Aug 03 2010

A look at Oakland’s marijuana price, tax, sales, and production

Oakland marijuana price / tax tables - Table 4

Table 4

Marijuana Price / Tax Tables – After medical tax increase

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These tables provide a look at marijuana sales and tax revenue for past, present, and proposed levels of production and taxation as given by the Business Tax and Revenue Division of Oakland, California.

Total sales and tax revenues are shown for retail marijuana price levels ranging from $38 per ounce to $500 per ounce.

The tax per ounce shown includes wholesale tax, retail tax, and license fees.

A breakdown of the total tax per ounce into state sales tax, local sales tax, marijuana wholesale or cultivation tax, and marijuana retail or dispensary tax is provided.

A retail markup of 60% over wholesale is used because it satisfies the most data points:  1) Oakland’s gross sales of $28 million at  2) $291 per ounce, on 3) 6,000 pounds of production, at 4) $3,000 per pound wholesale, with 5) Rand’s price floor of $38/ounce coming in at $380 per pound wholesale.

For comparison, a separate set of tables using 100% markup can be found here.  At this markup, $28 million in sales on 6,000 pounds at $300 per ounce works out to a wholesale cost of $2,400 per pound and the Rand floor retail price of $38 per ounce gives a wholesale cost of $300 per pound.  Some consider these to be more reliable figures.

For instance, Jeff Wilcox told the San Jose Mercury, “Right now there’s an 85 percent profit margin (enjoyed by the growers and dispensaries), and that’s too high, in my opinion.  If you can grow for $400 and sell it $800 wholesale, people will be doing just hunky-dory.”

If he meant Profit Margin in its traditional sense, that pound which cost $400 to produce would have to sell for $2,700 ($168.75 ounce) to have a profit margin of 85%.  That’s a markup of 575%, far more than 60%, and far more than 100%.

If a dispensary were to use the same yardstick it would be selling ounces from that pound at $1,140 each.  Or, going at it in the other direction, their $400 ounces would be costing them $60 a pound.

Estimated Cost of Production for Legalized Cannabis from The Rand Corporation states a total cost per pound of $200-$400 for a grow-house and $70-$215 for a greenhouse.  It states $225 per pound for a 25-square-foot grow-box, not including labor, structure, or rent.

A year ago Oakland passed the first medical marijuana retail tax of 1.8%.  Oakland states medical marijuana production increased 40% over the past year to 6,000 pounds.

Table 1 - Oakland marijuana price / tax tables

Table 1

Marijuana Price / Tax Tables – Before 1.8% medical tax

Table 1 Before marijuana tax of 1.8% – displays figures for the previous year, with production of 4,285 pounds, no medical marijuana tax, and retail sales tax of 9.75%

Table 2 Current year with 1.8% medical marijuana tax – reflects the current year, with production of 6,000 pounds and a 1.8% tax on retail medical marijuana sales on top of the 9.75% retail sales tax.

Table 3 Impact of increased licensing – includes the cost of 4 cultivation licenses at $211,000, 4 application fees of $5,000, and 6 dispensary licenses at $60,000.

In California it costs $400 to license a pharmacy and $600 to license a drug wholesaler.

In California the license for an “on-sale beer & wine public premises” is $300 and renewals cost $261.

Table 4 Impact of medical marijuana tax increase – includes the wholesale/cultivation tax of 5%, and the increase in the retail marijuana tax from 1.8% to 5%.  A medical marijuana patient will pay $44.25 in sales tax on a $300 ounce.  Seriously ill patients (who tend to be the poorest) need several ounces a month.  Irv Rosenfeld receives 11 ounces each month from the federal government.

When you factor in the wholesale/cultivation tax and the license fees, the patient ends up paying $66.38 in tax (22.13%) on a $300 ounce.  At production of 6,000 pounds the city gets $4 million and the state $2.4 million of the money the sick and dying spend for medicine.

Table 5 Impact of recreational marijuana tax – shows the impact of the passage of Prop. 19 with a non-medical retail sales tax of 10%.

Table 6 - Oakland marijuana price / tax tables

Table 6

Marijuana Price / Tax Tables – Impact of increased production

Oakland states it required 45,000 square feet to grow the 6,000 pounds its dispensaries sold over the past year.  It expects to have industrial cultivation “on-line” by January of next year.

Wilcox is a leading applicant for one of the cultivation permits.  His AgraMed proposal will produce 21,000 pounds per year from 100,000 square feet of cultivation.

With four industrial marijuana cultivation licenses in Oakland, an increase in production to 21,000 pounds over the next year or two is entirely possible.

The Oakland City Council Agenda Report claims 21,000 pounds of production will supply 60% of the Bay Area medical marijuana market.

The next step in Oakland’s plan for world domination is 70,000 pounds requiring 350,000 square feet under cultivation, which it believes will give the city 20% of California’s medical marijuana market.

Table 6 Impact of increased production with no new tax – shows figures for 21,000 pounds of marijuana production if Oakland’s local tax measure fails this November.

Table 7 Impact of increased production and medical tax – shows figures for 21,000 pounds of marijuana production if the local tax measure wins increasing marijuana cultivation or wholesale tax up to 5% and medical marijuana retail tax of up to 5%.

Table 8 Impact of increased production and recreational tax – shows figures for 21,000 pounds of marijuana production if Oakland’s local tax measure, with its 10% non-medical retail tax, and Proposition 19 should win in November.

Besides license fees and taxes, Oakland also intends to sell “reasonable transfer permits” to dispensaries in other cities which will allow them to buy their medicine from Oakland.

The sale of these “reasonable transfer permits” and the $5,000 application fees for a cultivation license could result in substantial additional revenue for the city but should not impact the price of marijuana.

For more info:
Agenda Report – City of Oakland | 13 Jun 2010
Estimated Cost of Production for Legalized Cannabis – Rand Corporation | July 2010
Fee Schedule – California Board of Pharmacy
Schedule of Fees – California Alcoholic Beverage Control

Oakland’s pot dreams could burst – The San Jose Mercury News | 1 Aug 2010
Oakland puts parcel tax on ballot – The San Francisco Chronicle | 27 Jul 2010
Oakland police union makes offer to save jobs – The Oakland Tribune | 27 Jul 2010
Oakland city council agrees to tax cannabis – The Bay Citizen | 26 Jul 2010
Economic Anxiety Makes City Mellow On Pot Farms – NPR | 25 Jul 2010
Pot Growers Troubled by Falling Prices – NBC Bay Area | 18 May 2010

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