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Daily Tax Report: State

Pot, Liquor ‘Essential’ to Keep Up Spirits, Revenue During Virus

April 10, 2020, 4:16 PM

Sales of recreational cannabis and liquor could become bright spots for states as the coronavirus pandemic and governors’ stay-at-home orders hammer state revenues.

State officials from Washington to Delaware have deemed alcohol and recreational marijuana as essential services that are allowed to continue while many other businesses have to close. By putting those sales in the same category as groceries, the politicians avoided a constituent revolt and the governments got to keep collecting the taxes.

Total national alcohol sales were up 55% the week ending March 21; spirits were up 75%; and beer and cider, up 42%, said Greg Doonan, spokesman for the data measurement company Nielsen Holdings. Wine sales rose 66%. Online sales were up 243% compared with the same time last year.

Pot sales began climbing on March 13 across the country, particularly in California, ahead of regional shelter-in-place orders, said Roy Bingham, cofounder of BDS Analytics. Between then and March 16, “We saw a big spike in sales of about 40% compared to the same day the prior week,” he said.

“We saw (marijuana) sales spike in California, Colorado, Washington, and all of these states the day the shelter-in-place was announced,” said Jocelyn Sheltraw, Headset.io regional strategy director. Cannabis retail sales operations use Headset’s software.

Significant Revenue

There’s real money in weed. The U.S. spent $7.3 billion on legal cannabis in 2019, according to Arcview Market Research and BDS Analytics, which analyzes the cannabis market. The analysts’ forecast for this year is $9.6 billion in U.S. sales.

Since recreational cannabis sales began in California in January 2018, the state has collected about $1.03 billion, including $498.1 million in cannabis excise taxes, $123.4 million in cultivation taxes, and $403.1 million in sales taxes, according to the California Department of Tax and Fee Administration.

The state of Washington raised the most cannabis tax revenue last year—$67.31 per person, according to the Institute on Taxation and Economic Policy. That compares with $60.11 per person raised in Colorado, $53.50 in Nevada, $38.83 in Alaska, $31.75 in Oregon, $15.93 in California, and $12.92 in Massachusetts, the institute said.

Michigan estimates that once recreational cannabis is widely available it will generate about $3 billion in annual sales, with total tax revenue of $495.7 million, according to a Michigan State University report released April 9.

Many Explanations


So far, 46 states have closed restaurants to dine-in customers during the pandemic while permitting takeout and delivery sales of alcohol, according to Wine & Spirits Wholesalers of America.

The rules and the explanations vary.

“People aren’t going to change their habits,” said Robert Mellioin, executive director of the Massachusetts Package Stores Association. “If you want to avoid pushing people out of state and spreading the virus you have to make it (alcohol) readily available here.”

Miami Beach Mayor Dan Gelber said alcohol made the cut in part because “it seems like a foodstuff,” and “the other reason probably is there would be a mass uprising if they stopped all liquor sales in the United States right now.”

“The health-care providers said well, if you close liquor stores, you have people who are alcohol dependent who will go through withdrawal and end up in my emergency room and we don’t want to have that,” said Delaware Gov. John Carney (D).

In Nevada, Gov. Steve Sisolak (D) said recreational cannabis businesses would remain open for people who get a medicinal benefit from marijuana.

“I did not want to disenfranchise the people who previously had a medical card and then let it lapse, so they’re buying it recreationally but it’s on a delivery basis only,” Sisolak said.

Post-Pandemic


How all the additional sales of liquor and marijuana will translate into state taxes isn’t yet known.

“We probably won’t see the relevant revenue data from Washington State until May or June,” said Carl Davis, research director at the Institute on Taxation and Economic Policy. “In California it’ll be even later.”

Any extra money generated from cannabis and liquor will help, but won’t make up for other revenue lost during the shutdown, said Phil Ting (D), chairman of the California Assembly Budget Committee.

“We were projecting $28 billion from sales and use taxes for next year’s budget,” he said. “We are keeping most of our businesses closed so that number is going to be way down.”

“If the last recession is any indication, cannabis and liquor taxes are probably going to be popular revenue-raising tools in the near future,” said Jackson Brainerd, senior policy specialist for fiscal affairs at the National Conference of State Legislatures.

“In general, it’s an easier lift politically to raise excise taxes than broad-based taxes, so I would expect that fiscal stress will accelerate state action on the ‘sin tax’ front,” said Brainerd.

Marijuana, in particular, is “likely to attract state attention this time around,” he said.

With assistance from Tripp Baltz, Christopher Brown, Alex Ebert, Stephen Joyce, Jennifer Kay, Paul Shukovsky, and Adrianne Appel

To contact the reporter on this story: Joyce E. Cutler in San Francisco at jcutler@bloomberglaw.com

To contact the editors responsible for this story: Tina May at tmay@bloomberglaw.com; Katherine Rizzo at krizzo@bgov.com

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