Management costs of recreational cannabis outweigh tax revenue, says Hawaii legislator

Hawaii’s medical cannabis industry generated $2.5 million in state taxes in the fiscal year that just ended — and tax projections on potential adult, recreational cannabis sales would struggle to meet the financial needs to oversee, address and administer legal use, state Rep. Ryan Yamane told the Honolulu Star-Advertiser’s “Spotlight Hawaii” livestream program Monday.

Projections of $50 million in state tax revenue on a recreational cannabis industry would make it hard to create a new oversight department or increase adequate staffing to test and otherwise regulate the industry, let alone fund education and health programs, Yamane, chair of the House Health, Human Serv­ices Committee, told “Spotlight Hawaii.”

“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.”

Yamane was joined on “Spotlight Hawaii” by Ty Cheng, chair of the Hawaii Industry Cannabis Association and president of the Aloha Green Apothecary dispensary, who disputed the assumptions of potential sales — and therefore tax revenue — from legalizing recreational cannabis.

Later Monday, state Tax Director Isaac Choy reported tax revenue of $2.557 million on Hawaii’s medical cannabis sales, corporate income tax and employee withholdings from July 1, 2021, to June 30 at a sometimes contentious meeting of the Dual Use of Cannabis Task Force.

The Legislature created the task force in anticipation of a new round of bills to allow recreational cannabis by users at least 21 years old.

More meetings of the task force are scheduled for Nov. 14 and 28.

Cheng disputed the projections of gross annual recreational cannabis sales of $200 million to $273 million, especially without knowing how much Hawaii tourists are likely to spend on recreational cannabis.

He, instead, estimated annual recreational sales of $400 million — similar to Hawaii liquor sales — that would instead generate $80 million in annual tax revenue.

Monday’s subsequent task force meeting quickly devolved into several different directions, including Cheng’s argument that legalized cannabis use would ease the pressure on Hawaii’s overcrowded jails, law enforcement and court system; questions over the role that legalized cannabis on the mainland plays in impaired-driving arrests; and how medical cannabis dispensaries would fit into a recreational industry.

Some people who testified continued to suggest that the medical cannabis industry could serve as a temporary transition to recreational use and that medical cannabis eventually will give way to recreational use — but potency levels could differ between medical and recreational sales in the meantime.

Terilynne Gorman, a member of the task force from Maui, said that the medical cannabis tax revenue and projected recreational use don’t live up to expectations if the goal is to generate tax revenue.

She said the figures don’t “seem like much of a windfall for the state of Hawaii. … This could not be the tax windfall that people are anticipating.”

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

Gov. David Ige opposes legalizing recreational cannabis use. Lt. Gov. Josh Green, a medical doctor who is running to replace his boss on Nov. 8, supports legalization as long it generates taxes and applies only to adults. His Republican rival, former Lt. Gov. James “Duke” Aiona — a former deputy prosecutor and Circuit Court judge who created Hawaii’s drug court diversion program — opposes legalizing recreational use.

Hawaii legalized medical cannabis use six years ago, leading to what are now eight licensed companies operating 18 dispensaries across the state: eight on Oahu, six on Hawaii island, three on Maui and one on Kauai.

One of the committee’s reports found that most medical cannabis users buy their cannabis on the “gray” or illegal “black” markets.

Extra overhead costs on the legal medical industry for retail space, trained staff and product testing increase patient prices by 40% to 100%, according to the report.

Yamane helped set up the 15-member Dual Use of Cannabis Task Force, created by the Legislature in 2021, which could result in new bills this upcoming legislative session to allow for dual legal cannabis use by patients and adult recreational users.

Yamane has previously told the Star-Advertiser that the task force represents the best chance to legalize recreational cannabis after years of failed efforts.

Previous bills lacked specifics, but the hope is that the task force’s recommendations will provide a detailed road map for how to proceed.

BY THE NUMBERS

State lawmakers are concerned that tax revenue, a projected $50 million, from legalized cannabis could make it hard to create an oversight department to regulate the industry.

$2.557M

Amount of state tax revenue collected on Hawaii’s medical cannabis industry as of June 30

$200M-$273M

Estimate of annual sales from a recreational cannabis industry

$400M

Medical cannabis industry estimate of annual sales of recreational cannabis, similar to Hawaii liquor sales

$80M

Medical cannabis estimate of annual tax revenues

8

Number of licensed medical cannabis companies in Hawaii

18

Number of medical cannabis dispensaries operating in all Hawaii counties

Dual Use of Cannabis Task Force

>> Next meetings scheduled for Nov. 14 and 28.

>> For more information, visit health.hawaii.gov/medicalcannabis/dual-use.