Hawaii Lawmaker Says Tax Revenue Won’t Cover Costs of Legal Adult-Use Cannabis

The Hawaii state Tax Department projects that legalizing adult-use cannabis in the state would generate about $50 million per year in tax revenue, far eclipsing the $2.5 million in medical marijuana taxes collected over the past fiscal year, according to a recent report from the agency. But a state lawmaker believes the taxes collected will not cover the costs of implementing the legalization of recreational weed.

At a meeting of Hawaii’s Dual Use of Cannabis Task Force on Monday, state Tax Director Isaac Choy reported tax revenue of $2.557 million on medical cannabis sales, corporate income tax and employee withholdings from July 1, 2021, through June 30, 2022. The agency also projected that tax revenue from legalizing recreational marijuana would be about $50 million.

State Representative Ryan Yamane, chair of the House Health, Human Serv­ices Committee, said on a livestreamed news program that the projected tax revenue would likely not be enough to pay for the regulatory costs associated with legalizing adult-use cannabis.

“There’s not much that $50 million can pay for,” Yamane said. “So there is not … this huge windfall that will be able to subsidize education or health services.”

The Democratic lawmaker said that the amount would make it difficult to fund the infrastructure required to provide oversight of a statewide recreational marijuana industry.

“That is difficult to use in order to establish a new program,” said Yamane. “Hire employees, do monitoring, do all the different aspects of adult recreational use, with $50 million annually.”

Cannabis Industry Disputes Projections

But representatives of Hawaii’s medical marijuana industry dispute the Tax Department’s projection that adult-use cannabis legalization would generate about $50 million in revenue for the state. Ty Cheng, chair of the Hawaii Industry Cannabis Association and president of the Aloha Green Apothecary dispensary, said that sales of recreational marijuana, and thus tax revenue generated, would likely be higher than state projections. 

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

Cheng says that there is a lot of room for growth for Hawaii’s cannabis industry. As of the end of September, there were 33,725 patients with valid medical marijuana cards, according to information from the state Department of Health. And with only eight medical marijuana dispensaries spread across the islands, each business has practical access to a small portion of the total number of patients.

“We’re really only catering to about 8,000, 9,000 patients,” said Cheng. “And those patient numbers have increased over the last three years, especially during the pandemic and we’ve seen revenue double from two years ago.”

Task Force Exploring Legalization in Hawaii

The Dual Use of Cannabis Task Force was created last year by the state legislature and current Democratic Governor David Ige, who opposes recreational cannabis legalization, to explore the issues surrounding further reform of Hawaii’s marijuana policy. The state’s lawmakers legalized the medicinal use of cannabis in 2000, making Hawaii the first state to legalize medical marijuana by action of the legislature rather than through the ballot box. Medical marijuana dispensaries, however, were not legalized until 2015.

Cheng said that he is hopeful that following next week’s general election, the administration of a new governor will herald new progress in cannabis legalization.

“I think there’s real positive mood right now when it comes to adult use cannabis with the recent pardoning by President Biden on federal drug charges,” said Cheng.

Terilynne Gorman, a task force member from Maui, said that if the aim of legalizing marijuana is to generate revenue, the taxes collected from medical marijuana and expected from adult-use cannabis will not live up to people’s expectations. She said that the projected tax revenue does not “seem like much of a windfall for the state of Hawaii. … This could not be the tax windfall that people are anticipating.”

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

Yamane has told reporters that the task force is Hawaii’s best chance to legalize cannabis after years of failed attempts. He added the panel is still gathering information that will be reported back to the state legislature.

“There’s going to be a number of opportunities for the general public to chime in, testify for or against,” he said. “But what we wanted was to dispel some of the myths and find out what is fact.”

With voters in five states deciding on cannabis legalization in next week’s election, industry representatives in Hawaii hope that their state will not be far behind.

“We should all stay tuned, and we should 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 ever been to legalizing cannabis in the history of our state.”