“Majority of Pennsylvania voters want legal cannabis, poll shows — just not in state stores,” says a headline in the Pennsylvania Capital-Star.

But that’s totally misleading, because that’s not what the poll asked.  Here’s the actual question: “How likely would you be to support the legalization of marijuana if it were sold by the state liquor stores instead of by private companies?”

Not state stores selling just marijuana — state liquor stores, selling both.

Is that difference a big deal?  Yes.  Public health scholars pretty much agree that liquor and cannabis should never be sold together.  Selling cannabis in state liquor stores would violate that principle.  Maybe the average voter, too, can figure out that selling two intoxicants at the same cash register is not a great idea.  The municipal cannabis store in Evergreen, Washington doesn’t sell liquor.  No cannabis store in the country does.  Mixing booze and weed is problematic – and so is the question the poll asked.

Prominent marijuana journalist and legalization proponent Ricardo Baca had this headline:   “Why Cannabis and Alcohol Sales Should Never, Ever be Co-located.”  Co-use is not the only problem Baca identifies.  He points out the danger that the liquor industry will gobble up the nascent cannabis industry – and mainly argues that deadly alcohol should be in a separate category from safer cannabis.

For what they are worth, here are the answers from Pennsylvania to the state liquor store question:
Much more likely 12%
Somewhat more likely 20%
Somewhat less likely 18%
Much less likely 40%
Do not know 11%

A better question for voters is this, from North Carolina in 2013:

“If marijuana were legal in NC, do you think it should be taxed and sold in state-owned stores the way liquor is, or in private retail stores, like beer and wine are?”

58% State-owned stores.
19% Private stores……….
23% No opinion……………

Not alongside liquor, but in like liquor, in separate, single-purpose stores.  A nuance? I don’t think so.  Now maybe state liquor stores in North Carolina are more popular than state liquor stores in Pennsylvania.  But selling cannabis alongside liquor is not the same as selling the two drugs in separate places.

 

Tax Nicotine or Vaping Liquid?

The U.S. House Committee on Ways & Means, by a 24-15 vote, has approved a tax on e-cig liquid by nicotine content, “$50.33 per 1,810 mg.” or $$27.81 per gram.

Senate Democrats have introduced similar legislation.

A tax could pass veruy quickly.

That nicotine tax goes along with what drug policy scholars say about taxing marijuana.  They’d like to tax by THC content, at least where practical.

Canada is already taxing by THC, for concentrates like vaping liquids and other processed products.  (Raw material, less practical to tax by THC, is still taxed by the gram, with potent flower taxed more than weaker trim.)

But tax policy folks on the left and right suggest taxing by total vaping liquid instead of just nicotine.  None of that liquid is good for you.  But hat’s a dramatic difference in the tax base.

From the Tax Policy Center on the left, click here.

From the Tax Foundation on the right: https://taxfoundation.org/tax-nicotine-products-quantity/

I like taxing THC where practical, in liquid, but I tend to side with the tax policy folks here.  Taxing by nicotine is harder to enforce, but mainly, we don’t know exactly what we’re mad at.  Without nicotine, though, or THC or some active agent, I think kids wouldn’t vape.  So this is a hard issue. Continue reading “Tax Nicotine or Vaping Liquid?”

One step at a time.  Start with plastics, tax other carbon later.

Plastic’s enormous negative externalities are more localized than burnt carbon’s.  A nation or a state could readily tax plastic, unlike all carbon.   A simple weight tax would be an easy, easy place to start.  Refinements, if any, could come later.

AND a tax on plastics would largely avoid the trickiest part of carbon tax design — the task of creating a Border Trade Adjustment.  A BTA would be essential for a carbon tax, to keep foreign manufacturers from beating tax-paying domestic competitors.  A carbon BTA would be the work of many lifetimes.

But a tax on plastics can simply omit a BTA.  Plastics used in manufacturing are trivial, so domestic producers need not fear imports beating the system.  It would cost more to figure the tax than it would yield.  You could tax manufacturers and first importers by the gram or pound.  You could start with single-use plastics.  This is even more obviously needing to happen than taxing even weed.

 

 

I’ve suggested taxing e-cigs by nicotine content.  Here’s another view in CAPS:  some excerpts from an interesting post from the Tax Foundation that takes the other side:

“NICOTINE CONTENT ALONE DOES NOT DETERMINE NICOTINE ABSORPTION. DIFFERENCES IN ELECTRONIC CIGARETTE DEVICE DESIGN, AS WELL AS NICOTINE PRODUCT DESIGN, HAVE BIG IMPLICATIONS FOR HOW MUCH NICOTINE IS ABSORBED BY THE CONSUMER.”  I don’t doubt that, but don’t know enough about it.

“NICOTINE IS THE ADDICTIVE SUBSTANCE IN THE PRODUCTS, BUT NOT THE MAIN HARMFUL INGREDIENT.”  I thought it was the main harmful ingredient.  But the non-drug substances in vapor can’t be good for the consumer.

“TAXING BASED ON NICOTINE CONTENT WOULD FAVOR LOW-NICOTINE LIQUIDS AND COULD ENCOURAGE INCREASED CONSUMPTION IN QUANTITY OF LIQUID. FOR INSTANCE, A 3 PERCENT NICOTINE-CONTAINING VAPOR POD WOULD BE TAXED AT $0.68 WHEREAS A 5 PERCENT VAPOR POD WOULD BE TAXED AT $1.15.”  But wouldn’t consumers be seeking nicotine directly, and thus be indifferent between low-nicotine and high-nicotine liquids?  That is, wouldn’t they titrate, vaping until they got enough?  Taxing by volume of liquid, without regard to nicotine content, would incentivize the production of high-nicotine products.  If nicotine is “not the main harmful ingredient,” such an incentive would be OK.  But is vaping itself the harm-producer?

“TAXING BASED ON NICOTINE CONTENT WOULD REQUIRE EXTENSIVE TESTING, AND ENFORCEMENT WOULD BE EXPENSIVE.”  Canada is taxing liquid cannabis by THC, but I don’t know the cost of enforcement.  I suppose nicotine testing would be similar.

Still thinking here.  It looks like a key question is whether it’s nicotine or vaping generally that should be the target of the tax.  I’m listening.

 

 

 

The usually reliable Tax Policy Center says tax all e-cig liquid.

Why don’t they want to tax just nicotine?

Many drug policy scholars are enamored of taxing cannabis by THC – the active ingredient, the best nicotine analogue.  Those folks would tax it even for flower (bud, raw plant material).  Now THC can’t be easily sampled in flower.  Raw plant material is not homogeneous enough.  (And no one taxes solid tobacco by nicotine content.)

But in cannabis concentrates, THC can be more readily sampled.  Canada is taxing THC in concentrates already.

Nicotine in vaping products can be readily sampled, too.

TPC says, “Michigan could take the lead and levy an extremely high excise tax on all vaping products—one not based on a percentage of the product’s relatively low price, and not based on the presence of nicotine. . . .  How about a tax of a $1 per milliliter of vaping liquid? At least then a 15 milliliter cartridge would no longer be a relative bargain compared to cigarettes.”

I don’ get it.  When Congressional staff used to draft tax laws, House Legislative Counsel Ward Hussey would ask, “What are you mad at?”  Well, isn’t it nicotine?

[This replaces an earlier post.]

Here’s the cite:  https://www.taxpolicycenter.org/taxvox/michigan-lets-tax-not-ban-vape-products?cm_ven=ExactTarget&cm_cat=DD+10212019&cm_pla=All+Subscribers&cm_ite=https%3a%2f%2fwww.taxpolicycenter.org%2ftaxvox%2fmichigan-lets-tax-not-ban-vape-products&cm_lm=po@newrevenue.org&cm_ainfo=&&utm_source=%20urban_newsletters&&utm_medium=news-DD&&utm_term=TPC&&

 

Replaced by https://newrevenue.org/2019/10/22/why-not-tax-nicotine-in-e-cigs/

A private group in Canada estimated $79 per cannabis consumer per year in societal costs for 2014.  https://www.ccsa.ca/sites/default/files/2019-04/CSUCH-Canadian-Substance-Use-Costs-Harms-Report-2018-en.pdf.

That may be less than a lot of states are taxing.  But are that private group’s numbers to be trusted?  And there’s the list of reasons to tax cannabis posted earlier and below. (The Canadian numbers too presumably count DUI.)  But trying  to tax measurable externalities seems like something even the tomato model folks might understand and even go along with.

Quotes: Continue reading “Numbers for Marijuana’s Externalities”

Seven reasons to tax cannabis:

1. To Legalize.  That’s the deal – voters and elected officials insist on taxation. https://www.leafly.com/news/industry/opinion-theres-a-better-way-to-tax-legal-cannabis
2. For revenue.  But that argument would apply equally well to an excise tax on socks or bicycles.  That argument is purely pragmatic; it’s not theory-based.
3. To keep it away from Kids, who are notoriously price-sensitive (“pocket change” won’t be enough).
4. SUD — To keep it away from Cannaholics (people with “Substance Use Disorder”).
5. Driving (at least a perception problem).
6. Jerry Brown’s argument: “I don’t know if everybody’s going to pot that that’s going to be a positive path forward.” https://www.washingtonpost.com/blogs/govbeat/wp/2014/01/11/jerry-brown-no-fan-of-legalized-marijuana/.  This “Nation of Stoners” argument needs more analysis.  It seems like an opportunity cost for society, and seems extremely difficult to measure or estimate.  In some sense, though, maybe it’s like the quasi-quantifiable cost of alcohol-caused absenteeism.
7. To reduce the risk of SUD for those who don’t have it yet.  That’s hardly quantifiable.

What else?

 

 

The Left-leaning Institute for Taxation and Economic Policy warned, in a detailed report, that price-based “ad valorem” taxes on marijuana are a recipe for trouble when prices go down – as they do in every jurisdiction where legalization takes hold. https://itep.org/taxing-cannabis/

Now the Right-leaning Tax Foundation has joined the warning:  “states risk losing out on forecasted revenue if prices continue to go down.” https://taxfoundation.org/safe-banking-act-state-marijuana-revenues/ Continue reading “Left and Right warn about price-based marijuana taxes”

Work in progress. Comments welcomed.  This is a draft of slivers of a bigger work on the discontinuous THC ad valorem tax in Illinois and its implications.

Last Update 11:04 a.m. 5 October 2019

A tax on THC may serve two goals. First, it may be an acceptable way to tax cannabis intoxication.  Public health scholars tend to view a nudge against high-THC products as good policy. In that view, some marijuana are consumers too THC-centric for their own good.  You hear that some consumers routinely want the most THC they can get.  Taxing THC might lead them to consume less.

Second, cannabis growers and sellers deplore the arms race among growers to distort plant genetics to get the highest possible THC readings.  Natural genetics are said to contribute to an entourage effect.  (See Ethan Russo’s work on the Entourage Effect.)

. . .

So a direct tax on THC – generally one cent per milligram — is already in place in Canada for cannabis oil.  Canada will extend its penny-per-milligram tax to edibles when they become legal.  Meanwhile, for raw plant material, which is harder to sample for THC, Canada taxes by the gram (or by 10% of wholesale price if that’s greater).  Flower is generally taxed at $1 per gram, while trim is taxed at $0.25 per gram. https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/excise-duties-levies/collecting-cannabis.html

. . .

Another way proposed to tax THC is to establish ranges to govern tax rates, like these (ad valorem taxes are ill-advised, but we use them for simplicity):

Low range: 0.3% to <10% THC — 10% of price;
Medium range:  ≥10% to <20 % THC — 20% of price;
High range: ≥20 % THC  — 30% of price.[1]

The higher the range, the higher the tax.  One argument for such a range-based tax it that it would make consumers less able to shop for the biggest THC amount.  They won’t know what they are getting.  That is, a tax range might “blind” consumers to actual THC content.

If anything over 20% is simply in that one category, consumers won’t say, “I’ll pay more for 27% flower than for 21% flower.”  Instead, the consumer who wants the most THC, will be limited to a less precise desire:  “Give me strongest stuff you’ve got:  something in the 20 range.”  She’ll never know.

“Ranges” with discontinuous tax rates – those with marginal rates over 100% — have long been a bête noire of the Center for New Revenue.  Search this website for “”discontinu” to see why.

Once customers they are blinded to precise THC differences they may look at CBD and terpenes.  Taxing by ranges would be great, the argument goes, because tax ranges will entail commercial blinding.

But how could they?

That “blinding” argument has several weaknesses.

Inadequate

First, many state regulations require point THC labeling, so consumers would not actually be blinded to point THC numbers if taxes changes but regulations didn’t.

Unconstitutional

Second, let’s say regulations that are designed to inform consumers changed so as to show only the tax range (say over 20%).  Nothing would prevent sellers from showing the point THC number to the consumer.  Most State Constitutions provide some protection for commercial free speech, and sellers might be expected to challenge in court any regulation that prevented them from labeling product with a true statement like this:  “The contents of this package were part of a batch tested on September 15, 2019, by XYZ lab that produced reported THC of 19%.”

Misleading

Third, although point (precise, single-number) THC results are only so accurate, they are the best information the consumer can get about THC content.  Ranges make information less accurate.  In a grocery store, what label helps a consumer more?

1. “This cake was baked between September 15 and September 22.”
2. “This cake was baked between September 8 and September 15.”
3. “This cake was baked on September 15.

The answer is 3.  To be sure, point estimates of THC content in cannabis are imprecise, but the imprecision is typically described by a bell curve.  A sample that tests at 19% is more accurately described as (for example) “between 14% and 24%” than as “between 10% and 20%.”  Pre-set ranges are arbitrary.

Unethical

Fourth, one might say “ranges are inaccurate, but blinding the consumer is more important.”  Blinding seems of questionable propriety.  It may be unethical — even if data is imprecise.  That is saying, “We know this point number is not precise, and that there is a margin of error.  To emphasize our number’s imprecision, we will give you less information than we have.  And we won’t show the margin of error we know about.  That’s our way of protecting you from yourself if all you care about is  high THC numbers.”

If you blind the consumer a little, why not a lot?  Some have suggested eliminating THC content labeling altogether.  That would remove the temptation for naïve consumers to gravitate toward high THC labels, because there would be no lable.  That would mean  a total change in regulatory rules that could accompany a tax by categories, like flower, dabs, vapes, edibles, etc. Blinding medical users is an especially dubious goal. They may underdose – or take too much.

Ranges with Discontinuities are usually bad tax policy.  They create cliffs, where a tiny difference in something (like THC) makes an enormous difference in somebody’s tax bill.  And — the point here — they won’t solve the problem of the consumer who wants the most THC.

If you think THC should be taxed, and if you think you can measure it well enough to tax it, just go on andtax it directly.  Discontinuous ranges may provide an illusion of simplicity, but they make things more complex [as illustrated elsewhere in this article I’m working on].

[1] Illinois has a price-based tax that looks at THC for smoked products.  It will tax smokeable products this way:
THC under 35%:  10% of price;
THC 35%: or more:  25% of price.
The Illinois tax scheme looks like a mechanical way to try to tax raw plant material less than concentrates.