Chip Johnson, Oakland's Measure V, getting a pot card, medical vs recreational marijuana tax rates

On October 12, 2010, an article by Chip Johnson was published in the San Francisco Chronicle saying Prop 19 could improve safety. He said that it might improve safety in low-income communities with frequent street drug dealing. He wrote that violence is an effect of drug dealing and that if Prop 19 has even a chance of cutting drug profits to local drug kingpins it's worth a try. In September 2009, Pete Dunbar (Pleasant Hill Police Chief), told the editorial board of the San Francisco Chronicle that violence associated with weed sold on the street made it "the most violent drug of all." Johnson said if that's the case "why not control and regulate the market?" He asked why not use regulation to control the price to undercut illegal pot sales out of existence. He mentioned communities regaining control of parks, neighborhood stores, and front porches in the evening. Johnson said it seems "imprudent" for lawmakers and law enforcement agencies to continue spending billions of dollars per year to stop illegal sales and use. Johnson can't imagine how teens would have more access to weed if it was legal. He mentioned that Oakland, San Jose, and Albany have local measures on the November ballot to tax cannabis. He said that medical marijuana sales are already one of Oakland's largest sources of sales tax revenue, and a ballot measure in November proposes increasing the tax rate by almost 3 times the current rate of 18% on every $1,000 in sales.

I have several comments regarding his article. Prop 19 will not make drug dealers vanish. Prop 19 will not make drug dealers stop selling other drugs. Prop 19 will not make drug dealers turn in their guns. I don't see how Prop 19 would cut profits to "local drug kingpins", since California has had medical marijuana for 14 years. Besides, there will still be a demand for marijuana among young adults under 21 years old. "Local drug kingpins" will be selling to people under 21. He said price controls could undercut the black market, but I think it's far more likely that millions of homegrowers in California could (illegally) undercut the legal taxed market.

Plus -- and I have seen so many Prop 19 supporters ignore this -- statewide legal homegrowing and cheaper California weed means bigger profit margins in other areas of the country, and the world. If in fact marijuana is the "most violent drug of all" like Pete Dunbar says, what effect would millions of legal homegrows have? Prop 19 isn't going to stop robbers and burglars from stealing weed from legal homegrowers. Prop 19 will not cut illegal pot sales out of existence, not even in California. Any legal homegrower selling any part of a plant to someone else without a license is committing a felony. And does he think Californians won't try to sell cannabis seeds online?

Prop 19 will not allow communities to "regain control" of parks, stores and front porches. Drug dealers will see everyone under 21 as a potential customer, and someone is naive if they think people won't have "legal pot parties", like Chip Johnson talked about, on front porches. And he doesn't mention how Prop 19 would affect rival gangs at all. Prop 19 is going to make Crips and Bloods stop shooting each other? Crips and Bloods and other gangs are going to choose to not legally homegrow marijuana? They'll stop fighting over territory where they can sell drugs? And choose to not smuggle cheap weed into Nevada and other states? If Prop 19 passes, people aren't going to stop going to prison for illegal sales. When homegrowing is legal for anyone and everyone, you'll have more people homegrowing. More homegrowers means more illegal sales. Any sales without a license will all be illegal sales. Chip Johnson can't imagine how teens would have more access to weed if it was legal. Well then he can't imagine teens walking down a sidewalk and seeing weed growing over a fence on every other house on a block, he can't imagine teens taking weed from their parents' own legal homegrows, he can't imagine 50% of teens in school having parents legally homegrowing, he can't imagine drug dealers approaching teens and asking them if they want to buy some weed, he can't imagine teens being able to choose from hundreds and hundreds of varieties of weed instead of the few they can usually find.

Chip Johnson says Oakland currently has a tax rate of 18 percent on every $1,000 in sales of medical marijuana, but the current rate is 18 dollars per $1,000. That's 1.8%, not 18%.

Oakland Measure V on the November 2010 ballot is proposing to increase the business tax rate for "medical cannabis businesses" from $18 for every $1,000 in gross sales to $50 for every every $1,000 in gross sales. That's an increase from 1.8% to 5% total.

On April 30, 2009, the Wall Street Journal reported that "the owners and managers of Oakland's four medical-marijuana dispensaries said they approached the city with the idea" to increase taxes on medical marijuana to 1.8%. I'm not exactly sure which businesses the article refers to but I think it includes Harborside Health Center and Purple Heart Patient Center. The Oakland City Council approved and it was placed on the July 2009 ballot. At that time the WSJ said there were an estimated 200,000 or more approved medical marijuana users in California (Although this article at motherjones.com says California has 500,000 medical marijuana users.)

On July 21, 2009, voters in Oakland approved a tax increase on medical marijuana from $1.20 for every $1,000 in gross sales (.12%) to $18 (1.8%). I don't know how much the 2009 tax increase generated, but Rebecca Kaplan, an Oakland City Councilwoman who co-sponsored the measure, said it could generate $1 million in annual revenue. The Oakland city administrator estimated that tax increase could generate $300,000 in tax revenue.

In July 2009, the LA Times reported that Oakland's four medical marijuana dispensaries reported revenue of $19.7 million in the "last fiscal year." $19,700,000 / 1000 * 18 is $354,600, so I think the city administrator's estimate was more accurate. I suppose Measure V's 5% tax (5% of $19,700,000) would generate an estimated $985,000. That's much closer to Kaplan's estimate for the previous tax increase.

On July 20, 2010, the Oakland Tribune reported that Oakland's four dispensaries sold about 6,000 pounds of marijuana in 2009 and grossed about $28 million (that averages out to $4,666.67/lb). .12% of $28 million at the old tax rate of $1.20/$1,000 gross is $33,600; 1.8% of $28 million at the current rate of $18/$1,000 gross is $504,000; 5% of $28 million (at Measure V's proposed rate for medical marijuana) is $1.4 million. If Oakland banned medical marijuana dispensaries and those businesses became recreational businesses, 10% of $28 million (at Measure V's proposed rate for recreational marijuana) is $2.8 million. The article mentions a patient/farmer who sells medical marijuana to Harborside for $3,500 to $3,800 per pound. In January 2010, regardless if Prop 19 passes, Oakland will issue four Cannabis Cultivation, Manufacturing and Processing Facility permits. People who expressed interest included Dhar Mann, founder of weGrow (formerly iGrow), and Jeff Wilcox, founder of Agramed. Applicants must pay a $5,000 application fee to cover administrative costs for background checks and to review site/business plans. If a business gets a cultivation permit, they must pay a $211,000 regulatory fee annually, which will be used to hire staff and develop/maintain a program to oversee the cultivators. Facilities with permits must also be located in industrial zones, meet all building/fire codes, maintain security cameras, hire security guards, and carry enough liability insurance.

However, if Prop 19 passes, I don't think Oakland's four medical marijuana dispensaries would still gross $19.7 million or $28 million from patients. Unless they engage in price fixing, or if they obtain Prop 19-enabled recreational marijuana licenses and move more volume of cheaper recreational weed, or if they move more volume of cheaper medical weed. Measure V proposes to tax non-medical cannabis business sales at 10% ($100 for every $1,000 gross) if Prop 19 passes. If a patient could choose between medical marijuana and recreational marijuana of similar quality, they would probably buy whichever was cheaper.

Take two common prices at Harborside Health Center for example:

• $13/g, $40/8th, $260/oz
• $15/g, $50/8th, $325/oz

If Measure V passes, medical marijuana at $50/8th would have $2.50 in taxes (5%) included in the price. But if Prop 19 passes, medical marijuana may no longer be sellable at $50/8th. If Prop 19 and Measure V both pass, recreational marijuana at $50/8th would have $5 in taxes (10%) included in the price. If Prop 19 passes, I don't know if Oakland's medical marijuana dispensaries could sell recreational marijuana (although I suppose the city council might allow them to obtain licenses for recreational marijuana sales). Stores that sell both may not even categorize their products as medical or recreational. Maybe it would depend on whether the buyer showed their card or doctor's recommendation.

If medical marijuana and recreational marijuana were both sold at $50/8th, businesses that sell both would be grossing $47.50 on medical marijuana and $45 on recreational marijuana. More people with patient cards means more profit for them. (Incidentally, on October 11, 2010 there was an article on Mother Jones called "How to Get a Pot Card (Without Really Trying)".) If medical marijuana in Oakland is taxed at 5% and recreational marijuana is taxed at 10%, stores that sell both would make more money if customers had patient cards.

Here are some examples of weed store prices, status, taxes they have to pay the city, and gross revenue (sorted by gross that weed stores would receive):

• $47.50 gross, $50/8th, medical, 5% tax included, $2.50 in taxes
• $45 gross, $50/8th, recreational, 10% tax included, $5.00 in taxes
• $42.75 gross, $45/8th, medical, 5% tax included, $2.25 in taxes
• $40.50 gross, $45/8th, recreational, 10% tax included, $4.50 in taxes
• $38 gross, $40/8th, medical, 5% tax included, $2.00 in taxes
• $36 gross, $40/8th, recreational, 10% tax included, $4.00 in taxes
• $33.25 gross, $35/8th, medical, 5% tax included, $1.75 in taxes
• $31.50 gross, $35/8th, recreational, 10% tax included, $3.50 in taxes
• $28.50 gross, $30/8th, medical, 5% tax included, $1.50 in taxes
• $27 gross, $30/8th, recreational, 10% tax included, $3.00 in taxes
• $23.75 gross, $25/8th, medical, 5% tax included, $1.25 in taxes
• $22.50 gross, $25/8th, recreational, 10% tax included, $2.50 in taxes
• $19 gross, $20/8th, medical, 5% tax included, $1.00 in taxes
• $18 gross, $20/8th, recreational, 10% tax included, $2.00 in taxes

If medical marijuana and recreational marijuana were priced the same, and if medical marijuana was taxed at 5% and recreational marijuana was taxed at 10%, weed stores allowed to sell both have an incentive to sell more medical marijuana since they have to pay the city less tax money on it; businesses can keep more of their revenue. Then again, weed stores may move away from rounded numbers for eighths, etc. Weed stores might sell any eighth for $50 and add the tax onto that, $52.50/8th for medical marijuana and $55/8th for recreational marijuana. In that case, consumers would save money buying the medical marijuana, but the city would benefit if more people purchased recreational marijuana.

However, Oakland's Measure V tax rates seem to me to apply to medical businesses and non-medical businesses, not medical marijuana and recreational marijuana. If Prop 19 passes, will medical cannabis businesses be allowed to also sell recreational marijuana? If a medical business sells recreational marijuana in addition to medical marijuana, do they cease being a medical business? Would there be a requirement that said a certain percentage of their sales or volume must be medical marijuana to keep their medical cannabis business status? Would some hybrid business status be set up? If medical marijuana businesses are allowed to also sell recreational marijuana yet retain their status as a medical marijuana business (and pay the lower tax to the city), they could sell recreational marijuana for less than non-medical businesses; they would have an advantage over solely recreational marijuana businesses.

Here is that same list, sorted by weed tax revenue that Oakland would receive (not to mention sales tax revenue):

• $5.00 in taxes, $50/8th, recreational, 10% tax included, $45 gross
• $4.50 in taxes, $45/8th, recreational, 10% tax included, $40.50 gross
• $4.00 in taxes, $40/8th, recreational, 10% tax included, $36 gross
• $3.50 in taxes, $35/8th, recreational, 10% tax included, $31.50 gross
• $3.00 in taxes, $30/8th, recreational, 10% tax included, $27 gross
• $2.50 in taxes, $50/8th, medical, 5% tax included, $47.50 gross
• $2.50 in taxes, $25/8th, recreational, 10% tax included, $22.50 gross
• $2.25 in taxes, $45/8th, medical, 5% tax included, $42.75 gross
• $2.00 in taxes, $40/8th, medical, 5% tax included, $38 gross
• $2.00 in taxes, $20/8th, recreational, 10% tax included, $18 gross
• $1.75 in taxes, $35/8th, medical, 5% tax included, $33.25 gross
• $1.50 in taxes, $30/8th, medical, 5% tax included, $28.50 gross
• $1.25 in taxes, $25/8th, medical, 5% tax included, $23.75 gross
• $1.00 in taxes, $20/8th, medical, 5% tax included, $19 gross

If Measure V passes, higher prices on recreational marijuana means more money for the city of Oakland. More sales of recreational marijuana than medical marijuana means more money for the city of Oakland.

There's a conflict here.

Cannabis businesses would benefit if they sold more medical marijuana than recreational marijuana since they have to pay the city less taxes on it. The more recreational customers they can get to sign up for patient cards, the more money businesses can keep. It might even benefit businesses to pay doctor's fees for customers agreeing to sign up for patient cards/get recommendations. It would also benefit medical marijuana dispensaries to obtain permission to also sell recreational marijuana while maintaining their status as a medical cannabis business, therefore having to pay the city less taxes on recreational marijuana they sell. (Although Oakland may not allow hybrid businesses. Or come up with different tax rates and laws for hybrid businesses). Solely recreational marijuana businesses with the same prices as medical marijuana dispensaries would have lower profit margins, but might sell more volume than solely medical marijuana businesses. Recreational marijuana businesses might move so much volume that they might consider the tax difference negligible.

The city of Oakland benefits the higher the price of recreational marijuana. The city of Oakland also benefits by more sales of recreational marijuana. Lots of people buying and consuming high priced recreational marijuana in Oakland means more tax revenue for the city. One example from the list above: the city of Oakland would receive more tax money per $30 recreational 8th sold ($3) than they would per $50 medical 8th sold ($2.50). Stores would gross $27 and $47.50, respectively. The city would receive more tax money per $20 recreational 8th sold ($2) than they would per $30 medical 8th sold ($1.50). Stores would gross $18 and $28.50, respectively. The city would receive the same tax revenue ($2) for every $40 medical 8th sold, as for every $20 recreational 8th sold ($2). Consumers are much more likely to pay $20 for a recreational 8th of Super Silver Haze than a $40 medical 8th of Super Silver Haze, even if they're a medical user. If a customer showed their patient card and had to pay twice as much, that's a disincentive for customers to show it, but that's an incentive for businesses.

If hybrid stores sold weed for $20/8th, and based the tax rate on whether or not customers showed patient cards, stores would gross $18 for no card and $19 with card. The city would get $2 for no card but $1 with card. Every time someone showed their patient card to buy a $20/8th, the city would lose $1 in potential tax revenue. It basically punishes stores for selling to patients.

Stores would gross $27 on a recreational $30 8th, but $28.50 on a medical $30 8th. Someone buying a $30 8th that showed their patient card would be giving $1.50 to the store and taking it from the city. Someone buying a $30 8th with no card would be giving $1.50 to the city and taking it from the store.

Perhaps $30/8th weed would be sold for $220/oz.

• $220/oz, recreational, 10% tax included, $22 in taxes, $198 gross
• $220/oz, medical, 5% tax included, $11 in taxes, $209 gross

Someone paying $220 for an ounce that showed their patient card would be giving $11 to the store and taking it from the city. Someone paying $220 for an ounce with no card would be giving $11 to the city and taking it from the store. A 10% tax rate for recreational marijuana and a 5% tax rate for medical marijuana in Oakland makes it so stores benefit if people buying ounces have patient cards, and makes it so the city benefits if people buying ounces don't have patient cards. If someone wants to buy an ounce, it behooves Oakland stores to get them to sign up for a patient card, especially if they're repeat customers. It behooves the city of Oakland to invalidate as many patient cards as they can, so the city can collect twice the tax percentage per purchase; or ban patients from purchasing medical marijuana in large volumes.

It all comes down to how much recreational marijuana will cost, how much medical marijuana will cost, and how much volume of each will be sold. I think that price wars between medical marijuana and recreational marijuana may occur if Prop 19 passes. Recreational businesses may have to pay the city more in taxes for recreational marijuana sales, but they may move more volume than medical marijuana dispensaries. If the price of recreational marijuana is cheaper than medical marijuana, how many people will continue to buy medical marijuana? If the price of recreational marijuana and medical marijuana stay the same, stores benefit by selling more medical marijuana, and the city benefits by stores selling more recreational marijuana. If the price of medical marijuana is cheaper than recreational marijuana, and medical marijuana outsold recreational marijuana, the city would collect much less in tax revenue and current medical marijuana dispensaries would make less money than they currently do (unless their sales increased due to lower cost).

Harborside is a medical marijuana dispensary that currently purchases product from vendor homegrowers in its collective. Harborside currently pay $3,000 to $4,000 per pound depending on bag appeal for marijuana grown indoors. If Prop 19 passes, there is no way they'll continue paying vendors that much. If Prop 19 passes, will homegrowers be able to sell product to recreational marijuana businesses? If Prop 19 passes, will legal homegrowers without patient cards or non-members of collectives/co-ops be able to sell product to medical marijuana dispensaries?

Sales tax in Oakland is currently 9.75%. I don't know if medical marijuana dispensaries in Oakland currently add weed tax and sales tax on top of $50 eighths or include it in the price. I think it's likely that businesses would include weed tax in their listed prices. Then sales tax would be added at the register.

There are various ways to sell an 8th for $50:

• $50/8th with weed tax included and sales tax included.
• $50/8th with sales tax included. Weed tax based on that.
• $50/8th with weed tax included. Sales tax based on that.
• $50/8th with no taxes included. Weed tax based on that. Then sales tax based on that.
• $50/8th with no taxes included. Sales tax based on that. Then weed tax based on that.

If recreational marijuana is taxed at 10% and medical marijuana is taxed at 5%, a $50 8th could be sold in the following ways:

• $50/8th recreational with 10% weed tax included and 9.75% sales tax included.
• $50/8th medical with 5% weed tax included and 9.75% sales tax included.
• $50/8th recreational with 9.75% sales tax included. 10% weed tax based on that.
• $50/8th medical with 9.75% sales tax included. 5% weed tax based on that.
• $50/8th recreational with 10% weed tax included. 9.75% sales tax based on that.
• $50/8th medical with 5% weed tax included. 9.75% sales tax based on that.
• $50/8th recreational with no taxes included. 10% weed tax based on that. Then 9.75% sales tax based on that.
• $50/8th medical with no taxes included. 5% weed tax based on that. Then 9.75% sales tax based on that.
• $50/8th recreational with no taxes included. 9.75% sales tax based on that. Then 10% weed tax based on that.
• $50/8th medical with no taxes included. 9.75% sales tax based on that. Then 5% weed tax based on that.

I think it's likely that businesses would include weed tax in their listed prices. Then sales tax added at the register:

• $50/8th recreational with 10% weed tax included. 9.75% sales tax based on that.
• $50/8th medical with 5% weed tax included. 9.75% sales tax based on that.

Here is a hypothetical pricelist for eighths in Oakland (using 5% or 10% weed tax and 9.75% sales tax) if weed tax was included in listed prices and sales tax was based on that (sorted by most tax revenue to least):

• $77.84 total price, $12.84 total tax ($6.34 sales + $6.50 weed), $65/8th, recreational, 10% tax included, $58.50 gross
• $71.85 total price, $11.85 total tax ($5.85 sales + $6.00 weed), $60/8th, recreational, 10% tax included, $54 gross
• $65.86 total price, $10.86 total tax ($5.36 sales + $5.50 weed), $55/8th, recreational, 10% tax included, $49.50 gross
• $59.88 total price, $9.88 total tax ($4.88 sales + $5.00 weed), $50/8th, recreational, 10% tax included, $45 gross
• $74.59 total price, $9.59 total tax ($6.34 sales + $3.25 weed), $65/8th, medical, 5% tax included, $61.75 gross
• $53.89 total price, $8.89 total tax ($4.39 sales + $4.50 weed), $45/8th, recreational, 10% tax included, $40.50 gross
• $68.85 total price, $8.85 total tax ($5.85 sales + $3.00 weed), $60/8th, medical, 5% tax included, $57 gross
• $47.90 total price, $7.90 total tax ($3.90 sales + $4.00 weed), $40/8th, recreational, 10% tax included, $36 gross
• $62.61 total price, $7.61 total tax ($5.36 sales + $2.25 weed), $55/8th, medical, 5% tax included, $52.75 gross
• $57.38 total price, $7.38 total tax ($4.88 sales + $2.50 weed), $50/8th, medical, 5% tax included, $47.50 gross
• $41.91 total price, $6.91 total tax ($3.41 sales + $3.50 weed), $35/8th, recreational, 10% tax included, $31.50 gross
• $51.64 total price, $6.64 total tax ($4.39 sales + $2.25 weed), $45/8th, medical, 5% tax included, $42.75 gross
• $35.93 total price, $5.93 total tax ($2.93 sales + $3.00 weed), $30/8th, recreational, 10% tax included, $27 gross
• $45.90 total price, $5.90 total tax ($3.90 sales + $2.00 weed), $40/8th, medical, 5% tax included, $38 gross
• $40.16 total price, $5.16 total tax ($3.41 sales + $1.75 weed), $35/8th, medical, 5% tax included, $33.25 gross
• $29.94 total price, $4.94 total tax ($2.44 sales + $2.50 weed), $25/8th, recreational, 10% tax included, $22.50 gross
• $34.43 total price, $4.43 total tax ($2.93 sales + $1.50 weed), $30/8th, medical, 5% tax included, $28.50 gross
• $23.95 total price, $3.95 total tax ($1.95 sales + $2.00 weed), $20/8th, recreational, 10% tax included, $18 gross
• $28.69 total price, $3.69 total tax ($2.44 sales + $1.25 weed), $25/8th, medical, 5% tax included, $23.75 gross
• $17.96 total price, $2.96 total tax ($1.46 sales + $1.50 weed), $15/8th, recreational, 10% tax included, $13.50 gross
• $22.95 total price, $2.95 total tax ($1.95 sales + $1.00 weed), $20/8th, medical, 5% tax included, $19 gross
• $17.21 total price, $2.21 total tax ($1.46 sales + $0.75 weed), $15/8th, medical, 5% tax included, $14.25 gross
• $11.98 total price, $1.98 total tax ($0.98 sales + $1.00 weed), $10/8th, recreational, 10% tax included, $9 gross
• $11.48 total price, $1.48 total tax ($0.98 sales + $0.50 weed), $10/8th, medical, 5% tax included, $9.50 gross
• $5.99 total price, $0.99 total tax ($0.49 sales + $0.50 weed), $5/8th, recreational, 10% tax included, $4.50 gross
• $5.74 total price, $0.74 total tax ($0.49 sales + $0.25 weed), $5/8th, medical, 5% tax included, $4.75 gross