Hawaii lawmakers say tax revenues will not cover the cost of legal adult cannabis use

The Hawaii State Internal Revenue Service estimates that legalizing adult-use cannabis in the state would generate approximately $50 million annually in tax revenue, surpassing the $2.5 million medical marijuana tax collected last fiscal year far dwarfed, according to a recent agency report. However, a state lawmaker believes the taxes collected will not cover the costs of implementing recreational cannabis legalization.

At a meeting of the Hawaii Dual Use Cannabis Task Force on Monday, state tax director Isaac Choy reported $2.557 million in tax revenue from medicinal cannabis sales, corporate income tax and worker withholding taxes from July 1, 2021- as of June 30, 2022. The agency also projected that tax revenues from legalizing recreational marijuana would be approximately $50 million.

State Representative Ryan Yamane, chair of the House Health Human Services Committee, said in a livestreamed newscast that projected tax revenues would likely be insufficient to cover the regulatory costs associated with legalizing adult-use cannabis.

“There’s not a lot that $50 million can buy,” Yamane said. “So there isn’t … this huge windfall that could subsidize education or health services.”

Democratic lawmakers said the amount would make it difficult to fund the infrastructure needed to oversee a statewide recreational marijuana industry.

“This is difficult to use to establish a new program,” Yamane said. “Hire staff, do surveillance, do all the different aspects of adult recreational use, at $50 million a year.”

The cannabis industry disputes forecasts

However, representatives of Hawaii’s medical marijuana industry dispute the Treasury Department’s projection that legalizing adult-use cannabis would generate approximately $50 million in revenue for the state. Ty Cheng, chairman of the Hawaii Industry Cannabis Association and president of dispensary Aloha Green Apothecary, said recreational marijuana sales and related tax revenues are likely to be higher than state forecasts.

Cheng disputed the department’s projections for annual gross sales of $200 million to $273 million for recreational cannabis, saying it’s not clear how much money tourists visiting the islands would spend on adult-use cannabis. He forecast a more robust $400 million in recreational cannabis sales, similar to the amount of money spent on spirits in Hawaii each year. At that rate, the taxes collected would likely amount to about $80 million.

Cheng says there’s plenty of room for growth for Hawaii’s cannabis industry. According to the state Department of Health, there were 33,725 patients with valid medical marijuana cards at the end of September. And with just eight medical marijuana dispensaries spread across the islands, each business has convenient access to a small portion of the total number of patients.

“We really only serve about 8,000, 9,000 patients,” Cheng said. “And those patient numbers have increased over the past three years, particularly during the pandemic, and we’ve doubled revenue from two years ago.”

Task Force to Research Legalization in hawaii

The Dual Use of Cannabis Task Force was established last year by the state Legislature and current Democratic Gov. David Ige, who opposes recreational cannabis legalization, to study the issues surrounding further reform of Hawaii’s marijuana policy . State legislatures legalized the medicinal use of cannabis in 2000, making Hawaii the first state to legalize medical marijuana through the legislature rather than through the ballot box. However, medical marijuana dispensaries were not legalized until 2015.

Cheng said he was confident that after next week’s general election, a new governor’s administration would announce new advances in cannabis legalization.

“I think there’s a really positive sentiment right now when it comes to adult use of cannabis after President Biden recently pardoned federal drug charges,” Cheng said.

Terilynne Gorman, a member of the Maui task force, said that if the goal of legalizing marijuana is to generate revenue, the taxes imposed on medical marijuana and expected of adult-use cannabis are not meeting people’s expectations . She said the projected tax revenue “doesn’t appear to be much of a godsend for the state of Hawaii. … This might not be the expected rudder windfall.”

Gorman added that a state lottery could be “much more lucrative” if the goal is to generate tax revenue for the public purse, then remarked, “I know we’re not here to discuss that.”

Yamane told reporters that the task force is Hawaii’s best shot at legalizing cannabis after years of failed attempts. He added that the panel is still collecting information that would be reported to the state legislature.

“There will be a number of opportunities for the general public to get involved, to speak out for or against,” he said. “But what we wanted was to dispel some of the myths and find out what is fact.”

As voters in five states decide whether to legalize cannabis in next week’s elections, industry officials in Hawaii are hoping their state won’t be far behind.

“We should all stay tuned in and be prepared for the public to provide input and comment,” said Randy Gonce, director of the Hawaii Cannabis Industry Association. “This is the closest Hawaii has come to legalizing cannabis in our state’s history.”