Updated 18 December 2019:
On Twitter, I saw a California LAO report on marijuana taxes, just released: https://lao.ca.gov/Publications/Report/4125; H/T @Johnschroyer
I started to skim it, but this brought me up short:
“a potency‑based tax has two key advantages with regard to administration and compliance. First, testing labs verify the potency of cannabis products. (As we understand it, these tests rarely find substantial differences between labeled and actual cannabinoid content. More commonly, products fail lab tests for other reasons, such as high levels of pesticides.) In contrast, the state has not established any mechanism for consistent, direct third‑party verification of the weight of harvested plants. Second, THC content appears on the labels of all cannabis products, allowing for further verification opportunities upon retail purchase. In contrast, once a cannabis product has entered the manufacturing process, there is no way to verify the weight of the raw plant material used to make it.”
That strikes me as wrong, in seeming to say says measuring potency is easy; measuring weight is hard. It overlooks lab shopping in other states, “[T]esting labs. . . rarely find substantial differences between labeled and actual cannabinoid content”? No. That’s certainly not true in Washington State, where lab shopping is a serious problem, as noted in the Washington State document the LAO cites.
So the California tax folks must have higher priorities than working on this “mechanism” for vertifying weight. California’s enforcement needs a lot of work done, and finding weight-tax cheaters doesn’t seem to need a lot of “mechanism” — just auditing.. Anyway, “third party verification” seems inferior to state audit verification (wouldn’t the state be the “second party”?), which Canada does with its per gram taxes on flower and leaves.
And once liquor has been manufactured and taxed alcohol content, does anyone take advantage of “further verification opportunities upon retail purchase”? It’s a lot easier for consumers to measure alcohol content than THC content of retail purchases.
Weight, it seems to me, is much simpler to verify than THC, especially and prohibitively in raw plant material. No one taxes THC in plant material, because it’s not homogeneous — just as no one taxes tobacco by tar and nicotine content. The report doesn’t directly criticize (in what I read) the possible Achilles’s Heel of weight taxes – the line drawing between categories. For sales of processed material, weight of the inputs (flower, trim, etc.) before processing can be a pretty good proxy for what “we are mad at” — intoxication. To be sure, weight is a blunt instrument, but it’s state of the art.
The report doesn’t propose (in what I read) any distinction for THC taxes between raw plant material and processed products. I’m all for the Canadian system — tax raw plant material by the gram of flower or bud, with an ad valorem minimum tax, but tax processed products by THC.
That’s enough for now. At some point, I’m going to take a close look at the LAO report, because I’m guest lecturing at the Duke Law Tax Policy Class on marijuana next spring and I need a paper to present. For the Center for New Revenue, border tax adjustments for carbon taxes need work a lot more than marijuana taxes do. Maybe I’ve missed stuff in the LAO report.
A final nit: The LAO report states, “[T]he state has not established any mechanism for consistent, direct third‑party verification of the weight of harvested plants.” How hard could that be? As stated in this @DaveSilberman tweet, “Any experienced cannabis consumer can tell by sight whether the seller is overstating weight.” That’s the beauty of a weight tax – it’s verifiable.