FISCAL NOTE
Date Requested: March 17, 2021
Time Requested: 12:26 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 3383 |
Introduced |
SB649 |
|
|---|
| CBD Subject: |
Health |
|---|
|
FUND(S):
Cannabis Transfer Tax, Public Employees Insurance Agency Stability Fund, Fight Substance Abuse Fund, Division of Justice and Community Services, General Revenue Fund
Sources of Revenue:
Special Fund
Legislation creates:
Creates New Revenue, Creates New Expense, Increases Existing Expenses, Creates New Fund: Cannabis Tax Transfer Fund
Fiscal Note Summary
Effect this measure will have on costs and revenues of state government.
The stated purpose of this bill is to legalize the personal use and possession of cannabis by adults; providing for a county option election to allow for the production and sales in that county; providing for regulation by the Bureau of Health; authorizing an excise and local sales tax on cannabis; prohibiting underage use; and preserving current laws relating to allowing employers and property owners to prohibit use or possession.
According to our interpretation, the proposed bill would legalize, for State purposes only, the personal use and possession of cannabis by adults aged 21 and over. The bill would also allow for a county option to hold an election to allow for the production and sale of cannabis in that county. The legislation would levy an excise tax of 15 percent on the sales price of cannabis to benefit the Cannabis Transfer Tax Fund and would impose a local sales tax of 6 percent at the point of sale. The proposed bill also provides for licensing, renewal, and application fees, among others, for the operation of cannabis establishments.
Of excise tax collections deposits into the Cannabis Transfer Tax Fund, 50 percent will be deposited into the Public Employees Insurance Agency Stability Fund, 25 percent will be deposited into the Fight Substance Abuse Fund, 12.5 percent will be allocated to the Division of Justice and Community Services, and 12.5 percent will be allocated to the General Revenue Fund. All proceeds from license and application fees and any administrative penalties will be allocated to the Department of Health and Human Resources. The proposed local sales tax of 6 percent would be collected at the point of sale by the licensed retail cannabis store. The county would retain 50 percent of the tax and the municipalities of the county would receive 50 percent of the tax, to be divided among the municipalities on a per capita basis.
It should be noted that the bill requires the State to start accepting and processing application by October 1, 2021. Based upon this date, the State will not see any revenue until FY2022. It is also assumed that it will be a year before the recreational cannabis industry can establish the essential business infrastructure to sell recreational cannabis to consumers. Based upon this assumption, it is estimated that recreational cannabis sales will start in January 1, 2023. It is projected that the State would start receiving revenue from the excise tax in February 2023 and the local municipalities would receive revenue from sales taxes in April 2023.
The estimated revenue from the legalization of recreational cannabis in West Virginia is as follows:
• FY2022: $50,000 in license/application fees.
• FY2023: $2.3 million in Excise Taxes, $1.4 million in local sales taxes, and $50,000 in license/application fees.
• FY2024: $5.2 million in Excise Taxes, $3.6 million in local sales tax, and $50,000 in license/application fees
• FY2025: $5.9 million in Excise Taxes, $4.5 million in local sales taxes, and $50,000 in license/application fees.
• FY2026: $6.5 million in Excise Taxes, $4.2 million in Sales Taxes, and $50,000 in license and application fees
It is estimated that the State will start collecting application fees from recreational dispensaries and growers/processors in June 2022. Cannabis sales are estimated to start in January 2023 along with the collection of excise and sales taxes. The cannabis market would be expected to peak sometime within the first five years of effect.
In addition, there are likely to be significant compliance concerns as the legalized cannabis industry begins in West Virginia. Adherence Compliance, a Colorado-based cannabis compliance company, found that compliance in Colorado scores an average of 82.9 out of 100 while compliance in California scores an average of 74.4 out of 100. It is important to note that Colorado has been regulating recreational marijuana since the law passed in 2012 while California has only recently legalized recreational use and sales. In addition, both states decriminalized marijuana in the 1970s and legalized medical marijuana in 2000 and 1996 respectively. It is expected compliance may take several years to reach reasonable levels, which will impact potential revenue yield.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2021
Increase/Decrease
(use"-") |
2022
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
0 |
106,000 |
45,000 |
| Personal Services |
0 |
45,000 |
45,000 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
1,000 |
0 |
| Other |
0 |
60,000 |
0 |
| 2. Estimated Total Revenues |
0 |
0 |
0 |
Explanation of above estimates (including long-range effect):
According to our interpretation, the proposed bill would legalize, for State purposes only, the personal use and possession of cannabis by adults aged 21 and over. The bill would also allow for a county option to hold an election to allow for the production and sale of cannabis in that county. The legislation would levy an excise tax of 15 percent on the sales price of cannabis to benefit the Cannabis Transfer Tax Fund and would impose a local sales tax of 6 percent at the point of sale. The proposed bill also provides for licensing, renewal, and application fees, among others, for the operation of cannabis establishments.
Of excise tax collections deposits into the Cannabis Transfer Tax Fund, 50 percent will be deposited into the Public Employees Insurance Agency Stability Fund, 25 percent will be deposited into the Fight Substance Abuse Fund, 12.5 percent will be allocated to the Division of Justice and Community Services, and 12.5 percent will be allocated to the General Revenue Fund. All proceeds from license and application fees and any administrative penalties will be allocated to the Department of Health and Human Resources. The proposed local sales tax of 6 percent would be collected at the point of sale by the licensed retail cannabis store. The county would retain 50 percent of the tax and the municipalities of the county would receive 50 percent of the tax, to be divided among the municipalities on a per capita basis.
It should be noted that the bill requires the State to start accepting and processing application by October 1, 2021. Based upon this date, the State will not see any revenue until FY2022. It is also assumed that it will be a year before the recreational cannabis industry can establish the essential business infrastructure to sell recreational cannabis to consumers. Based upon this assumption, it is estimated that recreational cannabis sales will start in January 1, 2023. It is projected that the State would start receiving revenue from the excise tax in February 2023 and the local municipalities would receive revenue from sales taxes in April 2023.
The estimated revenue from the legalization of recreational cannabis in West Virginia is as follows:
• FY2022: $50,000 in license/application fees.
• FY2023: $2.3 million in Excise Taxes, $1.4 million in local sales taxes, and $50,000 in license/application fees.
• FY2024: $5.2 million in Excise Taxes, $3.6 million in local sales tax, and $50,000 in license/application fees
• FY2025: $5.9 million in Excise Taxes, $4.5 million in local sales taxes, and $50,000 in license/application fees.
• FY2026: $6.5 million in Excise Taxes, $4.2 million in Sales Taxes, and $50,000 in license and application fees
It is estimated that the State will start collecting application fees from recreational dispensaries and growers/processors in June 2022. Cannabis sales are estimated to start in January 2023 along with the collection of excise and sales taxes. The cannabis market would be expected to peak sometime within the first five years of effect.
In addition, there are likely to be significant compliance concerns as the legalized cannabis industry begins in West Virginia. Adherence Compliance, a Colorado-based cannabis compliance company, found that compliance in Colorado scores an average of 82.9 out of 100 while compliance in California scores an average of 74.4 out of 100. It is important to note that Colorado has been regulating recreational marijuana since the law passed in 2012 while California has only recently legalized recreational use and sales. In addition, both states decriminalized marijuana in the 1970s and legalized medical marijuana in 2000 and 1996 respectively. It is expected compliance may take several years to reach reasonable levels, which will impact potential revenue yield.
Memorandum
The stated purpose of this bill is to legalize the personal use and possession of cannabis by adults; providing for a county option election to allow for the production and sales in that county; providing for regulation by the Bureau of Health; authorizing an excise and local sales tax on cannabis; prohibiting underage use; and preserving current laws relating to allowing employers and property owners to prohibit use or possession.
The bill imposes an excise tax of 15 percent of the sales price (not defined). The point of taxation is the transfer of cannabis from a cannabis cultivation facility to a cannabis product manufacturing facility or to a retail cannabis store. There is no provision for which entity is first liable for the collection of the tax. The bill is silent with regard to who is responsible for collecting the tax.
The Department of Revenue does not have the authority to administer, collect and enforce taxation. The Tax Commissioner has such authority given in chapter 11, specifically in articles 9 and 10 of the code. The bill lacks the usual language used in levying taxes, i.e., “for the privilege of . . . an excise tax is levied.” The bill lacks language which clearly makes a specific person liable for collecting, reporting and paying the tax over to the Commissioner or County Commission. The bill lacks tax administration structure. West Virginia is part of the Streamlined Sales and Use Tax Agreement which requires all sales tax to be collected and administered by the Tax Commissioner. The bill is silent regarding whether the “local sales tax” of 6 percent is in addition to the state sales tax of 6 percent and any municipal sales tax of up to 1 percent.
The bill requires the bureau to adopt legislative rules no later than July 1, 2021. This is impossible since legislative rules are promulgated and requires the Legislature to adopt them in the following legislative session. The bill lists nine areas the rules are to address including: licensure to operate a cannabis establishment, qualifications for licensure, security requirements for cannabis establishments, requirements to prevent the sale or diversion of cannabis or cannabis products to persons under the age of 21, labeling requirements, health and safety standards for manufacture and cultivation, restrictions on advertising and display of cannabis and cannabis products, and civil penalties for failure to comply with the rules. The bill specifies that the application fees may not exceed $5,000 which may be adjusted annually for inflation and provides the bureau may determine a greater fee is necessary to carry out its responsibilities. The fee for an entity that is licensed for cannabis use for medical purposes when the bill goes into effect, is limited to $500 for a cannabis establishment license pursuant to the bill.
There is no internal effective date. The bill will be effective 90 days after passage.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov