Slides for Chief Judge Foley’s class

My old friend Maurice Foley from Senate Finance staff days has risen to become Chief Judge of the U.S. Tax Court, and is teaching a class at the University of San Diego Law School. I’m to make a remote guest appearance June 21 on marijuana taxation.; here are the slides for that appearance.

Federal legalization of cannabis in connection with taxes, pricing, and illegal markets

I’m having to miss a conference in Seattle starting tomorrow on federal legalization of cannabis in connection with taxes, pricing, and illegal markets.  Here are notes for what I hoped to say.

States fall into 4 categories:

  1. 7 states with weight-based taxes or producer taxes that will be eviscerated by interstate commerce in products like imported edibles:  Alaska, Colorado, Illinois, Maine, New Jersey, and Nevada – and California, unless its Legislature acts.  [Those states could use a separate small session.]
  2. 2 states, New York and Connecticut, whose potency taxes may be tested locally by imports that haven’t been tested in-state.  
  3. States with other taxes on the books.
  4. States without taxes yet, like my state of North Carolina, where state monopoly retailing seems a better choice for revenue and public health, and legally avoids the federal 280E selling expense tax. (https://digitalcommons.wcl.american.edu/facsch_lawrev/410/)

For any state with taxes, federal legalization brings problems and maybe opportunities:

Federal legalization and elimination of the federal prohibition premium would probably make pre-tax prices lower, leaving more room for state taxes, but new federal taxes might crowd out state taxes. 

Federal taxes might bring standardization of measurement and piggybacking opportunities – like tobacco taxes today, where the federal government’s blessing of the weight of a pack of cigarettes means states don’t have to weigh packs independently.  Federal weight or potency standards could make state weight or potency taxes just peel off.

Interstate commerce could bring a race to the bottom on marijuana taxes, as we have today with tobacco taxes, as the Eric Garner case shows.  Now some states may want to race to the bottom, and become marijuana tax havens, but Congress could solve that problem in advance, by giving a capped rebate, or a credit against federal marijuana tax for state taxes paid.  So if the federal tax rate is $10, they could give states a credit up to say $8.  If the state tax is zero, the federal tax is $10.  If the state tax is $5, the federal tax is $5.  If the state tax is $8, the federal tax is $2.    If the state tax is $9, the federal tax is still $2, because the credit is capped at $2.  States would have no incentive to race to the bottom.  If the states get together, Congress will listen.  We’re still at the starting gate.

Deep dive of 4,000 words from Tax Notes is at https://newtax.files.wordpress.com/2022/05/the-federal-shake-up-of-americas-marijuana-taxes-endnotes-links-1.pdf.

Medical marijuana in the North Carolina Senate 

Medical marijuana passed the North Carolina Senate, 35-10, after this hearing in the Rules Committee, where I speak at the 36’45” mark — mostly about how state retail sales are safer, more lucrative, and maybe faster than issuing licenses to just 10 vertically integrated corporations.

https://www.wral.com/nc-senate-committee-votes-on-legalizing-medical-marijuana/20309778/

My two-minute appearance starts this way: “Thank you, Mr. Chairman, I’m Pat Oglesby, a lawyer with the nonprofit Center for New Revenue.Marijuana is coming.  Iit makes people nervous but we’re gonna have it and the patients are gonna be getting their medicine — and I like to think about where the money goes.  And right now [under SB711] you’ve got these 10 corporations set up.  Antitrust? [Maybe] you can’t bring an antitrust action for selling a federal illegal product. But the antitrust policy of not concentrating all this economic power in these 10 companies:  It’s the same policy.”

Full transcript:

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