Gieringer on taxing production in CA for 2016

Dr. Dale Gieringer, the Director of Cal NORML, has given me permission to post his written testimony about how cannabis production should be taxed in connection with a possible 2016 ballot initiative in that state.  I do not necessarily agree with what he writes, but his testimony advances the discussion.

I’ve pasted the first page or so, but footnotes and page numbers make complete pasting impractical.  A legible version of the whole thing is at TaxingMJinCal-DG-LtGovBRC.

TAXING MARIJUANA PRODUCTION IN CALIFORNIA

For the Lt Gov’s Blue Ribbon Commission on Marijuana

By Dale Gieringer, Ph.D

Director, Cal NORML – http://www.canorml.org

RATIONALE FOR TAXATION. As California moves towards legalizing

marijuana, taxation of the industry is warranted on several grounds.

(1) To compensate for external social and health costs attributable to

marijuana use (drug treatment and education, health costs and 911 calls, etc.).

It is difficult to put a hard number on the public health costs of marijuana abuse ,

but a very rough argument can be made that they’re on the order of $.50 per

joint.1 The average joint on today’s medical marijuana market contains about

one-half gram of buds. This equates to a cost of $1 per gram or $28 per ounce.

Equivalently, since the average THC content of sinsemilla buds is around 16%,2

this works out to $1 per 160 mg THC.

(2) To compensate for costs of regulation, local enforcement,

environmental protection, etc. These are regularly collected as “fees” as

opposed to “taxes.” However, these fees may be legally classified as taxes if, as

seems desirable, they are structured in a tiered fashion so as to impose a lesser

burden on small businesses.

(3) To maintain stable prices and discourage abuse. The price of

cannabis could decline radically under legalization, precipitating an increase in

habitual use and abuse. The current price of cannabis in California’s medical

market varies according to quality and quantity, etc., but ranges around $6 – $18

or an average of $10/gram ($280/ounce). This figure could decline dramatically

in a legal market once the costs of prohibition are removed. In a totally free,

laissez-faire market, cannabis might cost about the same as other herbs such as

tea, which sell for a few dollars per ounce. Israel currently caps the cost of

medical marijuana for patients at 2 Euros ($2.20) per gram, while Uruguay is

aiming to sell marijuana at $2.50 gram in order to compete with black market

suppliers.3 The historical price of pharmaceutical cannabis indica on the legal

U.S. market a century ago was a mere $1- $ 2 per pound, which translates to a

mere $0.10 – $0.20/gram in today’s prices. In terms of intoxicating potential, a

typical joint might be judged equal to half a six-pack of beer or half a bottle of

wine; on this basis, a joint might be priced at about $3 – $8, or $6 -$16 per

gram. Current prices are within this range. A good case can be made that

marijuana should be priced lower due to its substantially lower health costs than

alcohol. However, a price collapse to $1 or $2 would seem to invite an

excessive risk of habitual use and abuse, especially among youth, who are highly

sensitive to prices. In order to avert this possibility, an excise tax may be

justified along the same line as alcohol and tobacco.

 

In order to provide stable revenues, an excise tax should be based on a

fixed rate per weight or THC content, rather than a percentage of price. For

example, a 10% tax on marijuana would yield $1 per gram in revenues at current

prices, but only $.20 at Israeli price levels. In contrast, a fixed tax of $1 per

gram would yield the same amount per joint regardless of price. It should be

noted that alcohol and tobacco are both taxed on a similar price-per-content

basis.