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Lawmakers confront taxing pot questions

A flowering marijuana plant at Verdes, one of the longest-operating dispensaries in New Mexico. (Adolphe Pierre-Louis/Albuquerque Journal)

SANTA FE – New Mexico should expect a lucrative – but volatile – new revenue source if lawmakers legalize and tax the sale of recreational marijuana, a national tax expert told lawmakers Thursday.

Richard Auxier, a researcher at the Washington, D.C.-based Tax Policy Center of the Urban Institute and Brookings Institution, also suggested that the state avoid dedicating the new revenue to any particular purpose, given the volatility.

Pledging the revenue to, say, fixing schools may make it easier to pitch to voters, he said, but the fluctuating amount of revenue would make budgeting difficult.

“This revenue is volatile and tough to predict,” Auxier told members of the Revenue Stabilization and Tax Policy Committee. “The more cautious and boring you can be with this money, the better.”

Auxier spent about an hour with lawmakers Thursday going over the tax policy questions associated with legalizing marijuana for recreational use. He examined how other states have handled the issue, and the strengths and weaknesses of a variety of approaches.

No state, he said, has legalized the sale of cannabis through government-run stores, as proposed in New Mexico during the legislative session that ended in March. A bill to allow marijuana sales at state-operated retail shops passed the state House but failed to make it through the Senate in time.

Lawmakers are expected to take up another legalization proposal in next year’s session. A task force convened by Gov. Michelle Lujan Grisham started work on the legislation this month.

Auxier said marijuana taxation can generate a significant amount of revenue for states, ranging from about $15 million in Alaska last year to about $439 million in Washington. It can make up 1% to 2% of a state’s general operating revenue, he said, putting it on par with the amount generated through corporate income taxes.

But the amount of revenue is difficult to forecast because of market forces, the possibility of federal action and the potential for new states to enter the market.

Taxing marijuana as a percentage of its price, for example, ties revenue to fluctuations in marijuana prices.

Taxing marijuana based on the weight of the product, meanwhile, makes the revenue more stable, Auxier said, but it may result in undertaxing of particularly potent products – because weight doesn’t correspond to potency.

Rep. Javier Martinez, an Albuquerque Democrat who has led House efforts to legalize cannabis, said the policy discussion is worth continuing.

“I look forward to – hopefully in 2020 – doing something about it,” Martinez said.

Rep. Jason Harper, R-Rio Rancho, said revenue generation isn’t a good enough reason to legalize marijuana. There are plenty of other ways to raise money, he said.

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