Tax large buyers

Regular and heavy users of cannabis are at risk of overdoing it, as the RAND Report for Vermont points out. How might cannabis businesses attempt to target them?

Some options include bulk pricing, customer rewards, sales promotions, and loyalty discounts, like buy 10 and then get one at cost (which we saw in Spokane with the ACLU-WOLA group), or buy 10 and get one for free.

Still, a standard bulk discount is hard to argue with. For instance, if you buy a gallon of milk, you pay less per ounce than if you buy 8 pints.  But taxing by weight, rather than by price, takes away some of the benefit of the bulk discount to the heavy user. Say prices are an ounce for $210 or an eighth of an ounce for $35. Let’s say there’s time for tax rates to phase in after an initial low start-up tax burden. With a weight base tax of say eventually $10 an ounce, you pay $80 per ounce either way. Taxing at say eventually 25 percent of price, you pay $52.50 if you buy in bulk, and $67.50 if you buy in eighths. Advantage, large buyer.  THC works like weight here.

Sure, some heavy users won’t choose to (or have the discipline to) benefit from large purchases, but they are the target of loyalty programs, you’ve got to figure.  UPDATE:  Steve Davenport, at Carnegie-Mellon and BOTEC, points this out: “heavy users benefit in the financial sense, but perhaps they suffer in that they’re given less incentive to ramp down use.”  True.  Good point.  And making them pay a higher tax tends to impoverish them if they can’t stop buying.

Now the tax suggestion here is not a solution.  It just puts a little friction, at the margin, on bulk transactions that we may not want to subsidize.

A final point:  Taxing by weight also discourages, at the margin, self-help bargain purchases, where several individual buyers pool funds to get a bulk discount.

Thanks to Conrad Gregory of Lt. Gov. Newsom’s office for raising this issue.

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Author: patoglesby

From 1982 to 1990, I worked in tax policy for Committees of the United States Congress. In recent years, I was Adjunct Lecturer at UNC-Chapel Hill's Business School and then Adjunct Professor at its Law School.

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