Denver, CO 2014 MMJ Infographic: Save Up to $828 per Year in Taxes vs. Recreational Tokers

January 1st, 2014 is rapidly approaching as the city of Denver gears up for its highly anticipated retail marijuana market. Colorado of course already has an established medical marijuana program where qualifying patients can get their red card to make purchases.

In this post, lets focus solely on the financial differences between being a recreational vs. medical consumer of cannabis in Denver in 2014. The primary financial difference is the significantly higher sales tax rate of being a recreational user vs. the cost of a medical patient maintaining her red card each year.

The above infographic shows the implied annual financial value of possessing a red card in Denver. Another way to think about the financial value is a qualifying Denver medical patient would come out financially ahead if the annual cost of a red card was less than the tax savings.

For example, if you purchase 1.5 ounces of weed per month on average, at an average price of $200 per oz, a medical patient in Denver would pay $828 less per year in sales tax than a recreational user. If you purchase 1 ounce of weed per month at an average price of $150 per oz, you’d save $414 per year in sales tax as a medical patient.

Assuming an annual red card renewal costs $100, if you purchased 0.25 oz per month at an average price of $150 per oz, you’d be financially indifferent between the medical and recreational program.

It will be extremely interesting to see how the medical (7%), recreational (30%) and black markets (0%) evolve in Denver given the sales tax rate differentials. What will be the impact on the supply and demand of each of these three markets? The black market may not have a sales tax rate, but it does bear higher costs in other areas, such as law enforcement-related headaches (e.g. seizures). I am all for a legalized and regulated cannabis industry, but lets see what the (Denver) market shall bear on taxation.

Chart’s Key Assumptions:

• Denver Colorado Medical Marijuana Sales Tax Rate: 7% (number quote by a dispensary. CannabisIndustry.org cites 6.52%, or 3.62%+ 2.9%)
• Denver Colorado Recreational Marijuana Sales Tax Rate: 30% (Denver Post cites 29%).
• Price per ounce of weed
  • Excludes sales tax. e.g. if $200, that means recreational price would be $260 ($200 * 130%)
  • A fair current average price per oz in Colorado is ~$200. Assuming recreational legalization lowers price, one can see impact at $150 or $100 per oz.