Federal legalization of cannabis in connection with taxes, pricing, and illegal markets

I’m having to miss a conference in Seattle starting tomorrow on federal legalization of cannabis in connection with taxes, pricing, and illegal markets.  Here are notes for what I hoped to say.

States fall into 4 categories:

  1. 7 states with weight-based taxes or producer taxes that will be eviscerated by interstate commerce in products like imported edibles:  Alaska, Colorado, Illinois, Maine, New Jersey, and Nevada – and California, unless its Legislature acts.  [Those states could use a separate small session.]
  2. 2 states, New York and Connecticut, whose potency taxes may be tested locally by imports that haven’t been tested in-state.  
  3. States with other taxes on the books.
  4. States without taxes yet, like my state of North Carolina, where state monopoly retailing seems a better choice for revenue and public health, and legally avoids the federal 280E selling expense tax. (https://digitalcommons.wcl.american.edu/facsch_lawrev/410/)

For any state with taxes, federal legalization brings problems and maybe opportunities:

Federal legalization and elimination of the federal prohibition premium would probably make pre-tax prices lower, leaving more room for state taxes, but new federal taxes might crowd out state taxes. 

Federal taxes might bring standardization of measurement and piggybacking opportunities – like tobacco taxes today, where the federal government’s blessing of the weight of a pack of cigarettes means states don’t have to weigh packs independently.  Federal weight or potency standards could make state weight or potency taxes just peel off.

Interstate commerce could bring a race to the bottom on marijuana taxes, as we have today with tobacco taxes, as the Eric Garner case shows.  Now some states may want to race to the bottom, and become marijuana tax havens, but Congress could solve that problem in advance, by giving a capped rebate, or a credit against federal marijuana tax for state taxes paid.  So if the federal tax rate is $10, they could give states a credit up to say $8.  If the state tax is zero, the federal tax is $10.  If the state tax is $5, the federal tax is $5.  If the state tax is $8, the federal tax is $2.    If the state tax is $9, the federal tax is still $2, because the credit is capped at $2.  States would have no incentive to race to the bottom.  If the states get together, Congress will listen.  We’re still at the starting gate.

Deep dive of 4,000 words from Tax Notes is at https://newtax.files.wordpress.com/2022/05/the-federal-shake-up-of-americas-marijuana-taxes-endnotes-links-1.pdf.

Medical marijuana in the North Carolina Senate 

Medical marijuana passed the North Carolina Senate, 35-10, after this hearing in the Rules Committee, where I speak at the 36’45” mark — mostly about how state retail sales are safer, more lucrative, and maybe faster than issuing licenses to just 10 vertically integrated corporations.


My two-minute appearance starts this way: “Thank you, Mr. Chairman, I’m Pat Oglesby, a lawyer with the nonprofit Center for New Revenue.Marijuana is coming.  Iit makes people nervous but we’re gonna have it and the patients are gonna be getting their medicine — and I like to think about where the money goes.  And right now [under SB711] you’ve got these 10 corporations set up.  Antitrust? [Maybe] you can’t bring an antitrust action for selling a federal illegal product. But the antitrust policy of not concentrating all this economic power in these 10 companies:  It’s the same policy.”

Full transcript:

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Why California’s legal cannabis market is suffering

California’s illegal cannabis market is thriving because state taxes there are too high, says a Reason article to which my friend Dr. Dale Gieringer, head of California NORML for decades, recently wrote a Foreword. Dale points out other causes, too, like costs of regulation, lack of licenses, local taxes, and a huge legacy market.

I wrote Dale to say that weak enforcement of laws against tax evasion, too, must be a major problem in California, and that no tax burden is low enough to marginalize the illegal market if marijuana tax evasion is winked at, as in California, where the crime is a misdemeanor, and the only penalty to fear, apparently, is a $500 fine (or getting water and power cut off). What, I asked, about the statutory penalty of six months in jail – is that actually happening?

Here’s Dale’s reply, which he authorized me to quote:

Pat –

  With regards to what’s happening in California, no one is going to jail for pot.  But they’re not going to jail for robbery and assault either.   

  There are so many illegal dispensaries in LA that the cops rarely try to bust them.  And if they do, there’s not much they can forfeit.  The culprits rarely have much money with which to pay fines.

   There are bills in the legislature to raise the penalties for illegal cultivation, but I wouldn’t expect them to have much impact.  We’ve been there before.  The state tried unsuccessfully for forty years to end the trade that way. 

Wealth and Health

Sharing marijuana wealth may not amount to much, but it’s a start.  

Sharing wealth is ordinarily extremely hard, because it involves taking wealth away from rich people, who are inordinately influential.  Sharing cannabis wealth in the move from illegality to legality is much easier, since no one owns the wealth yet.  

Start with state sales, as North Carolina does with liquor, not just to share the wealth, but to temper the profit motive for selling a tricky drug.  

Our boldest and most risk-tolerant capitalists and entrepreneurs envision unlimited upside if they stoke demand for weed.  Let’s nudge them to work on other tasks.

The Federal Shake-Up of America’s Marijuana Taxes — Free download

The federal government is threatening to confuse a confused state marijuana tax scenario even further.  Here are some 4,000 dense words warning of uncertainty and traps ahead. After the first version with footnotes, there’s a link to a different version with endnotes.

Tax Analysts can take a joke

Here’s what I emailed my editors at Tax Analysts at 12:01 this morning, with the title, “Possible article — marijuana taxes — Last minute change?”:

I greatly appreciate your working with me, but upon reflection and consultation, I must ask you to change my piece slated for the April 4 issue.

Your otherwise impeccable editing somehow co-existed with the elimination of a controversial word, Bastard, which the editing process expurgated, leaving footnote 10 to start this way.

Oglesby, “280E Is a [Expletive]. So What?” Center for New Revenue, Apr. 15, 2021.

This is censorship!  See details below.

Continue reading “Tax Analysts can take a joke”

NC DOJ marijuana webinars

The North Carolina Department of Justice is producing marijuana webinars, the first one March 18 at 1 p.m., featuring Keith Humphreys of Stanford, one of the world’s top drug policy experts. Thanks to Attorney General Josh Stein for leading the charge as we try to figure out what to do.

I get to appear for 15 minutes on the second one on Friday, March 25, at 1 p.m.

Open to the public; registration required. There are two more sessions the next two Fridays.

Supporting Marijuana Tax Cut

I support a lot of marijuana taxes, even the wildly unpopular 280E Selling Expense Tax, because it favors small business over  Big Marijuana, and it keeps the noise down some so as not to irritate fence-sitters on legalization, as explained here: https://newrevenue.org/2021/04/15/280e-is-a-bastard-so-what/.

But pre-consumer taxes in subordinate jurisdictions don’t make sense to me, so when I read that Humboldt County was reconsidering that kind of tax, I puffed myself up and intruded with this email:

Dear Members of the Humboldt County Board of Supervisors:

While I do not belong to your community, I had a delightful visit to Humboldt County in 2015 when I was on then-Lieutenant Governor Newsom’s Blue Ribbon Commission on Marijuana Legalization, and enjoyed meeting lots of people there then.  I was co-chair of the Regulatory and Tax Structure Working Group of the Commission, and have consulted on tax policy for various governments.

I don’t envy you your task.  I write to you from Theoryland, without a sense of the facts on the ground, but with some analogies to provide.

It’s natural to want to put a local tax on marijuana growers, but conditions conspire against that tax, and against amy tax imposed by a “subordinate jurisdiction” on production of a good that faces competition from producers in other jurisdictions.  Examples of a subordinate jurisdiction are a state in a nation with legalized tobacco and a county in a state with legalized marijuana.  

So my state of North Carolina has tobacco farmers and tobacco manufacturing, but we don’t put any special tax on them.  We understand, for instance, that our farmers have competition in Kentucky, and our manufacturers have competitors in Virginia, and those states don’t tax our people’s competitors.  We can deplore this race to the bottom, but there is.  Now a state-wide California tax on square footage of cannabis grow area could be as workable as any other state tax, but a county tax on square footage of cannabis grow area is hard to sustain.  Here is a more detailed explanation:  http://thehill.com/opinion/finance/372396-how-tax-competition-can-threaten-marijuana-revenue

Allegations of problems with cannabis aim at its consumption, which some say causes negative externalities.  Production is not a big source of negative externalities.  There may be perceived negative externalities from growing rather than consumption beyond odor, but odor is the one externality where taxes rather than regulations might need to be relied on.  (Environmental impacts seem easier to handle with regulations rather than with taxation.)  And the negative externality of odor seems trivial, if it’s a problem at all.

How you make your budget work in light of these conditions, I don’t know, but I wish you the best.  I see only one piece of the puzzle.  Please take this for what it’s worth.  And please contact me if I may be of any help.

Patrick Oglesby, MBA, JD

Attorney at Law

po@newrevenue.orgThe Center for New RevenueWww.newrevenue.orgLandline 919 967 1982Cell 919 619 8838  1830 North Lakeshore Drive
Chapel Hill NC 27514-6733 USACV at 

+++ Photo from 2015 Humboldt trip, not included in email:

Continue reading “Supporting Marijuana Tax Cut”

Cannabis Tax Policy Webinar Video and Transcript

The Ohio State University’s Drug Education and Policy Center and and the Center for New Revenue sponsored a webinar January 26 on marijuana tax policy.

My co-panelists were Ulrik Boesen of the D.C. think tank Tax Foundation, Tax Professor Ben Leff of American University Law School, and prominent California cannabis lawyer Hilary Bricken.  Shaleen Title of the Parabola Center moderated.

A video link to youtube is

Here’s a searchable transcript, uncorrected and without slides or polling, from

Solving the Cannabis Tax Puzzle: Approaches for an

Continue reading “Cannabis Tax Policy Webinar Video and Transcript”

Marijuana tax policy webinar, January 26 at noon Eastern

My friend, Center for New Revenue board member, and law professor Doug Berman of the Ohio State University heads up the Drug Education and Policy Center there. That Center and the Center for New Revenue are sponsoring a webinar Wednesday, January 26 at noon Eastern time – on marijuana tax policy.

My co-panelists are Ulrik Boesen of the D.C. think tank Tax Foundation, Tax Professor Ben Leff of American University Law School, and prominent California cannabis lawyer Hilary Bricken.  Shaleen Title of the Parabola Center will moderate.

More info is here https://moritzlaw.osu.edu/solving-cannabis-tax-puzzle-approaches-emergent-industry?utm_campaign=law_marketing-activity_fy22&utm_content=1638540324&utm_medium=social&utm_source=twitter

Registration is required, and to the right of that page.

Candidate questionnaire draft

Having given money to Democratic candidates in the past, I’ve been getting calls from candidates asking for my support.

I’m working up a questionnaire to see whom to support; here’s a draft. There will be more questions; suggestions welcomed.

Do you support taking away the carried interest tax advantage for hedge fund operators?

Do you support increasing the federal estate tax?

Do you support eliminating planning opportunities that allow avoidance of the federal estate tax?

Do you propose to let marijuana companies start deducting their advertising and marketing expenses on either federal and North Carolina tax returns?  That is, would you take away the 280E Selling Expense Tax on the books now? 

Do you support government rather than for-profit private marijuana retailing in North Carolina?

My own answers would be yes to all questions except the fourth one about 280E.