Denver Mayor Michael Hancock wants to impose a tax on recreational marijuana to cover the costs of the coming industry that would be roughly akin to the tax burden on a pack of tobacco cigarettes.
But marijuana advocates fear excessive taxes could destroy the whole idea around voter-approved Amendment 64 and keep recreational pot users in the black market.
"If it is too much tax too quickly, it will kill the transition to the legal market," said Michael Elliott, director of the Medical Marijuana Industry Group.
No tax decisions have been decided yet.
In November, Colorado voters will be asked to approve a 15 percent excise tax plus a 10 percent statewide sales tax on all retail pot purchases.
The Denver City Council has been discussing adding its own tax and also would have to submit the question to voters. The council must approve the question by the end of August to make it onto November's ballot.
Hancock is recommending a 5 percent tax in the first year but said the city should have the flexibility to increase the tax to up to 10 percent.
"We believe a 5 percent tax on recreational marijuana will fulfill the city's needs to effectively regulate and enforce this new law while protecting our children and families, supporting public health and ensuring the integrity of our neighborhoods," Hancock said in a statement.
The city's finance department analyzed what would be needed to pay for expenses of a new retail pot culture that is expected to achieve $128 million in sales in the first year in Denver alone.
The city expects it will have to spend about $9.4 million on regulation, enforcement and health and education — including adding 26 police officers, buying a so-called Denver Cares van to transport high people to a detox facility and paying for an advertisement campaign to encourage young people to stay away from pot.
The analysis asked each city department for their expected costs with the new industry. Officials want to hire more park rangers to patrol parks, an additional city attorney to deal with increased caseloads, more fire inspectors and additional staff for Denver Health to handle medical and mental health problems.
"We used our best judgment to identify cost areas that if we are going to do this right, this is where the city should put its resources," said Denver chief financial officer Cary Kennedy, who presented the recommendations to the council on Monday.
A 5 percent tax coupled with state revenue and other fees would generate about $9.2 million a year, Kennedy said
"By starting at 5 percent, it will help us through unforeseen problems, to make sure we are doing this right, protecting neighborhoods and kids," she said at a meeting Monday with the City Council.
The 5 percent tax along with state and other local taxes would amount to a 25 percent tax for the consumer on each purchase, she said. That is roughly the equivalent of the excise and sales taxes on packages of cigarettes.
The retail tax on cigarettes includes 2.9 percent state sales tax plus 84 cents per pack excise tax. For a low-cost pack of cigarettes of roughly $4, that tax equals about a 23 percent tax rate, said Kennedy, a former state treasurer.
Some on the council want a higher ceiling than 10 percent.
Councilwoman Jeanne Faatz is calling for 15 percent, saying the tax should cover more than just the costs of the impacts from the marijuana businesses.
"They said legalize it, but tax the hell out of it," Faatz said. "Why limit it to just 10 percent? Why is it not OK to have money left over to cover other services?"
Councilwoman Robin Kniech said she worries the city may be reaching too far.
"Is our goal to cover new costs related to legalization, or is it to cover all marijuana use that has been going on for a long time," she said. "Every dollar of new revenue is not a new user. How much are we taxing the legal market to cover the black market?"
The council will vote July 29 whether to go ahead with a tax and for how much. Councilman Charlie Brown, who chairs the Amendment 64 committee, said he believes the council will go ahead with a tax.
"Why go through all of this if we don't get anything out of it?" he asked.
Elliott of the marijuana industry group says the industry is already unfairly burdened because businesses that sell pot legally under state law cannot deduct or use any tax credit on their federal taxes.
His group is supporting the statewide vote on taxes and will campaign for its passage. But he doesn't want to see local governments piling on.
"The higher legal marijuana costs, the more people are going to stick with the black market," he said.