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(Beth Nakamura/The Oregonian)

Oregon is expected to take in about $43 million in tax revenue from recreational marijuana this year under a revised estimate by state economists.

The state's unexpectedly large tax haul so far prompted economists to revisit their original projections, which had put revenue somewhere between $2 million to $3 million for the whole year.

But Oregon has already collected $10.5 million in taxes in the first three months. That translates into at least $42 million worth of pot sold on the regulated market so far this year. And that figure doesn't account for medical marijuana sales, which are untaxed. Marijuana sold on the recreational market is subject to a 25 percent tax.

The new estimates, prepared by the Office of Legislative Revenue, were submitted to the Legislature's joint committee overseeing implementation of marijuana programs. The committee is one of many meeting this week in Salem to hear updates on key programs and policies in preparation for the 2017 session.

The committee got a broad overview from four agencies charged with regulating marijuana as well as collecting taxes from pot sales.

Economists expect about $12 million in tax revenue will go toward the cost of regulating marijuana, which Mazen Malik, a state economist, estimates will cost about $25 million overall in the current budget cycle. The rest of those expenses will be covered by licensing fees, he said.

The rest will be distributed according to a formula spelled out by law: 40 percent to the state's Common School Fund, 20 percent to mental health, alcoholism and drug services, 15 percent to Oregon State Police, 10 percent for city law enforcement, 10 percent for county law enforcement and 5 percent to the Oregon Health Authority for alcohol and drug abuse prevention, early intervention and treatment services.

Malik, a senior economist with the Office of Legislative Revenue, estimates that tax collections from pot sales will drop to $31 million in 2017, when a lower tax rate goes into effect.

Oregon's medical marijuana stores have been allowed to sell a limited amount of cannabis flowers, as well as starter marijuana plants and seeds, to anyone 21 and older since last October. The state's temporary 25 percent tax didn't kick in until Jan. 1.

Starting June 2, recreational marijuana shoppers will be able to buy cannabis-infused edibles, extracts and non-psychoactive topical products. Those products, too, are subject to the state tax.

That tax eventually will be replaced with one ranging from 17 percent to 20 percent once the Oregon Liquor Control Commission takes over regulation of recreational marijuana sales later this year. The Legislature set the base tax rate at 17 percent, but cities and counties can adopt ordinances that add up to 3 percent more.

The higher-than-anticipated tax collections prompted officials with the Oregon Department of Revenue this week to ask for additional staff to help handle the influx of cash payments, a revenue official told lawmakers Monday.

Deanna Mack, the agency's legislative liaison, said a "large percentage" of dispensary owners are making cash payments. She said the agency has received individual cash payments as large as $90,000.

The federal prohibition on marijuana complicates the pot industry's ability to do conventional banking; most banks won't work with the cannabis industry so businesses typically deal in cash.

Senate Republican Leader Ted Ferrioli, R-John Day, a member of the marijuana committee, asked Mack and JoLene Swint, another revenue official, about those payments.

"It's fascinating that you have remittances that are not in cash," he said. "What form are those remittances taking?"

"Don't tell me product," he added to laughter from the packed hearing room.

Check or money orders, the revenue officials said. Mack said she expects the number of dispensaries making cash payments to increase because business owners say they've gone through multiple bank accounts as institutions discover the nature of their work.

The committee heard about a wide range of issues, among them: Oregon Liquor Control Commission officials are worried about the lack of marijuana testing labs in the pipeline for licensing.

Danica Hibpshman, director of marijuana licensing and compliance for the agency, said the lack of labs is a "major concern." Six labs have applied; only one is in the process of becoming certified, a requirement of pot labs.

Certified and licensed labs are critical to the launch of recreational marijuana sales later this year because products must undergo testing for pesticide and potency.

Rep. Carl Wilson, R-Grants Pass, pressed liquor commission officials about the agency's security requirements for marijuana production. He said representatives of the wine industry in the Applegate and Williams areas - both popular centers of outdoor marijuana cultivation -- are unhappy about the sight of "8-foot-high wood fencing that looks like a bunch of Fort Apaches out there."

State rules require outdoor marijuana production be hidden from public view. The liquor commission also allows growers to request an exemption from the rules.

"The question the wine industry has is: How can they help to get that requirement dispensed with?" Wilson asked.

Commission officials said they didn't know how many marijuana producers have asked to be exempted from the requirement.

Sen. Lee Beyer, D-Springfield, called the security requirement "ridiculous."

"We don't do that for any other crop," he said. "I don't know why we do it for this."

An official with the Oregon Health Authority's medical marijuana program told lawmakers that the number of people applying for or renewing their medical marijuana patient card during the 12-month period ending in March increased by 4.5 percent compared to the previous year.

Andre Ourso, manager of the program, speculated that the larger marijuana possession limits for patients, as well as the wider range of products they can buy, could be factors in the increase.

He added that more than half of people applying for medical marijuana cards qualify for a reduced fee because they receive government benefits or are veterans.

-- Noelle Crombie

503-276-7184; @noellecrombie