I’m to be on a panel Tuesday, September 8 at 1:30 EDT on cannabis legalization in Mexico – especially preventing oligopoly and market capture by Big Marijuana. It’s open to everyone, in English and Spanish, but you must register first at this link: https://zoom.us/meeting/register/tJYrduCqqzwuE9L3YolRLGPZPtbpIYSDgPi3.
Here are some notes for that panel.
There are possible conflicting goals for tax policy – provide revenue to distribute (maybe to casualties of the Drug War); prevent price collapse to protect public health; nudge in favor of small or deserving businesses. Administration and feasibility hang over any of those goals. Taxation is just one design feature, and it interacts with a host of others. And I know very little about the situation on the ground in Mexico – cannabis culture: the existing market; any role of organized crime.
This is a very hard problem. Here is a tentative list of options, addressing “avoid hoarding,” and “attaching price to product potency, the nature of the taxes.” Some of these options may not fit Mexico at all.
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OPTIONS
— Retail monopoly
— High taxes
— Ratchet — Taxes that increase over time even as pre-tax prices drop
— Specific, Not Ad valorem –Taxes that don’t decrease per-unit over time
— Canada’s state of the art tax model:
Raw material: Tax by weight. Tax bud more than trim. % floor backstop.
Concentrated products: Tax by THC
— Lower tax rates on small producers
Using U.S. federal beer tax structure: $7 on first 60,000 barrels for brewer who produces fewer than 2 million barrels; $18 per barrel after the first 60,000 barrels (need real party in interest and attribution rules).
Tiered tax rates depending on license type — watch for (cheating and leakage)
— Ownership by many licensees, with real party in interest and attribution rules. Issue lots of licenses. Forbid foreign ownership. Mexico’s bill now limits grow area per licensee. Also limit square footage of retail space (has anyone tried this?).
— Let social equity licensees have all the licenses of one kind (as Massachusetts has done with distribution) rather than have them compete against well-funded capitalists in every license category. Social justice may be an overall goal — including historically repressed people in benefits. Unprotected licenses may be fool’s gold. Standard preferences or set-asides deliver protected benefits. A requirement that a contractor employ 10% minority subcontractors delivers a non-contingent benefit to the person who gets the plumbing contract on a construction project. An assignment of electromagnetic spectrum also delivers a benefit that no one can take away. But a license to sell cannabis – in a pool where other sellers are well-funded capitalists – may turn out to be worth less than nothing.
— Sharing weed wealth — Annual license auctions
A while back, the late Mark Kleiman wrote ““handing out production rights for modest fixed licensing fees . . . [means that] any gain from scarcity pricing will go to the industry and encourage even more vigorous marketing. If, instead, production quotas were put up for auction, the gain could go to the taxpayers. . . . [P]roduction quotas with an auction would be the equivalent of taxes.”
Nineteenth century India, the pioneer in cannabis policy, did just that. It both imposed taxes and held annual license auctions. “For the retail vend of ganja, charas, and bhang . . . [t]he number of shops is fixed by the Collector according to the demand for the drug. The licenses are sold by public auction for one year.”
More recently, the State of Louisiana enacted this: “The Department of Agriculture and Forestry shall develop an annual, nontransferable specialty license for the production of prescribed marijuana for therapeutic use and shall limit the number of such licenses granted in the state.” That annual cannabis license auction was a backstop or Plan B if state universities elected not to grow cannabis – but they are growing, so there are no annual licenses.
I don’t know of any annual license auctions in the world today. But if licenses are permanent, or vested, then incumbent license holders will fight to restrict the market. They will never surrender their licenses without a fight, either. Annual licenses address that problem.
Annual licenses will discourage license holders from investing so much – no glitzy showrooms to attract retail customers, no advertising campaigns designed to build long-lasting brand awareness. Storefronts will be minimal, and meager. The danger of losing a license in next year’s auction makes big investments riskier. Industry will hate licenses that expire after one year, and that are put up for auction annually. Maybe you won’t have to be rich to afford an annual license, so the wealthy won’t dominate the industry.
— Voucher privatization of cannabis revenue
This is probably more trouble than it’s worth, but it caused me to circle back to think about annual licenses, so for brainstorming completeness, here goes: Take all the cannabis revenue from taxes, license fees, etc., and divided it up among Mexican citizens of voting age each year. Each citizen gets a voucher (paper or electronic) to redeem, sell, or ignore.
X vouchers would be redeemed on a date certain. Vouchers would be worth 1/x of the receipts of auctions for 1-year cannabis licenses.
Russian voucher privatization failed because assets were transferred permanently. The idea was inspired: take failed Soviet enterprises, and give every Russian an equal fractional interest in them. But capitalists took advantage, and bought up people’s interest cheaply, making the capitalists richer, and the people poorer. Annual vouchers would let citizens retain an interest in marijuana revenue that they can’t sell forever. But unless lots of citizens ignored their vouchers, the redeemers would get very little. Costs of administration would be enormous.
I’ll stop. I’ve reached the bottom of the barrel . . .
The Center for New Revenue 