These days, the marijuana industry garners a great deal of social interest based on tax and sales collections alone. “Colorado sold over $1 billion in marijuana during 2016,” they say. “Washington has collected over $200 million in taxes!” they exclaim. Yet, somehow, Oregon has been less publicized, despite major inroads into the elusive legal cannabis industry. In the years since legalization, an unsurprisingly larger portion of Oregon marijuana sales revenues is from the Portland area, where nearly half of Oregon’s four (4) million residents call home.
In addition to the 618,000 residents located in the city proper, the city of Portland maintains a vibrant tourism culture. The city is visited by nearly nine (9) million people annually for at least one night and, in 2016, it was estimated visitors spent around $5.1 billion, generating $245 million in tax revenues, of which over 50% were distributed in the local Portland area. This need creates and maintains over 36,000 jobs and over $1.36 billion in income wages annually. All this is on top of Portland’s already thriving food, entertainment, and craft industries. Unfortunately, research has not yet caught up with traveler’s cannabis consumption habits, yet canna-tourism is alive and well.
The Changes Affecting the Numbers
Though marijuana has long been part of the adult social equation, as we know, marijuana had not always been legal in Oregon. With the marijuana industry moving to a more traditional, forward facing commercial role across the state, the transfer of marijuana sales revenues in Portland from the unregulated or black market to the voter-approved regulated one has been marred by deep regulatory changes and lack of cost-efficient access to the required laboratory testing.
State regulators finalized the rules governing licensing recreational dispensaries in the summer of 2016, and the rules were implemented fully the following October. Measure 91, the voter referendum declaring marijuana as a taxable adult product in Oregon, was passed in 2014. Lawmakers in the state understood how the lengthy process of creating and implementing the recreational market would be and decided it best to provide a sort of stop-gap. By allowing existing medical dispensaries to sell recreationally under a temporary licensing provision with a sale tax of 25%, the state would have the freedom to create fair rules without the full weight of public anticipation adding pressure.
Once the rules for dispensary licensing were completed by the Oregon Liquor Control Commission (OLCC), the process shifted to issuing licenses to recreational dispensaries, growing facilities, and product manufacturing sites. The stop-gap allowing medical dispensaries doing recreational sales was ended once the program rules had been finalized and implemented. Medical dispensaries were then required to apply and receive a recreational license under the new rules if they wished to continue to sell recreational in addition to medical. The state, however, was not (seemingly) fully prepared to take on as many licenses as they would have needed to immediately after such a rule change. As a result, hundred of dispensaries in Oregon ended up being forced to closed their doors for being out of compliance.
The slow-moving licensing process, taking between 8-12 weeks just to get a response and another 8-12 weeks if changes are required, compounded with what are both strict standards for pesticide use and the poor access to licensed laboratories, becoming an unavoidable time challenge for marijuana businesses. After all, every product – med or rec – must be tested.
In addition to layoffs, price raises, and, most importantly, dwindling revenues, the state took this opportunity to lower the tax rate for recreational marijuana to 17% from 25%. After the tax rate was lowered in October 2016, city or county governments were given the option to impose up to 3% in locally-collected taxes for marijuana. And, on November 8th, 2016, voters in Portland approved the 3% additional tax in November 2016.
Tax and Fee Collections
In Portland alone, over 300 city licenses have been issued for medical or recreational dispensaries, processors, manufacturers, and growers. Over 80% of the licenses issued are for dispensaries. This, of course, is less than half of the total volume of license applications the city of Portland has received.
Portland, as of January 2017, has begun collecting the additional 3% local sales tax on top of the 17% state-mandated tax rate. As compared to the total tax rate of 25%, effective between Oct. 1, 2015, and Oct. 1st, 2016, this would imply a decrease in overall revenues collected by between 5% and 8% depending what city you are in. In 2016, the Oregon Department of Revenue (DOR) collected $54.5 million in sales taxes across the state. Sales in September through November 2016 collected an average of $6.9 million of monthly tax collections for the state.
Compared to January through March 2017, where average tax collections have dropped to $4.75 million per month, we can see the shock the licensing disruption had on the industry in the short term, yet we have to also take into consideration the additional local taxes being collected. In the month of February, the Oregon DOR disclosed local tax collections of $682,601 and $4.5 million in state tax collections. In March, state collections would drop to $4.47 million while local collections grew to $705,927.
Oregon’s Largest Market
Capturing the lion share when it comes to marijuana sales revenues, Portland is a go-to for companies trying to gain traction in the Oregon marijuana community. A young population, with just under half of the residents between the age of 21-44; a hip cultural atmosphere, with a thriving music, art, food, and craft beer scene; and a decades-deep history with pro-reform ideology (OR was the first state to decriminalize, after all.), Portland has seen continued growth in public support for and sales of marijuana since Measure 91’s passage in 2014.
In the months of January through March 2016, 2,170,000 grams of marijuana were sold in Portland. At an average price of around $9 per gram, this would represent $19.53 million in sales, roughly equaling $4.46 million in state tax collections for the quarter at the tax rate of 25%. At the current rate of 17% plus 3% local taxes, the same period would generate only $3.9 million in tax revenue from marijuana in Portland, $585,900 of which would be collected under the additional 3% local tax.
Between January and March 2016, the Portland-area represented close to 60% of total sales across the state. If this holds true for the months of January through March 2017, we can reasonably expect Portland to see estimated $15.9 million in sales per month, or just around $48 million every three months. At $9 per gram on average, this would equal roughly 1,767,000 per month in marijuana or 5.3 million grams every three months, up over three (3) million grams per quarter since the same period in 2016.
As a result of the industry becoming more integrated into the broader state culture, changes in price based on competition, market saturation, licensing pitfalls, and lab testing has limited any sense of excess capacity from energized growers, stifling investment in product innovation. As prices drop, businesses cut costs and the wider culture ends up getting high for cheaper. We can see this in effect as marijuana sales revenues in Portland have overall increased, yet tax collections at the state level have decreased by over $2 million per month on average when compared to September through November 2016.
Good news is, sales volume is up. If Portland continues to sell around 1.76 million grams per month throughout the 2017 calendar year, at $9 per gram, Portland may see annual marijuana sales revenues exceeding $190 million, generating $32.3 million in state sales taxes and $5.7 million in local.
