Maine consumers would pay a 10 percent retail sales tax on recreational marijuana under a committee bill approved on Friday.

The bill would set a 10 percent tax on marijuana at the point of sale, which is what consumers would see on their sales receipt, in addition to a 21.5 percent excise tax on wholesale marijuana that would be paid by processors and retailers. State officials say that would result in an effective tax rate of 20 percent, which would put Maine right alongside Oregon in having the lowest recreational marijuana tax rates in the nation.

The legislative committee whose bill will launch Maine’s recreational marijuana market – which state officials predict will hit $85 million in retail sales in its first full year of operation – approved the regulatory and licensing bill by a 16-1 vote. It calls for a three-year residency requirement for license applicants, a limit of three home-grow plants per adult, and an unlimited number of commercial licenses. Towns that host marijuana businesses would not get any of the state taxes.

This bill would replace the Marijuana Legalization Act approved by voters in a 2016 referendum. That law, which is in effect now even though the state is not issuing any commercial licenses, set a 20 percent retail sales tax but did not levy an excise tax, gave medical marijuana caregivers a licensing preference but not residents, allowed adults to grow up to six plants on their property or someone else’s with permission, and allowed social clubs, drive-up windows and home delivery.

“The spirit of the referendum is certainly represented in the bill, but it also honors how close the vote was,” said Rep. Teresa Pierce, D-Falmouth, the committee’s House chairman. “Government too often doesn’t get anything done because we are not able to come to the center. Our bill was all about compromise. People will hate some of it, and love other parts of it. But it protects our kids, our public safety and our communities while also giving adults the right and privilege of using marijuana.”

The compromise won over Rep. Patrick Corey, R-Windham, who voted against last year’s version of the bill but praised the “amazing give and take” of this version. That doesn’t necessarily mean the bill will win over the support of the House Republican caucus, which helped Gov. Paul LePage kill the committee’s first bill. House Minority Leader Ken Fredette, R-Newport, predicted that LePage will probably veto this committee bill, too.

“It’s a very different bill from the last one, a far better bill, but is it good enough?” Fredette asked Friday. “A lot of Republicans will never support a marijuana bill. Others I know will never override a veto. So even though it is a better bill, one the committee has worked very hard on, and even though they listened to our concerns, I believe it is still too early to say. I believe the fate of this bill remains uncertain.”

The proposed tax rate, which was unveiled Friday, includes a 21.5 percent excise tax levied on wholesale marijuana when a cultivator sells the unprocessed material to a processor or retailer, and a 10 percent retail tax. Because the value of unprocessed marijuana is so much lower than the retail product, state officials say the 21.5 percent excise tax is equivalent to the amount of money that would be raised from another 10 percent retail tax levied at the point of sale.

The state Department of Administration and Financial Services projects the state would collect $2.7 million in overall marijuana taxes in fiscal year 2020, the first year it expects to see any sales, and $16.3 million in fiscal year 2021, the first full year of market sales. That is based on a $335 excise tax levied on every pound of marijuana flower and mature plants sold by a cultivator. It predicts that Maine adults would spend $85 million on recreational marijuana in the first full year of the market.

State officials are projecting that sales will not begin until 2020, three years after voters had wanted, saying it will take nine months to write regulations, time for the next Legislature to approve those regulations, time to accept and award state licenses and then more time for those companies that win licenses to grow the cannabis for sale. The market could be ready to go earlier, officials say, but with a guaranteed change at Blaine House coming in the middle of that, it would be unlikely.

Officials say an excise tax would discourage diversion to the black market because it establishes a record of the plant when it is first produced, making it harder for that product to disappear along the way. It also is intended to protect the state from any price fluctuations that might occur as the market matures and more cannabis ends up hitting the adult use market, which often drives down price. An excise tax is based on weight rather than product value.

While the adopted rate might sound big, it doesn’t really add up to a 31.5 percent tax rate because of the difference in marijuana’s wholesale and retail value, said David Heidrich, a spokesman for the financial services department. The Senate chairman of the Marijuana Legalization Implementation Committee, Roger Katz, R-Augusta, said the effective 20 percent tax rate still keeps the overall tax paid by the Maine consumer lower than any other state that allows recreational sales except for Oregon, which would be the same as Maine’s.

“It’s still low enough to encourage people who have been operating in the black market to come into the legal system,” Katz said. “That’s good for the consumer, too.”

The bill now undergoes a language review that is expected to take several weeks before it returns to the committee for a final look, but that isn’t expected to result in any substantial changes to the contents of the bill. A cleaned-up version will go to the House and Senate in late March, at the earliest. If approved by the Legislature, LePage has up to 10 days to take action on the bill.

The committee’s first bid to launch the market won legislative approval, but was vetoed by LePage. It fell 17 votes shy of the two-thirds majority needed to override.

In his veto letter last fall, LePage cited his concern that such a bill would put Maine in conflict with federal law, which deems marijuana illegal, putting the public and private investment in launching a new industry at risk of federal enforcement. That risk has only increased since January, when U.S. Attorney General Jeff Sessions rescinded the Obama-era protections for states that have legalized marijuana, Fredette said.

But even Fredette said the committee’s latest bill was more palatable than its first. The decision to remove social club licenses from the proposal was important to a House Republican lobby that worried they would increase the number of people driving high, Fredette said. He also praised the elimination of an earlier proposal to give towns a cut of marijuana tax revenues, which would have benefited the big cities at the expense of the small ones.

But some Republicans will still be unhappy with the committee’s failure to pursue a slower roll-out of the recreational marijuana market by limiting the number of grow and retail licenses issued in at least the first few years of this emerging industry. “We just don’t believe we ought to be moving at warp speed toward making it so easy for a lot of people to get high,” Fredette said. “We think we should take this as slow as possible.”

The lone “no” vote on the committee Friday was Rep. Craig Hickman, D-Winthrop, an organic farmer who criticized the proposed tax rate, especially the excise portion, which he said would hurt small farmers trying to break into the industry. He also criticized the bill for its lack of a local revenue sharing option for municipalities, and for failing to do enough to promote social justice.

Marijuana activists wanted to wait to read the final version of the bill before weighing in on the details, but expressed frustration that it was taking so long to implement a recreational market that Mainers had approved in 2016 when other states have managed to begin sales within a year. “It is frustrating and disappointing that it will likely be years before adults will have a legal way to purchase marijuana in Maine,” said David Boyer, spokesman of the Marijuana Policy Project’s state chapter.

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