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Forecasting taxes very difficult in this industry

Massachusetts is one of seven states that currently regulates and taxes recreational marijuana. Another three states and Washington, D.C. legalized marijuana but do not have active markets.

In its fiscal 2020 budget, Massachusetts is projecting $133 million in marijuana revenue, up from a projection of $63 million last year. The actual total revenue in fiscal 2019 was closer to $22 million, due to a rollout of the industry that was slower that state budget writers anticipated.

According to the Pew report, the difficulty Massachusetts had in forecasting its first-year revenues is not unusual, as states make incorrect predictions on how fast the industry will ramp up, given state and local regulatory requirements.

In Nevada’s first six months collecting marijuana taxes, revenues came in 40% above projections, while in California’s first six months, revenues were down by 45%.

The Pew report writes that part of the challenge is the lack of data and history on legal marijuana revenue because the industry is so new. The first states – Colorado and Washington – only began selling recreational marijuana legally in 2014.

It is also difficult to estimate how many people in a state actually use marijuana, since if surveys were taken before legalization, people tend not to self-report illegal activity.