South Dakota governor says recreational pot would cost millions before tax collections start

Capitol News Bureau
KELO Hemp Crop South Dakota

PIERRE, S.D. (KELO) — The governor wants the Legislature to provide more than $4 million for state government to start preparing for medicinal and recreational marijuana in South Dakota.

Legislation was pre-filed Thursday that would appropriate $4,026,253 to the state Department of Revenue and $135,249 to the state Department of Health. The Senate Appropriations Committee agreed to sponsor Senate Bill 35.

South Dakota voters on November 3 approved IM 26 legalizing medicinal marijuana 291,754 to 125,488.

Voters also passed Amendment A that legalizes and levies a 15% tax on sales of recreational marijuana 225,260 to 190,477.

After the election, Governor Kristi Noem arranged for private law firms from Sioux Falls and Belle Fourche to challenge in state court the validity of Amendment A.

Circuit Judge Christina Klinger set a hearing for January 27. Noem had appointed her in February 2019.

The constitutional amendment designated the Revenue Department to regulate and collect the tax. The department wants the Legislature to provide the money up-front for that work. The tax revenue would be split 50-50 between K-12 schools and state government’s general fund after administrative costs were subtracted.

The Legislative Research Council last year officially estimated the tax would net more than $10.7 million in state revenues during the 2022 budget year and more than $29 million in fiscal 2024.

The Health Department meanwhile wants money for regulating medical marijuana use. The LRC couldn’t determine the financial effect from legalizing it.

Noem, a Republican, warned in a veto message two years ago that legalizing industrial hemp in South Dakota would lead to legalizing recreational marijuana. She dropped her opposition and signed industrial hemp legislation last year after the Legislature agreed to fund the regulatory and enforcement costs. The final rules were adopted in December.

Meanwhile she campaigned against Amendment A last fall. Some 52,000 more voters supported recreational marijuana than had voted for her in 2018, when she edged past Democratic candidate Billie Sutton 172,912 to 161,454.

Campaign finance records indicate that marijuana backers spent at least $2.4 million to get the two measures passed. That was some 10 times more than the main opposition group.

Noem described the marijuana votes as “disappointing” when she made her budget recommendations to lawmakers December 8. She spoke at length about the issue.

“There are significant safety and regulatory costs associated with both the medical marijuana measure and the recreational one,” she said.  

“Now given the latter is currently facing constitutional challenges, we’re going to have to present two courses of action. A path forward with both recreational and medical. And a second one with just medical,” she continued. 

“I want to be very clear, we will not see any revenue from marijuana until at least April of 2022. Though it could be even longer than that.

“And in the meantime, to comply with the predetermined timeline, the Department of Revenue needs to get to work now. This funding would go toward staff, technology, consultants, and other costs, until revenues from the program are enough to sustain it.  

“But there will also be several other collateral costs, like safety, training, and enforcement, among many others. 

“Now on top of this, the Department of Health has specific needs related to the medical marijuana program. My budget recommends just over $136,000 over three years to cover staff and other costs that are related to setting up a program. That should be enough to support program costs until revenue starts to come in.  

“To implement just medical marijuana, the Department of Health will need additional resources -beyond the $136,000 – though, the Department of Revenue would need much less.  

“So over the coming weeks, we hope to know more about which path that we’re going to be taking.” 

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