Washington State studies cannabis potency tax

Here is the outline of a report the Liquor and Cannabis Board sought bids for.  I think the outline is insightful.  It’s a public record, I’m sure.

this part is the most interesting to me:

 

6. Regulatory options & challenges
   1. Tax by milligram of THC (per research)
      1. Complexity in converting % THC into milligram units in traceability/pos systems – large rule required.
   2. Tax by product type
      1. Still requires traceability changes, but not conversion
      2. Would have to establish relative potencies of product types
      3. Third major option –This should not be indented: Establish tax brackets based on potency ranges
         1. Requires traceability change
         2. Would have to establish tiers or brackets of potencies (on what basis? Health? Research not available to create multiple tiers or brackets).

K1325 – Attachment B Proposed Report Outline is more legible

Attachment B

Solicitation K1325

Proposed Report Outline June 2019

1. Introduction
2. Methods
   1. Literature review
   2. Internal workgroup
   3. External workgroup (3 meetings with facilitator)
   4. Identify impact of tax change/taxing by potency to businesses
      1. Interviews to understand licensee perspective on how tax change or taxing by potency would impact business
         1. Differential impacts to different license types. (i.e.: greater impacts to extracts processors?)
         2. Ancillary businesses: POS systems, integrators, traceability providers

 

3. Background: Cannabis Taxation
   1. History of how rate was established in WA
   2. Taxation in other jurisdictions of note (i.e.: Illinois, Canada).
   3. Existing research on cannabis taxation and elasticity of demand

 

4. Background: Potency and public health
   1. Research on adverse effects of high THC cannabis on health
   2. Differential impacts of different product types on THC absorption and health

 

5. Synthesis: Why tax cannabis by potency
   1. Research and commentary on taxing cannabis by potency
      1. Revenue generation (considered more stable then price, though in WA the price has already declined)
      2. Providing additional revenue from high potency products (would require further economic evaluation to identify appropriate tax rate that would not push consumers to illicit market).

• May discourage use of high potency products and therefore reduce adverse health outcomes.

 

6. Regulatory options & challenges
   1. Tax by milligram of THC (per research)
      1. Complexity in converting % THC into milligram units in traceability/pos systems – large rule required.
   2. Tax by product type
      1. Still requires traceability changes, but not conversion
      2. Would have to establish relative potencies of product types

• Creates room to game the system: maximizing THC content of different product types through innovation

1. Establish tax brackets based on potency ranges
   1. Requires traceability change
   2. Would have to establish tiers or brackets of potencies (on what basis? Health? Research not available to create multiple tiers or brackets).

• Room to game the system – making products at the upper echelon of each tier or bracket.

 

7. Stakeholder input
   1. Workgroup Synthesis
   2. Consultant synthesis from key informant interviews and analysis

 

8. Feasibility: Costs & Considerations
   1. Costs: time/FTE of rule and law changes to implement the change
      1. Identify rule and law that would require modification, the time and cost that would take
   2. Traceability: cost and time to modify traceability system to structurally implement the change
   3. Transition time: time industry would need to prepare for said change
   4. Medical patients
      1. Ethical considerations in additional taxation if some patients need higher potency cannabis as a part of their therapeutic regimen
   5. CBD: protective tax for cannabinoid antagonist

 

9. Recommendations