An Economist Warns That Oregon Could Soon Tax Its Weed Shops Out of Business

Heidi Fikstad, co-owner of Eugene cannabis dispensary Moss Crossing, is getting double vision from keeping watch for new taxes on her business. Tax hikes loom on the horizon from both Washington, D.C., and Salem.

By the end of the month, Congress could increase the federal corporate income tax rate from 21% to 28%. And the Oregon Legislature could refer to voters a proposal to allow cities and counties to increase the local tax on cannabis products up from 3% to 10%, in addition to the state's 17% cannabis tax.

The effect on Moss Crossing? Its tax burden would increase from 61% to 75%. That's not a typo: 75 cents of every dollar Fikstad makes selling weed would go to the taxman.

"For a lot of businesses, this would be the straw that breaks the camel's back," Fikstad says. "We are exhausted already. To continue to pile on these excess taxes, it's almost insulting. We've been struggling so hard to make it work, and businesses staying inside the regulatory lines are the ones most affected."

Every business owner hates taxes. But cannabis shopkeepers have more reason than most to complain. Because marijuana is still federally illegal, weed retailers can't use any of the common tax deductions other businesses claim, which lower the total dollar amount a company must pay taxes on.

Those deductions typically include wages, legal services, health care plans, advertising costs and security services. Fikstad doesn't get deductions for rent, labor or the health insurance she provides for 17 employees.

Portland cannabis economist Beau Whitney has been compiling an analysis of impending tax hikes, which he shared with WW. He says the one-two punch could be a recipe for disaster, and one the cannabis industry likely can't handle.

"The effective tax rate for cannabis retailers swells to greater than 70%," Whitney's report predicts, "potentially crippling the ability to operate small, women or BIPOC cannabis businesses."

Whitney says give it five or 10 years. By then, Oregon's cannabis landscape could transform into an oligopoly—where a few dominant chains swallow up local businesses and dominate the weed retail industry.

"If they're forced into consolidation, you're going to have large corporate entities that can absorb the costs," Whitney says. "The large corporations will buy up the small business at a discount and drive small businesses out of the industry."

Ironically, Whitney predicts that allowing city and county taxes on cannabis sales will cut into the state's coffers—because customers will stop shopping. Cannabis consumers are "extremely savvy," Whitney says, despite misconceptions that they'll absorb any price to get high. They may turn to the illicit market for cheaper prices if the tax proposals go through.

"When you have a 7% tax increase, you're going to have lower revenue," Whitney says.

Whitney projects a $24 million decrease in tax revenue if the local tax hike is approved, because demand will diminish by an estimated 14%. In essence, he says, lawmakers are killing their golden goose.

"You've got this essential business that's adding jobs and providing tax revenue. And then you've got this punitive tax that's destroying businesses. It seems contradictory, with Gov. Brown and Biden and Pelosi saying they support small businesses, and then their tax policy is destroying the very communities that they're professing their support for," Whitney tells WW. "At some point, you just have to say this doesn't make sense."