hands of kids and criminals,” Singer says. “Part of the way that we were going to do that is by making sure that marijuana paid its own way.”

The tax passed, but not without controversy.

Some thought the tax was too high, arguing Colorado would make enough off of licensing fees. Marijuana opponents wanted to create a tax so high that it would be too expensive for people to actually buy the product, Singer says.

Meanwhile, those working to create an effective tax considered carefully the costs of setting the taxes too high or too low, Singer says. They needed taxes high enough to cover the administrative costs of the program, but low enough that they wouldn’t push consumers back to the illegal market.

“It was actually a three-front war,” Singer says of the campaign.

 The state representative commended the marijuana industry for paying for much of it.

“It’s the first time I have actually seen an industry saying, ‘Yeah, we want to be taxed,’” he says. “‘We want to be seen as responsible business owners in the state, especially when this is brand new.’”

According to Singer, the tax rate they landed on was “a little better than a shot in the dark.”

“What we were trying to do was tax and regulate something that hadn’t been taxed and regulated before,” he explains. “We said, ‘We’re going to do the best we can with the knowledge that we have and make sure this is a responsible rate that will actually pay for the potential impacts related to legalization.’”


Source: State of Colorado Joint Budget Committee Appropriations Report 2017-2018

How The Taxes Work

 Colorado has collected two taxes on marijuana sales since July 2017. Customers who buy marijuana from a dispensary pay a 15 percent special tax. Before the product even gets to the store, the state collects a 15 percent “excise tax,” a tax collected the first time marijuana is sold or transferred from a cultivator to a retail cannabis store. This tax is then imposed on the consumer much like liquor or tobacco. It should be noted that excise tax on cannabis can be imposed on state, city and county levels and on special district and local jurisdiction levels. Moreover, there are certain sales and transfers that are exempt from excise tax pursuant to the laws set forth by the state of Colorado.

Prior to 2017, the state collected a 10 percent special sales tax plus its standard 2.9 percent sales tax, which state officials eliminated when they raised the special tax.

Cities and counties can collect a local tax on top of that.

“There are a lot of eyes that look at this to make sure it’s being used for the right purposes,” Brohl says.

Most of the taxes go to regulation, law enforcement, public education and other initiatives related to ensuring the marijuana program runs efficiently. Local governments collect 10 percent of the special sales tax, based on how much of the money was collected within their boundaries.

All of the excise tax revenue from wholesale retail cannabis goes to public schools.

The Colorado state constitution requires that the first $40 million of the excise tax raised each year goes toward paying for local K-12 school capital projects — including construction of new buildings — through a grant program called Building Excellent Schools Today. The rest of the excise tax revenue is required to go to the Public School Fund meant to support K-12 schools.

Most of the special sales tax goes toward state programs, but a portion also goes to cities and counties that allow dispensaries. The state money has to be spent on marijuana-related programs such as licensing and public education. The amount given to local districts depends on how much marijuana is sold in each district.

The state spent $30 million of the special sales tax on rural public schools during the last fiscal year. It now requires that 12.59 percent of the marijuana sales tax go to the State Public School Fund to help fund school districts and charter schools.

“It’s really being used for the better good for most of these cities,” Brohl says.

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