New York’s Cannabis Tax Could Help Pave the Way for Federal Legalization

States that tax marijuana ad valorem – that is, with price-based taxes – are not advancing the work needed for federal legalization.

I was recently quoted in an article by in Law360:    https://www.law360.com/cannabis/articles/1375265/ny-pot-potency-tax-raises-compliance-complexity-concerns-  (possible paywall).

Here’s an excerpt: 

Pat Oglesby, founder of the tax policy nonprofit Center for New Revenue, said the uniqueness of New York’s model stretches outside of U.S. borders, noting that Canada taxes nonsmokable cannabis at 1 Canadian cent per milligram of THC, but still taxes flower with a weight-based tax of CA$1 (80 U.S. cents) per gram. New York’s tax per milligram of THC is “revolutionary” for raw plant matter, he said.

“We don’t know the best way to tax cannabis, and New York is starting a bold and radical experiment,” Oglesby said. “It’s the first jurisdiction in the world to tax cannabis flower or bud — smokable plant matter — by THC content.”

Oglesby said New York’s experiment could be important if the federal government ever allows such sales, noting that the U.S. has virtually no excise taxes on products except items like tobacco or alcohol.

“A THC potency tax experiment may let the federal government see a way forward toward cannabis legalization nationally,” Oglesby said.

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Well, the next-to-the-last paragraph doesn’t quite get the technicalities right.  It would more correctly read:

. . . New York’s experiment could be important if the federal government ever allows cannabis sales, noting that the federal government has virtually no ad valorem (percentage of price) excise taxes on tobacco or alcohol.  

The point is that the federal government is very unlikely to tax cannabis ad valorem, as the MORE Act proposes.  States like New York that experiment with methods other than ad valorem are showing the federal government possible paths forward for ways to tax cannabis – which will probably be a key requirement for legalization.

Fine point:  Alcohol is taxed by the gallon or by alcohol content; tobacco is taxed by weight, with the minor wrinkle that “large cigars,” those that weigh more than 3 pounds per 1,000, are taxed by weight, with an ad valorem cap.  “ Large cigars are taxed at 52.75 percent of the manufacturer’s sales price, with a maximum tax of 40.26 cents per cigar.” https://www.cbo.gov/budget-options/56869.  (The federal government has several other excise taxes, like that on gasoline, and some ad valorem excise taxes, like those on airline tickets and indoor tanning.)

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