Growing Green Revenue? Revenue Analysis in the State of California

What options does California have when facing an estimated $6.3 billion shortfall in the FY2009-2010? Propose other sources of revenue from a previously untaxed and illegal.... marijuana. A 2009 bill by a Democratic State Assemblyman Tom Ammiano proposed that marijuana should be legalized in order to provide revenue for a state in shortfall. The bill was introduced on Feb 23rd, 2009. The process of decriminalization, regulation, and taxation would then included marijuana as a tax revenue source on the books for the the State of California. Assemblyman Ammiano believes there is a "$14 billion dollar marijuana industry in California. ....The current marijuana system is run by cartels and linked to violence and we receive no tax revenue from it." His bill to legalize it is supported in theory by economist such as Milton Friedman, who support the free market approach to marijuana control. Even Gov. Schwarzenegger wants to reexamine the debate.

Revenue forecasts would be based on a commercial growing license for $5,000 and $2,500 annual renew few. A $50 per ounce tax would be placed on all sold and grown marijuana. These sources of revenue provide an opportunity to study and understand price elasticity for a previously illegal product.

According to The California State Board of Equalization (BOE) the estimate for total state and local revenue increase to be in the range between $990 and $1.4 billion dollars. This revenue analysis is based on various assumption that are not easily available. Sources of usage and frequency are estimated on resources such as the National Survey on Drug Use and Health, United Nations 2006 drug report. The six steps to analyzing the revenue attributed to marijuana are based on:

• Estimate base consumption
• Estimate consumption after legalization
• determine how the consumption of marijuana changes in response to the decline in price (price elasticity of marijuana)
• Introduction of excise tax and impact of demand
  
• Processing an increment of sales tax
  

According to the California Police Chiefs Association Position Paper on the Decriminalization of Marijuana, disagrees with the legalization and decriminalization of marijuana and believes that the social cost are too high and that criminals who are already dealing in illicit drugs will continue their trade even when it is legalized. The revenue analysis by the BOE does not include the market undercutting of the already illegal infrastructure for growing marijuana. Police, drug reduction authorities, and concerned citizen still express concerns for the mental and physical health of users.

The AB 390 Bill last amended on 01/04/09 is concurrently in the headlines with the ballot petition for legalizing and taxing marijuana in California for adults older than 21. There were more than 700,000 signatures to qualify the measure for the November 2010 ballot. Look to California this fall to see if they can legalize their way out of deficit. Taxing marijuana concurrently with a windfall tax on snack foods may be a future opportunity for revenue forecasting research.