Implications of THC taxation of imported marijuana edibles

Along with some friends, I helped write this for Washington State:

“Concentrates that are infused or contained in other products for retail sale, such as those that go into edibles, sublinguals, tinctures, topicals, suppositories, and other processed cannabis products are additionally difficult to test accurately after being mixed with other ingredients.” Cannabis Potency Tax Feasibility Study: A Report for the Washington State Liquor & Cannabis Board, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3481584

I remember hearing that from stakeholders out there, and I still believe it, especially for more solid products like edibles.

Say we want, for a domestic tax scheme, a THC tax on concentrates, imposed before mixing or incorporation into a final product.  What do we do about imports?  Take an imported brownie, for instance.

Maybe the Narcotics treaties will prevent imports for a while, but maybe not forever.  Weight-based taxes plainly don’t make sense for brownies or similar imported processed products, which could be loaded with sugar instead of THC or other cannabinoids.  (And we can’t identify the raw plant matter that went into the processed import.)  I’m struggling to think of options beyond THC, sampled after incorporation into the final product, and ad valorem.  Ad valorem is especially unattractive there, with transfer pricing between foreign parent manufacturer and U.S. subsidiary distributor (a typical and unobjectionable business arrangement) a big problem – the foreign manufacturer would like to understate the price of the brownie to keep the ad valorem tax down.

So if we tax the imported brownie on the basis of THC sampled after incorporation into the final product, what about the domestic brownie?  Treat it like the imported brownie, measuring THC late in the process?  Or sample and tax the concentrate that goes into the domestic brownie, early in the process — leading to two similar edibles being sampled and taxed differently?

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