Regulatory capture in the marijuana market

Among the threats facing marijuana legalization in Washington State is regulatory capture, a likely consequence of “market consolidation in which a few firms dominate the whole industry.”  The dangers of regulatory capture appear in America’s alcohol and tobacco industries — politically powerful enough to weaken regulation and taxes and economically powerful enough to manipulate demand.

Continue reading “Regulatory capture in the marijuana market”

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The Federal Government Can and Does Tax Marijuana Despite Treaties

You hear it suggested that the Federal Government can’t tax marijuana, because a network of treaties, listed below, keeps us from legalizing it.  Well, what about Code section 280E, which imposes a Federal tax on state-legal marijuana growers by denying most business deductions?  It brings in revenue as surely as an excise tax based on weight, potency, or price would.  Taxpayers are chafing at and paying this tax today.  Maybe an excise tax would not be treaty-legal, but who among supporters of the treaty’s goals would argue for repeal of 280E? Continue reading “The Federal Government Can and Does Tax Marijuana Despite Treaties”

Gay marriage and marijuana taxes (280E)

“Congress enacted DOMA in 1996, after a day of hearings and before any state had embraced same-sex marriage.”  That’s from today’s NYT, and it’s remarkably similar to the story of Code section 280E in 1982, enacted with no hearings and before any state had legalized even medical marijuana.  The more familiar similarity is that public opinion is shifting in favor of more tolerance on both issues.

Flexible marijuana tax rates — Progress in Denver

Denver’s City Council is considering a proposal that would give it flexibility to adjust marijuana tax rates – within limits – from time to time, as needed.  More of that kind of flexibility, and legalization might work out — that’s my opinion.  Prices may well be too high at first, as a start-up industry struggles to meet a blip in demand, and too low later, as economies of scale kick in. Continue reading “Flexible marijuana tax rates — Progress in Denver”

Percentage-based taxes for marijuana are too volatile.

Calculating marijuana taxes as a percentage of price creates the danger that taxes will be both too high and too low.

Taxes may be too high at first, as start-up expenses push costs up with resulting upward pressure on pre-tax prices.  Those high prices will be magnified by taxes that rise with the price level.  Taxes that are too high open the market to competition from bootleggers, with the pernicious results of (1) low actual collections and (2) continuing illegality.

Later, as economies of scale drive pre-tax prices down, taxes will shrink proportionately.  Low prices create another problem:  Continue reading “Percentage-based taxes for marijuana are too volatile.”