Taxing the Toke

Neither New Mexico nor Santa Fe officials are ready to earmark cannabis tax revenue for specific purposes

Proponents of cannabis legalization in 2021 had a list of reasons for how and why it was a good idea. Restorative justice for those harmed by the decades-long war on drugs and kneecapping the illicit market were a couple of hard sells for weed detractors. But the idea that the state could also see some extra revenue from sanctioned sales perked up some ears.

The state reports nearly $500 million in total cannabis sales since the law changed last April, with more than $300 million of that coming from taxable non-medical sales. New Mexico imposes a 12% excise tax, then shares about a third of it with cities and counties for sales within their respective boundaries, and there’s a delay of a couple months between the sales taking place and the state dolling out tax cash.

As the bill that would become the Cannabis Regulation Act wended its way through the Legislature, a financial custody battle started to emerge. At least one Republican-backed proposal suggested giving a portion of the tax revenue money to cops was the way to go. Democrats largely disagreed and maintained that a certain percentage of Cannabis Excise Tax revenue should be earmarked for communities disproportionately impacted by previous drug laws or addiction treatment. So far, the state’s share of the tax has racked up over $18 million—all dumped into the general fund.

Earmarking the pot tax on the state level hit a logistical snafu during the 2023 legislative session, but Santa Fe city leaders still think it’s too soon to put that money anywhere other than its main account. Still, advocates say Santa Fe should start putting that money to use on specific programs.

Santa Fe Mayor Alan Webber proposed a budget earlier this month that includes expected tax revenue of more than $181 million. Most of that figure (81%) is gross receipts taxes, and the rest comes from property taxes, lodgers taxes and others. The city’s share of cannabis excise tax, one of the “others,” would be a relatively small portion of that pool. It has earned $577,000 so far on sales within the city limits between April 2022 and February 2023.

City Manager John Blair told SFR last year it was too early to start divvying up cannabis tax revenue because the industry’s potential had not been fully realized. Blair tells SFR nothing has changed in that regard and that the market is still “volatile” enough to warrant keeping the money in the general fund.

A tax expert with the Urban-Brookings Tax Policy Center praised New Mexico last year for not jumping the gun on appropriations. But Emily Kaltenbach, senior director for criminal, legal and policing reform for the Drug Policy Alliance, tells SFR the money the City Different brought in from cannabis sales should have a specific use.

“This is a perfect opportunity to reinvest those dollars back into our community here [in Santa Fe],” Kaltenbach says. “And we have an obligation to reinvest those dollars back into the communities that have been most harmed by disproportionate rates of arrests and incarceration.”

Kaltenbach posits that the hundreds of thousands of dollars Santa Fe has already seen in cannabis tax revenue could easily be funneled through existing infrastructure like the city’s Community Services Department.

“We know that the drug war has impacted many civil systems, from housing, to education, to child welfare, to employment,” she says. “So one way would be to invest those dollars into housing support for people who are struggling with problematic drug use or addiction.”

The message from Kaltenbach is not a new one. She was appointed by the city in 2019 to a Municipal Drug Strategy Task Force that recommended, among other actions, the city advocate for legalization to increase funding for publicly run treatment and housing services.

State Rep. Andrea Romero, D-Santa Fe, in February took a stab at setting up legislation that would pull 33% from the state’s share of weed tax dollars and use it for drug addiction prevention and treatment with House Bill 315. But her proposal stalled without an official appropriation in the budget.

The Cannabis Excise Tax is set to increase by 1% in July 2025, then another 1% each year after that until 2030. The idea is that as retail cannabis prices drop in the coming years, the tax will incrementally increase ensuring a stream of revenue for the state and local governments while keeping consumers away from the illicit market.

So far, the City of Santa Fe has received distributions from the state’s Taxation and Revenue Department hovering around $50,000 to $60,000 a month, with a spike of more than $74,000 last June. Santa Fe County has collected nearly $100,000 in cannabis tax revenue since last April, but a county spokeswoman said county commissioners had not adopted policies to earmark the revenue.

By the Numbers

Total taxable cannabis sales: $300 million

Collected in cannabis excise tax: $18 million

Tax Rate: 12% on “adult-use” products; 33% of which goes to local governments

Total cannabis tax revenue for City of Santa Fe through February 2022: $577,000

Total cannabis tax revenue for Santa Fe County through February 2022: $99,000

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