Critique of NC medical marijuana bill, SB 711

I sent this message to the sponsors of North Carolina Senate Bill 711, which would legalize medical cannabis, and which I think needs work.

Dear Senators Rabon, Lee, Lowe, deViere, Harrington, Nickel, and Woodard:

Thank you for your leadership on medical cannabis.  I support the goal of your effort in general.  

I’m originally from Grifton in Pitt County, and am now a lawyer in Chapel Hill.  I served as a tax policy lawyer on the staffs of the Joint Committee on Taxation and the U.S. Senate Finance Committee in Washington many years ago, and have worked for Vermont and Washington as a paid marijuana revenue consultant, and for many other jurisdictions pro bono.  I’m the founder of the Center for New Revenue, a tax policy non-profit.  I have spoken and written widely on cannabis policy.  I have not worked for marijuana sellers.  (CV attached.)

Marijuana is a powerful drug that heals and helps people, but it intoxicates others, and a lot of money from medical marijuana sales will be on the table, so there’s controversy.

There are no easy answers.  But here are a few technical comments.

If you maintain the approach of Senate Bill 711, its tax and fee structure might need adjustment.  In state after state, soon after legalization of any kind, prices are high, because supply is low, with few sellers up and running – and startup costs pushing prices up.  Later, as more suppliers come on line, and as economies of scale kick in, prices come down.  Businesses become profitable.

The bill has a 10 percent fee on sales at retail.  That fee might start off at a lower rate for a year or two – say five percent.  

The bill has a $50,000 fee for first-year licenses, with a $10,000 fee for renewal.  Whatever the wisdom of a high first-year fee, these few licenses should be so valuable that a renewal fee of $50,000 is appropriate.  The fee might well go up beyond $50,000 in the out years.

I make no comment about the overall approach of Senate Bill 711, but if that’s the way you go, backloading the tax and fee structure in those two ways, to adjust for market developments, might make sense. 

Also, for growers, instead of a flat annual fee that applies to large and small businesses willy-nilly, you might consider a fee based on square footage of grow area.  California localities pioneered these so-called canopy fees in 2010; rates typically range from a couple of dollars to $25 a square foot, with artificially lit indoor grows often taxed more than naturally lit outdoor grows.  Again, rates can ratchet up over time.

Here’s a non-revenue technicality. The Medical Cannabis Production Commission is to have two industry representatives among its nine members to issue licenses.  But how can you know who is in the industry until licenses are issued?  Also, though those industry representatives are to recuse themselves from matters involving their own businesses specifically, won’t they have a vested interest in other issues, like general rules governing location of facilities and production amounts?  Why put industry representatives on the Commission?  They can lobby the Commission quite readily.

            You will hear from the marijuana industry without asking them.  But there are a host of folks in governments in other states who have seen the issues you face today. Unlike industry, they won’t approach you unless you ask them, but I hope you will do that.  I think they will be very forthcoming in helping us in North Carolina avoid errors they have seen.

            Thank you for your time and your service.  I hope to be helpful as this legislation progresses, and have just begun to pay attention to this legislation.  I hope to study the bill more thoroughly and to come to Raleigh in the near future – and maybe to meet some of you.  In the meantime, I am at your service, and at the service of your staff people.

With highest regards,


Pat

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