Northampton cannabis tax revenue dropping fast

By Naila Moreira

For the Gazette

Published: 03-17-2023 10:52 AM

NORTHAMPTON — Even as a hotly debated limit takes effect on the number of pot shops allowed in Northampton, business for cannabis is down in the city.

Tax revenues from adult-use marijuana sales have fallen a third from the peak reached shortly after the first stores opened, according to data from the Northampton mayor’s office. The tax, called the local option adult-use marijuana excise tax, is a 3% levy on sales in Northampton.

In fiscal 2020, receipts were about $1.64 million, far outstripping income from hotels and motels ($764,000) and restaurants ($669,000).

By 2022, cannabis revenues had tumbled by half a million.

“Cannabis … had that moment of making hay while the sun shines,” said Alan Wolf, the Northampton mayor’s chief of staff. However, he noted, “I don’t think that in the end cannabis will contribute what restaurants or hotels do.”

So far, fiscal 2023 looks to continue the trend. Although the city had anticipated some decline in cannabis revenue, tax receipts to date show an even greater drop than budget projections.

Marijuana sales tax payments are lower than expected for the first and second quarter of 2023. In this year’s proposed budget, the city had projected revenues of $975,000 from cannabis, a one-year anticipated decline of 15%. Instead, receipts have again fallen 30% in comparison to just one year earlier, according to data provided by the city finance director.

“We’re maybe seeing a drop faster than we hoped,” said Northampton mayor Gina Louise Sciarra. “We hope it’s not going to drop too much more than it is. But we’re watching it.”

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The decline is “primarily due to a continuing loss of market share for Northampton as more locations continue to open across the state,” stated the mayor’s 2023 budget.

New stores across Massachusetts have jumped in on a hot market. Statewide, sales for cannabis continue to grow, burgeoning to $1.5 billion a year, according to the Massachusetts Cannabis Control Commission.

As of January, 431 marijuana retailers had final or provisional licenses from the state of Massachusetts, according to the Commission, with another 94 pending.

Connecticut has also now entered the competition. On Jan. 10, nine cannabis dispensaries across Connecticut had their licenses approved, eight of which have opened their doors for recreational sales. The closest is Fine Fettle Dispensary just south of Hartford. Other neighboring states, including Vermont, New York and Rhode Island, have also opened their doors to cannabis.

Tax revenues from marijuana sales enter Northampton’s general fund, meaning they are not earmarked for a specific purpose. However, Sciarra said the money has enabled the city to make permanent a formerly temporary position in the Northampton school budget.

The position, the Northampton Prevention Coalition coordinator, was previously funded by a five-year Federal Drug Free Communities grant that was renewable only once. In 2022, the position came into the city budget and is now administered by the Department of Health and Human Services.

“This is obviously a position that helps with substance use,” Sciarra said. “It felt right that since we had this revenue from cannabis, we should retain that position and this is a way we could bring that into the budget.”

The spike in general fund revenue from cannabis also enabled the city to extend the time period between two general fund overrides, Sciarra said.

Northampton’s general fund relies to a far greater extent than neighboring communities on entertainment-based industries. Just prior to the pandemic, “when cannabis was rocking,” Wolf said, total local option excise taxes from hotels, restaurants, parking, and cannabis made up 16-18% of the general fund revenue. That’s in comparison to just 6% in Easthampton and 2.6% in Amherst, he said.

Recently, Sciarra refused to sign a City Council decision to limit the number of licensed cannabis dispensaries in Northampton. However, because she did not formally veto the measure, it took effect, restricting the number of dispensaries to 12.

Opponents of the limit, including Sciarra, say the market, not the government, should dictate the number of dispensaries in the city. Furthermore, Sciarra argues that limiting licenses could create a secondary market for the licenses among large out-of-state businesses, discouraging local small business ownership.

While availability of marijuana to minors was a key argument for limiting the number of Northampton’s retail cannabis establishments, some experts have argued that no clear link exists between increased marijuana use observed among minors in the city and the growth in the number of dispensaries.

However, the drop in tax revenue suggests the city may receive less economic benefit from serving as a central hub for marijuana sales than originally hoped.

“It’s kind of like being in the Wild West,” Sciarra said. “This is evolving and changing. It’s fascinating to watch, but we also have to make smart choices.”