A new study compiled by ECONorthwest has predicted that legalization of marijuana in Oregon will reap $38.5 million in tax revenue. While that’s good news for the state, even better news for marijuana consumers is their prediction of an ounce of legal weed costing only $145.
The Control, Regulation, and Taxation of Marijuana and Industrial Hemp Act promoted by New Approach Oregon has qualified for the November election ballot and will cap the taxation of marijuana at $35 per ounce for flowers, $10 per ounce for leaves, and $5 per immature marijuana seedling. Oregon is one of five states with no sales tax (Alaska, Montana, New Hampshire and Delaware are the others) and the only one in the West with no local option sales taxes, either.
In the first three years, analysts expect the legal market to capture 40 percent of Oregon’s current black market. There are 436,000 adults 21 and older who are consuming marijuana on an annual basis, 314,000 who consume monthly and 108,000 who consume at least two out of three days per month.
The total demand for legal marijuana for those Oregon consumers and the 89,000+ estimated tourists and commuters is expected to top 1.3 million ounces or 36.85 metric tons annually. Researchers claim the average price for marijuana now is $180 per ounce and will drop 19.5 percent to just $145 an ounce as legal production with low taxes kicks in.
The study predicts that 80 percent of Oregon’s marijuana will be grown outdoors and 20 percent will grow indoors. Their estimates looked at production costs for a 10,000 square foot indoor grow and a quarter-acre outdoor farm. They found that an indoor growers’ cost works out to $42 per ounce and outdoors the cost is $16 per ounce, thus even with the taxes and retail markups the $145 per ounce price seems reasonable.
This will certainly put market pressure on neighboring Washington State, where the taxation by price on marijuana is levied at all levels of production– 25% at the grower, 25 percent at the processor, and 25 percent at the retailer — in addition to the state and local sales taxes averaging about eight percent. The effective tax rate ends up totaling about 44% and, combined with far too few licensed growers and producers, the initial legal price was infamously set at $20 to $30 per gram. It’s going to be very hard to sell those expensive legal grams in Vancouver, Washington when there are going to $6 to $8 legal grams across the Columbia River in Portland.
study is flawed. the cost of production to get a finished, trimmed and cured quality organic product ready for consumer/medical use is about double the cost assumed in the study. economies of scale, of course, will decrease this cost, but there is no indication of the allocation of depreciating capital equipment and facility investment. if one looks at pure production costs with little hands-on culturing, yes, it can be done that cheap, but then you have a less desirable product. a worthy economic study would consider these entry costs.