Hindsight is 20/20

BY NICK MURRAY ILLUSTRATED BY JESSE GEORGIA

An old saying cautions us against playing with hypotheticals, that “hindsight is 20/20,” but it’s very difficult to look back on 2020 and not imagine what could have been. The idea is especially tantalizing considering the significant budget shortfall and economic recession staring Mainers—and their lawmakers—in the face.

Granted, it’s not as bad as what was initially projected. In August, prognosticators thought that the Maine state government would be short nearly half a billion dollars to cover the current budget, which ends June 30, 2021. By December, the state was only projected to be short about a quarter-billion.

Could this shortfall have potentially been avoided with a quicker adultuse cannabis roll-out? What if the adult-use market had a couple more years to develop before the pandemic and lockdowns hit?

Instead of taking nearly four years from the legalization vote to see sales begin (the longest for any legal state in the nation), Maine should have been open for business by June 2019—ready to start collecting taxes. As I noted in a previous issue, the American cannabis industry has shown itself to be practically recessionproof. Add it to the list with cars, pet products, and booze. This was abundantly clear in mid-2020, as the average monthly cannabis consumer’s spending jumped, while spending on festivals, restaurants, and vacations fell by the wayside.

National forecasters still expect the cannabis industry to grow significantly. Data firm New Frontier projects a 16% annual growth rate through 2025, to more than $16 billion nationwide. State budget forecasters predict that in 2025, the Maine industry will gross $380 million and contribute more than $50 million in taxes to state coffers.

Maine’s adult-use market is taxed at a higher rate than medical cannabis. While patients are only subject to the 5.5% standard state sales tax, adult-use cannabis elicits an additional 10% tax on top of that. Of the total collected, 2-3% goes to local governments, and 12% goes to fund education programs and training for law enforcement. What’s left over can help to shore up other state spending lines. In the first month of adult-use sales, the handful of open stores brought in $1.4 million.

By December, that total exceeded $4.2 million, with $427,000 paid in taxes. Maine’s medical cannabis market has had more time to mature and develop, bringing in an average of $20 million per month, January to October 2020. Many observers believe the industry sold over $260 million in 2020,meaning it was responsible for contributing more than $14 million in taxes last year.

While these numbers are nothing to sneeze at, Governor Mills and her administration faced a shortfall significantly larger than what cannabis could solely provide. After making up part of the difference in an emergency budget curtailment order in September, the administration recently proposed another supplemental budget to the newly sworn in legislature in Augusta to cover the rest of the fiscal year.

An aspect of that supplemental request from Mills’ office quickly raised the ire of business groups. In late January, the administration announced that they sought to tax payments made to Maine businesses through the federal government’s Paycheck Protection Program (PPP). Under PPP, struggling businesses could apply for a loan and have the loan forgiven if they used it to keep employees on payroll during the pandemic.

ILLUSTRATED BY JESSE GEORGIA

These payments will not be taxed as income on employers’ federal taxes, but states may choose to differ from the federal tax code. Mills’ decided that the state could bring in nearly $100 million to shore up the current budget year by skimming off the top of thousands of pandemic- and lockdown-weary Maine business owners.

Within 48 hours of unveiling the plan, Mills backtracked, promising to “fix the PPP issue” by directing department heads to find other ways to funnel federal aid to state line items. The administration then revised its proposal to instead exempt the first $1 million of each firm’s PPP receipts, bringing in less than $20 million for this year’s budget.

ILLUSTRATED BY JESSE GEORGIA

In an alternate universe (with cannabis-friendly governors, for one) where adult-use sales began in June 2019, instead of October 2020, the state could have brought in at least $50 million more in taxes for this budget cycle. To put it in perspective, $50 million in Maine taxes would mean that more than 800,000 ounces were sold in over nearly five million transactions. That’s 50 tons of cannabis, equal to the weight of a snowplow, a charter bus, 11 ½ police cruisers, or 4.2(0) elephants. We’ll need a few of those buses after all, no doubt full of tourists from Massachusetts, seeking refuge in Vacationland from their notoriously high cannabis prices.

Unfortunately, even that would not have covered the budget shortfall, nor the amount that Mills needs— in this universe—to fully avoid taxing benefits to struggling businesses.

But that is why it is up to all of Maine’s cannabis community to support our fledgling industry and promote the best we have to offer to our New England neighbors. This is the mission of the Maine Cannabis Chronicle, and I’m asking for you to make it your mission too. Ask not what your state can do for you, but what your doobie can do for your state. We respectfully invite lawmakers and Governor Mills to work with the industry to meet its potential, for its own sake and for all of Maine.