Economics expert issues analysis of Washington State cannabis tax laws

Whitney Economics (WE) has announced it has issued an analysis of a proposed bill in the Washington Legislature that would raise the excise tax rate for cannabis but also reduce tax revenues by $9.5 million.

Analysis of the bill showed that the goal of the Legislature to raise up to $20 million per year would not be met. In fact, Washington's revenue projections would decline nearly 10% from the previous quarter.

"Washington has some of the highest cannabis tax rates in the country, and this would raise the state excise tax from 37% to 39.3% and reduce legal demand by approximately 5.7%," Chief Economist Beau Whitney said. "Washington's legal participation is one of the lowest in the country for mature cannabis states, so a further decline would hurt statewide operators already struggling with profitability."

Cannabis tax revenues have declined steadily since the Covid era and continue to decline due to price compression caused by a massive oversupply of cannabis in the state as well as an accelerating migration from adult-use consumers to tax free medical ones, Whitney's findings state.

"The combination of the price compression along with increased medical purchases has hit Washington tax revenues particularly hard," Whitney said. "Solving a supply issue by changing tax policy does not appear, from our numbers, to be a viable solution and requires further efforts by the Washington Liquor and Cannabis Board and the Legislature to fully address."

Consumers, particularly those at the lower income level, will be disproportionately impacted and, to a certain extent, may leave the regulated market entirely as a result, the analysis states. With a diminished level of legal participation there will be a decrease in demand and a reduction of tax revenues associated with the retail sale of cannabis in Washington.

Vicki Christophersen, Executive Director of the Washington CannaBusiness Association (WACA), a Washington-based cannabis trade association, agrees. "With operators struggling with profitability and consumers' budgets stretched as well, a regressive tax measure is not a viable solution. It does more harm than good."

The full analysis can be found here.