How much tax money would legal pot bring North Dakota?
State officials who calculated a fiscal note for the pot legalization measure did not attempt to quantify how much tax revenue North Dakota would bring in through the sale of marijuana.
BISMARCK — When North Dakota voters read through their ballots this fall, they will find a one-sentence fiscal summary at the bottom of a ballot measure that would legalize the recreational use and sale of marijuana.
The note estimates legalizing the drug for adults and administering a pot program would come at a net-negative cost to the state of more than $1.8 million over the next five years.
“The estimated fiscal impact of this measure beginning in 2023 through the 2025-2027 Biennium is Revenue of $3,145,000 and Expenses of $4,985,000,” the fiscal note reads.
Not included in the financial projection is a key piece of context: The state officials who calculated the potential gains and losses did not attempt to quantify how much tax revenue North Dakota would bring in through the sale of marijuana.
Tax Commissioner Brian Kroshus said unknown variables, like the cost of cannabis products and the level of sales at dispensaries, prevent his office from estimating how much tax revenue legal pot would generate.
Dave Owen, the chairman of New Approach North Dakota, said the abbreviated fiscal note tacked onto his group’s measure is “obviously incomplete” and “intentionally misleading” for voters.
Marijuana legalization has proven a financial windfall for other states, and even a conservative assessment of tax revenue from pot would show North Dakota in the black by millions of dollars, Owen said.
If the legalization measure passes in November, all marijuana sales would be taxed at the statewide rate of 5%, plus local sales taxes of up to 3%. That doesn’t include a much higher excise tax — also known as a “sin tax” — that lawmakers could impose on pot sales.
Using other legal pot states like Montana and Nevada for comparison, North Dakota State University economics professor Raymond March estimates North Dakota would see about $6 million in annual sales tax revenue if pot were sold legally at dispensaries.
Dustin Gawrylow, a self-described fiscally conservative government watchdog who sits on the legalization measure’s sponsoring committee, puts the state’s annual revenue figure at $8 million to $10 million. Gawrylow based his calculation on Montana’s marijuana sales this year and adjusted for North Dakota’s lower population.
Omitting projected tax revenue from the fiscal note is “not logical,” he said, adding that the money brought into the state by legal pot sales would far exceed the costs of the program.
When asked why his agency couldn’t use other states as analogs to estimate North Dakota’s cannabis-related tax revenue, Kroshus said, “Each (state) has their own unique tax and regulatory structure specific to them.”
Secretary of State Al Jaeger said he did not have discretion over the content of the brief fiscal note and had to attach it to the measure.
What are the fiscal effects of legalization?
The single-sentence fiscal note placed beneath the legalization measure on the ballot represents a condensed version of a three-page document prepared by officials from a handful of state agencies.
Jason Wahl, the director of the state’s Division of Medical Marijuana, presented the full fiscal note to a panel of leading lawmakers on Monday, Sept. 12.
Wahl said most of the $3.1 million in projected revenue from the measure would come from application and registration fees paid by marijuana manufacturers and dispensaries. The measure allows the Department of Health and Human Services to register up to seven manufacturers and 18 dispensaries.
The document mentions that “additional revenue is anticipated to be collected on the sale of cannabis products,” but Kroshus’ office was unable to determine how much the state might collect in taxes.
A portion of the nearly $5 million in estimated expenses comes from Wahl’s division, which says it would need to add four full-time employees to administer the recreational pot program. Wahl said the licensing fees paid by pot manufacturers and dispensaries would likely cover his division’s costs.
Much of the estimated costs come from the state Department of Transportation, which says it would need a new full-time employee, additional training and drug screening devices, as well as money to run an anti-impaired driving advertising campaign.
The unabbreviated fiscal note says there could be undetermined costs to Highway Patrol, the attorney general’s office and the state’s 53 counties.
March said a variety of factors determine whether legalization would increase policing costs. Lifting the prohibition on marijuana would free up legal resources, but stronger enforcement of other laws to limit impaired driving and selling to minors could come into play, the professor said.
Gawrylow argues the public money saved by jailing fewer people for marijuana possession would at least offset the additional law enforcement costs.
The amount of tax revenue derived from pot sales would also depend on whether lawmakers establish a hefty excise tax in addition to the default sales tax.
When the Legislature considered a bill last year to legalize recreational pot, Montpelier GOP Rep. Craig Headland proposed a companion bill that would have instituted a 15% tax rate for consumers buying marijuana and a 10% levy on retailers selling the marijuana to dispensaries. The legalization bill eventually failed in the Senate after passing the House of Representatives.
Headland said Monday he thinks lawmakers would tack on an excise tax if the measure passes, but it’s too early to say what it would look like.
March and Gawrylow disagree on how an excise tax would affect state revenue. March said the higher cost of legal pot would depress sales and tax revenue, while Gawrylow said an excise tax could triple the money coming into the state.
An emerging pattern
Nonpartisan, unelected state officials create fiscal notes to give decision-makers and members of the public an idea of the financial impact of bills and measures.
But critics of the process, like Owen, say the agencies crafting fiscal notes occasionally use them to sink a proposal.
“It is a well-known fact that when certain agencies don’t want something (to pass), they put an absurd fiscal note on it to try to kill it,” Owen said.
Owen, a political consultant, said this is not the first time state agencies have offered a flawed fiscal note for a marijuana-related proposal.
Before voters passed a measure legalizing medical marijuana in 2016, the health department estimated it would need more than $7.3 million for the 2017-2019 budget cycle if the measure won approval. The Legislature allocated the department a total of $1.6 million in 2017 to administer the program.
The last time recreational marijuana was on the ballot in 2018, the Department of Health said it would need $4.2 million in the 2019-2021 budget cycle, mostly for a youth education program, if pot were legalized.
Conservative Forum News Service columnist Rob Port said the department’s cost estimate gave voters “a distorted view.” The 2018 measure failed at the ballot box.
“These are not cost impacts. This is a wishlist. One concocted by bureaucrats who are always hungry for bigger budgets and bigger staffs,” Port wrote in 2018.
Officials who prepared a fiscal note for a legalization bill last year did not mention potential tax revenue from marijuana sales.
The state’s historically poor track record on assigning fiscal notes to legalization measures suggests an intention to mislead voters, Owen said.
“Once is a mistake, twice is a coincidence, three times is a pattern, four times is deliberate,” he said.