(For a more comprehensive discussion of this issue, go to http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1741735.)
At the end is an excerpt from an email of November 3, 2010, from Anita Gore, spokesperson at the California State Board Of Equalization, to me. But first, here is what I was asking her about: some draft language I sent her:
“For alcohol, fermentation takes place in bonded locations. Tax is imposed as beverage alcohol as or before leaves its final bonded location.
“For tobacco, the choke point is found after the time when and distant from the place where the curing process makes green tobacco smokable. Cured tobacco from tens of thousands of domestic farms travels untaxed to manufacturing plants where tax will be assessed.
“For marijuana, Staff of the California Board of Equalization, which “typically recommends that excise taxes or fees be imposed as high in the distribution chain as possible,” advises against collecting from “the highest point in the distribution chain[,] . . . the grower[,] . . . [because], growers normally sell in bulk volume, which would not be conducive to a unit-based tax.” The Staff instead recommends collecting at the level of the distributor/processor, where repackaging would allow for the use of tax stamps.
“A more aggressive scheme for taxing marijuana would involve a limited number of farms or grow areas placed under security. The government could monitor the process from seed (or clone) to cigarette, and assess tax when the product is packaged for sale.”
 Tax on imported tobacco is assessed at customs. Meanwhile, “monitoring of raw leaf tobacco [to] . . . control the supply of raw leaf tobacco from grower to manufacturer” is nonetheless a part of a comprehensive excise system. Brandy Brinson, “Regulating Security,” Tobacco Reporter Magazine (June 2006), available at http://www.tobaccoreporter.com/home.php?id=119&cid=4&article_id=798.
 BOE Analysis, supra note 152, at 8.
Here is my question:
“What would prevent growers (in the system the Staff recommends) from diverting unprocessed marijuana into the black market before it gets to the distributor/processor? That is, might not the alcohol model be more bullet-proof than the tobacco model? If so, would practical considerations nonetheless tip the scales toward the tobacco model?”
This is her reply to me, on November 3, 2010:
“As you mention, Prop. 19 failed, so we will not be implementing any taxation program at this time for the manufacture and sale of marijuana. Regarding any future attempts at legalization, there are too many unknowns to make any decisions at this time.
“However, generally speaking, growers would be licensed and inspected regularly. By knowing the size of a grower’s crop, we know the approximate amount of product produced. Just like alcohol, some product may go out the back door that the taxing agency is not aware of. This can never be completely controlled. There is no fool proof system to stop all evasion schemes. But by using indicia, licensing all the levels including retailers, and doing regular inspections, the State of California can reduce the evasion level.”