My talk given today at 1:30 PST at North American Cannabis Summit, http://northamericancannabissummit.org, in Los Angeles. summit final nacs_jan_29_2019.
Public health policy for cannabis needs a government revenue component, and taxes on cannabis (or profits from government sales) can help arrive at a price for consumers that both modulates consumption and marginalizes the illegal market. However, a lot of current tax schemes are weak, flawed, and rigid. Early, primitive taxes fail when pre-tax prices collapse, and they inevitably will as the market matures. This session will compare cannabis revenue techniques and a variety of jurisdictions’ revenue laws, explain why many current cannabis taxes do not serve public health, and evaluate possibilities of improving cannabis revenue laws.
States have proliferating categories of cannabis products to tax by weight – categories designed to be proxies for potency. Here’s an explanation I got about one in Nevada from Jorge Pupo, Deputy Executive Director, Marijuana Enforcement Division, Nevada Department of Taxation, who authorized me to share it in a talk I give in Los Angeles next week at the http://northamericancannabissummit.org.
“Small bud or popcorn bud tends to be lower in THC and mainly used for making pre-rolled joints or mixed with the trim for extraction.
“It is pretty well established in industry what “popcorn bud” is. It tends to be a lot smaller than the average flower and found low in the lower part of the plant. It is smaller because it is harder for light to reach the lower end of the plant, even when fan leaves have been removed [a problem for sampling for THC, but that’s not my point — PO]. The Department marijuana auditors and inspectors check the trim inventory and small buds or popcorn during the routine inspections.”
How workable that is, I don’t know. Colorado has six different categories. But this approach aims at potency more directly than an ad valorem tax does.
I can’t find the 2018 Marijuana Policy Project report for Rhode Island on the web, so here it is: 2018 mpp report regulation-report.
Here is an excerpt:
price-based taxes suffer from two problems. First, the price of legal marijuana will likely continue to fall as the market becomes more efficient and production costs decline. Revenue from a price-based tax will thus fluctuate with price, meaning that it will likely decline over time. If states are looking to marijuana taxes for a consistent revenue stream to fund other programs, taxing the price of marijuana is not necessarily a dependable way to do that. The second problem Oglesby identifies is “phony pricing,” such as product bundling. Product bundling could, for example, involve a retailer selling a marijuana pipe for much more than it’s worth and including marijuana as a free “gift” alongside, effectively avoiding the marijuana tax. He warns that states with price-based taxes should be sure to include language in their legalization law that prohibits this kind of tax evasion. Price-based taxes are also vulnerable to other tactics (some of them legitimate) such as employee discounts and quantity discounts. Continue reading MPP Rhode Island Report