Washington Medical Pot Excise Tax Reprieve Is Good for Patients
AB FinWright reviews Washington cannabis excise tax pause
Medical cardholders, dispensaries have opportunity to benefit
In what’s been hailed by many as a major step forward for cannabis patient rights, Washington state will pause its 37% excise tax on cannabis for medical cardholders for five years starting June 6, 2024.
Allowing a sales and excise tax exemption on special, high-cost cannabis products puts Washington in a unique position. By removing both taxes, Washington appears to be placing a lower tax burden on patients compared to other states. (Colorado charges sales tax but no excise tax on medical sales, for example, while California exempts card-carrying patients from sales tax but charges them excise tax.)
However, no other adult-use state requires patients to purchase specially tested cannabis to qualify for their medical discount. This places an increased financial burden on Washington’s medical patients who are often those least able to afford it.
The state’s medical patients will have to pay higher product costs to qualify for the tax relief, raising questions of the impact’s significance. But there still may be significant savings opportunities for patients and new business opportunities for Washington’s dispensaries. The 37% reduction, combined with the 6.5% savings on sales tax that already exists, may be enough to spark a resurgence in medical cannabis sales.
Dispensary Opportunities
The tax savings achieved through eliminating the excise and sales taxes may be enough to attract medical patients back to the certified medical brands that offer viable alternatives to pharmaceuticals.
In addition, consumers who are sensitive to toxins, pesticides, and heavy metals—and willing to pay a premium for organic products in other areas of their lives—may provide dispensaries with a new, broader market. These consumers would have to obtain a prescription from their physician, but the excise and sales tax savings of 43.5%, combined with the health advantages of such high-quality cannabis, would be a strong incentive to go through the state’s medical cannabis process.
Up until now, the excise tax charged by Washington state has been a strong deterrent to medical cannabis purchase. Department of Revenue data shows that sales-tax-exempt sales of medical products continue to fall and currently make up only 0.9% of cannabis product sold.
An informal price analysis recently conducted in the Seattle area compared adult-use flower to a well-known brand of medically compliant flower. It showed that the cost savings with excise tax and sales tax removed will cause the medical-grade flower to be far cheaper than the high-end brands and cost-comparable to the most popular, mid-priced brands.
Compliant Products
Patients already can avoid the 6.5% sales tax if they have state recognition cards and purchase cannabis certified by the state health department. Under the new law, they will be able to avoid the 37% excise tax through June 30, 2029.
The state considers most cannabis products to be of no medical use even though they are lab-certifiedand tested for potency, solvents and other contaminants. Products marked with the state-compliant seal, however, have undergone additional testing not required for other retail products. Department of Health testing standards include screening for heavy metals, pesticides, and mycotoxins.
The medical cannabis program in Washington is managed by the state’s Liquor and Cannabis Board, which keeps a close watch on physicians, patients, and medical dispensaries. A dispensary must be a medically endorsed approved store to sell state-compliant cannabis.
Unlike in many states, Washington certifies special consultants who are responsible for entering patients and their prescriptions in the state’s database and creating a medical cannabis card for each patient, which translates into added payroll expenses for the dispensaries that employ them.
Consumers must obtain a medical cannabis authorization form from their physician. Qualifying conditions include cancer, glaucoma, intractable pain, and PTSD. Mental health conditions such as bipolar disorder, depression, and anxiety don’t qualify.
These extensive procedures mean patients must spend significant time and effort to comply. They also mean additional costs for dispensaries who choose to sell medical cannabis, which must end up being passed on to the patients in the form of higher prescription prices. The new rule will provide a welcome tax break to help offset these prices.
Outlook
Masen Bell, general manager of Greenworks Cannabis (rated Seattle’s top dispensary) sells both DOH-Compliant medical products and adult-use products and is hopeful the new tax reduction will spark a stronger demand for high-quality medical cannabis. “When they added the excise tax to medical cannabis, it killed the industry,” he said. “Now, it’s going to be cool to see how many producer-processors decide to switch over and grow cleaner products.”
Allowing Washington’s patients to be exempt from excise and sales tax is a strong step in a positive direction for those with health issues, significantly lowering the cost of medicinal cannabis. There’s a good chance the lower pricing will spark a greater demand and put high-quality cannabis products into the hands of more people who need them.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Author Information
Abraham Finberg, managing partner at AB FinWright, has worked in the cannabis sector since 2009, counseling clients in business advisory and tax, from start-up through M&A and IPO.
Simon Menkes, CPA, supports AB FinWright’s clients and advisers through accounting and advisory services.
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Reproduced with permission. Published May 13, 2024, 4:30 AM EDT. Copyright 2024 Bloomberg Industry Group 800-372-1033. For further use please visit https://www.bloombergindustry.com/copyright-and-usage-guidelines-copyright/
