Author: patoglesby

The Raleigh, Durham, and Charlotte papers put this op-ed below in online and print editions, https://www.newsobserver.com/opinion/article272626684.html#storylink=hpdigest_opinion; it’s been mentioned favorably by Thomas Mills’s PoliticsNC, https://www.politicsnc.com/a-week-of-bipartisan-progress-for-nc/, and featured in depth by a NC Policy Watch, https://ncpolicywatch.com/2023/03/21/north-carolina-should-learn-from-other-places-and-try-to-do-marijuana-right/ (no paywalls).

Excerpts:

The Compassionate Care Act (Senate Bill 3) would unleash the profit motive on millions of dollars’ worth of medical marijuana commerce in our state. But it’s likely to let well-funded out-of-state corporations grab the lion’s share of that money. They would then want to legalize lucrative recreational use quickly and be first in line to sell it.

While state commerce violates free market principles, SB 3’s 10 permanent licenses make for oligopoly, not market freedom. Sure, state delivery and eventually stores would take time and money to set up, but awarding licenses to private sellers “on the merits” or by lottery, SB-3-style, is a recipe for delays and litigation. Four years elapsed between the passage of a medical marijuana law and the first legal sale of medicine in West Virginia and Delaware.

Who gets to sell marijuana?

If the government doesn’t monopolize marijuana sales, then individuals or corporations chosen in various ways, like by lot, on the merits, by willingness to pay fees, by periodic auction, or by voucher privatization will get to sell it.  Voucher privatization failed in Russia because permanent rights were given away all at once, but we can learn from that mistake.  And none of the other options is humming.

Dividing the right to sell up annually per capita among residents avoids licensing disputes and delays.  It spreads wealth, at least unless interstate commerce comes in.

Mechanics are primitive:  The state passes out transferable electronic vouchers to all voters or bright-line tested residents. This is like Alaska’s Permanent Dividend Fund, which sent $1,884 in oil dividends to each qualifying resident of the state for 2014, and keeps on humming.

Say every voter gets one transferable Quota Share. Each Quota Share is entitled to a transferable equal fraction of the year’s total production target, set by the state. 

While actual allocations would be done at the state level, national numbers are available to work with. The RAND Report for Vermont suggests that 19,000 acres could satisfy national demand. That’s 827,640,000 square feet to split among 320 million people. So each Voucher  would allocate a little over two square feet. Say the total crop is now worth $40 billion, as the RAND Report suggests.   Say half of the total consumer price eventually went to pay for legality. Then 320 million people would divide up $20 billion, so an Annual Voucher  would be worth some $62.50. If the 78 million voters in 2014 divided it up, the raw number would be a little over $250 each.

This plan would need a minimum amount of square feet to grow a plant. Maybe it needs to use pounds instead.

Say 300 acres in North Carolina for 5,000,000 voters.  Quota Shares don’t seem like they’re worth much, so only they bring only chump change the first year – and keep costs down for the struggling industry.  Probably a few players will control the industry the first year.

That’s where the Russian lesson comes in.  The only obvious way to keep private power down is not make licenses all and only annual licenses. Industry (the Big Money Boys) will want longer licenses, but they may not have the votes yet.

In later years, voucher prices will probably stabilize.

Excerpts from panel appearance of Shaleen Title of the Parabola Center for the North Carolina Department of Justice webinar in 2022.  https://www.youtube.com/watch?v=ehlLi6hlWRE, 21-minute mark:

We need to make “evidence-based decisions that are not based on fear or stigma but rather the reality of data that we have in front of us.  I also want to say you don’t have to use the same models that other states have used. You can think about fairness and equity and one thing that’s brought up a lot is the idea of potentially state regulated stores. I think we are long overdue for a state to try that model. I think from a public health perspective and equity perspective it makes sense to see if they try that so I hope that is considered strongly.”

25-minute mark:

“I hope you’ll consider being the first state potentially to look at a state-run model . . . especially because we don’t have a state yet that has a successful equitable for profit model.  Maybe we will soon.  I think New York is an exciting one to look at, but we don’t have that yet.”

Here’s the Parabola Center’s story:

“Our team was the first in the nation to devise a clear path for small businesses and historically disenfranchised groups to enter the market. We are here to help create polices that reflect the needs of the millions of people who continue to form the legal cannabis movement.”

Both Republican majority and Democratic minority votes will be needed to pass medical marijuana in North Carolina.  Three medical marijuana grow licensing models from Republican-controlled states are available.

Florida:  Oligopoly requires government choosing a small number of well-capitalized sellers “on the merits”; requires vertical seed-to-sale integration; does not restrict cross-ownership.  Senate Bill 3 follows this model, with 10 sellers.

Oklahoma/Mississippi:  All comers get licenses.  Oklahoma fee is $2,500 per license (currently under moratorium); Mississippi fees vary by size of operation.  Amid excess, Oklahoma voters defeated extension of its program to recreational in a landslide on March 7.

Louisiana:  Sole growing licensees are land grant Louisiana State University and (Historically Black) Southern University, analogous to State and A&T.  They contract out some work.

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Other models for sharing the cannabis windfall exist.

California, Massachusetts, New York, and other states:  Some “social equity licenses” are issued to benefit casualties of the War on Drugs.  No program has succeeded yet.

Illinois and other states: A lottery among applicants who are deemed qualified is followed by litigation by applicants deemed unqualified.

Alaska: The Permanent Oil Dividend Fund gives each resident an equal check each year. But in Post-Soviet Russia, voucher privatization of assets failed because of permanent rather than annual privatization.

Patrick Oglesby, 919 619 8838, po@newrevenue.org, NC Bar #7944;
Center for New Revenue, http://www.newrevenue.org;
1830 North Lakeshore Drive, Chapel Hill NC 27514.

https://www.newsobserver.com/opinion/article272626684.html#storylink=hpdigest_opinion No paywall.

A friend asked, “What are your objectives with regard to both medicinal and recreational marijuana?”  Here’s a quick answer.

A long-run objective is good government –  to have laws that people will actually obey.  Since citizens are to going consume marijuana recreationally, I’d say the law needs to adapt to the citizens, since the citizens won’t adapt to the law.  

That’s in line with the view of John D. Rockefeller, Jr., expressed in the foreword to “For Liquor Control”:  “law must always be the articulate organ of the desires of living men. Men cannot be made good by force. In the end, intelligent lawmaking rests on the knowledge or estimate of what will be obeyed. Law does not enforce itself.”

Marginalize the illegal market, too, by enforcing laws that citizens will support.

But that’s for the long run.

Between now and then, some other objectives intervene:

Keep the noise down on medical and recreational marijuana.  Make the drug available, but tamp down on promotion.  Make retailing low-key and discreet, and out of the eyes of kids.  If the 1^st Amendment won’t allow advertising bans, then keep advertising, celebrity endorsements, and other selling expense tax expenses non-tax deductible (as they are now under federal section 280E and will be under conforming North Carolina tax law).

Keep both the medical and recreational wealth in North Carolina rather than letting out-of-state operators grab the lion’s share (as SB3 would do).  Beyond keeping it here, share the wealth here – that is, don’t let rich North Carolinians get it all.  

State retailing, via public health departments or otherwise (state delivery or brick-and-mortar retailing), could satisfy those intermediate objectives quickly.  But selling via health departments will not smooth the transition to careful recreational legalization.

Some of the wording in the new North Carolina medical marijuana bill, SB3, seems not to work.  The bill puts two “industry representatives” named by the Governor on the “Production Commission” (proposed section 90-113.118(a)(1)b.), but then seems to make it impossible for anyone to be an industry representative on the Commission. The bill says, “Conflicts of Interest — No member of the Commission shall own, operate, have a direct or indirect financial interest in, or be employed by a licensed medical cannabis supplier, or a licensed medical cannabis testing laboratory, or a subcontractor thereof” (Proposed section 90-113.118(l)).   How can someone be an “industry representative” and not “own, operate, have a direct or indirect financial interest in, or be employed by a licensed medical cannabis supplier, or a licensed medical cannabis testing laboratory, or a subcontractor thereof”?

Am I missing something?  This kind of little technical glitch, if indeed it is one, could cause the system to freeze up before it gets started.

The quotes are from pages 9 and 10 of the latest version, https://www.ncleg.gov/Sessions/2023/Bills/Senate/PDF/S3v1.pdf.  The “representative” language first showed up in version 2 of last session’s bill, https://www.ncleg.gov/Sessions/2021/Bills/Senate/PDF/S711v6.pdf; the “conflicts” language first showed up in version 5 — but I just noticed this issue.

Would, say, a lawyer for industry qualify as a “representative”? If the lawyer were paid anything by an industry participant or applicant, she or he would be “employed by” industry, I think, and thus ineligible. And the “indirect financial interest” language is quite broad.

So maybe this issue will get cleaned up as the bill progresses.

My friend and fellow Democrat Thomas Mills predicts:

“I . . . think the legislature will pass some form of medical marijuana bill. The momentum is moving too quickly in favor of legalization. With Virginia heading that way in 2024 and maybe sooner, North Carolina stands to lose millions of dollars in tax revenue if they keep prohibition in place. Enough states have legalized it without seeing any devastating consequences to move forward and I think that will happen this year.”  https://www.politicsnc.com/maybe-im-wrong/

Medical in 2023?

Who gets the money (and first dibs on the recreational money)?  If lobbying works, SB711 aims to give licenses to outfits funded by Florida giant Trulieve and by Russian-funded Curaleaf.

We can do better.  If Democrats can’t figure out how to share this not-even-in-existence wealth, count on us for something other than equity.

The U.S. cannabis industry is not a monolith.  Some players have reason to say that marijuana legalization is best left to the states

Here it is: Federal legalization of cannabis will hurt growers — producers. 

Today, foreign imports don’t come in, but once we legalize, existing trade treaties will automatically oblige us to allow imports. U.S. producers will say, “Ouch.”

Retailers and distributors and to some extent vertically integrated firms (like some) Multi-State Operators don’t join producers in this pain from legalization.

Are growers shrewd enough to be slowing down legalization? Or are the details just too hard for Congress to figure out anyway?

Starting in late 2009, I tried to be the world’s expert on marijuana excise tax policy. But now, at 75, I haven’t needed to try for a while. That’s because first-rate tax policy scholars have taken up that work.  They cheer me up.  Here are writings, roughly in reverse chronological order, showing why I have been easing up.

Richard Auxier of the Tax Policy Center, https://www.taxpolicycenter.org/publications/pros-and-cons-cannabis-taxes (with Nikhita Airi).

Ben Leff of American University Law School, https://www.bu.edu/bulawreview/files/2021/07/LEFF.pdf. Ben is the only law school tax professor who has studied cannabis excise taxes — despite the stigma of the drug and the lack of academic interest in state taxes, excise taxes, and low-revenue taxes. Bravo.

Carl Davis of the Institute on Taxation and Economic Policy, https://itep.org/?s=cannabis#gsc.tab=0&gsc.q=cannabis&gsc.page=1 (Richard Phillips and Misha Hill contributed to some of this work.)  Start with https://itep.org/taxing-cannabis/.

Ulrik Boesen, when he was at the Tax Foundation, https://taxfoundation.org/individual-and-consumption-taxes/excise-taxes/marijuana-taxes/.  Start with https://taxfoundation.org/recreational-marijuana-tax/.

Jane Gravelle and Sean Lowry from the Congressional Research Service way back in 2014, https://newtax.files.wordpress.com/2015/01/fed-mj-tax-r43785.pdf.

Lots of drug policy scholars (like Kleiman, Humphreys, Caulkins, Kilmer) have looked at cannabis revenue policy too, and plenty of interested industry people do, but my own background in tax leads me to appreciate especially the tax policy specialists who have taken up this work. There’s plenty still to do, and our wide variety of state experiments will help Congress figure out what to do eventually.

A greater need now for me is to follow licensing revenue and the whole licensing process, where policymakers are flailing.  Nothing works – on the merits, lotteries, social equity – all end with arguable unfairness and time-consuming appeals.

In my state, North Carolina, the State Senate has passed, with negligible debate, a huge medical cannabis bill, SB711, licensing only 10 vertically integrated marijuana sellers, who will be well-heeled investors.  We can do better.  So watch this space.

But I won’t phase out of marijuana tax policy altogether, because I want to keep harping on the salutary effects of the 280E selling expense tax, which keeps the noise of marijuana commerce down, and hits small word-of-mouth merchants much less than it hits big marketing operations and celebrity endorsers. And I may try to put together a history of cannabis taxes, one that starts with British India in the nineteenth century.

But I’m glad that younger and smarter people are keeping up with hemp drug excise taxes.

After spending weeks writing an article warning of the dangers of interstate commerce or federal legalization for states that (1) tax marijuana by weight (Alaska, California, Colorado, Maine, and Nevada) or (2) collect pre-processing (Canada; Alaska, California, Colorado, Illinois, Maine, and Nevada) and publishing it in Tax Notes, I remembered that New Jersey did both.

I’ve made lots of mistakes before; and list some here:  https://newrevenue.org/2015/01/28/3-errors-in-laws-to-tax/.

Yesterday, I posted a hope that the Dormant Commerce Doctrine does not apply to federally illegal cannabis.

My friend Rob Mikos, a law professor at Vanderbilt and probably the leading expert on marijuana federalism, graciously responded to an email copying that post, writing, “I agree with the policy argument, but not the legal one.”

He points out that the Dormant Commerce Doctrine is old and settled law, operating in the face of the 10^thAmendment for centuries.  He’s the expert, so I’ll back off from any hope that as a practical matter the 10^th Amendment will come to the rescue of state freedom here.

Continue reading “Partial abandonment of hope on DCC and marijuana”

The Dormant Commerce Clause cases that force states to accept out of state owners for local cannabis licenses strike me as wrongly decided.  

Congress’s faint, implied, “dormant” display of intention to open markets in an illegal substance to all comers seems dwarfed by the 10^th Amendment’s express and overriding reservation of power to the states to do whatever the heck they want.  “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.” The Constitution doesn’t prohibit states from regulating commerce – Congress can allow them to regulate commerce, though it rarely does.

Continue reading “The Dormant Commerce Clause and Marijuana”

Tax THC with a CBD offset? Maybe not so fast.

“Studies [the link is to an article with an impressive number of authors] have shown that the THC:CBD ratio also influences the level of psychoactivity experienced by cannabis consumers. For infrequent cannabis consumers, when CBD is present at much higher levels than THC, intoxication is reduced compared to THC alone. Conversely, consumption of THC (8 mg) together with half as much CBD (4 mg) enhances the intoxicating effect, but only for infrequent consumers. In people who frequently consume cannabis, the intoxicating effects of THC don’t change much when combined with CBD. This indicates that the psychoactive effects of cannabis can change based on the THC:CBD ratio in a way that depends on your level of consumption experience.”

That’s from  https://www.leafly.com/news/science-tech/the-entourage-effect-does-it-really-exist (which I don’t vouch for or criticize).

Leave aside CBD offsets. Even for a THC tax, I have a lot of questions.

Continue reading “Unanswered questions about cannabis taxation”

An increasing per-plant or per-square foot fee — as the only marijuana revenue government gets — is still possible in newly legalizing states.

The lack of legal interstate commerce in cannabis in the United States offers opportunities for states to experiment.  Some say courts will use the Dormant Commerce Clause to open up interstate commerce without Congressional action.  That would bring an end to many state tax experiments.  https://newtax.files.wordpress.com/2022/05/federal-shake-up-2022-april-4-tax-notes-oglesby.pdf

Continue reading “Revenue policy to share cannabis wealth and allow home grows”

Here is an edited transcript of part of Stanford Professor Keith Humphreys’s appearance on North Carolina Attorney General Josh Stein’s Webinar series on medical cannabis  in North Carolina: 13’16” mark of https://www.youtube.com/watch?v=aXRI3txu-R4.

. . . 

[A] goal a lot of people have is equity — if they want to create an industry, they want to make sure that all groups can participate equally.   One point about that is that if you go forward with any type of legalization, medical or recreational, to consider the option of a state retail monopoly — and you will know what those are because you live in North Carolina.  I grew up in West Virginia; we had a state retail monopoly in alcohol.  North Carolina does as well.

In general retail monopolies (that’s where the industry still produces the product; the state sells it) have a better record of hiring diverse employees than do private companies. I mean that’s one of the striking things I’ve noticed.  I live out here [in California] next to a lot of venture capital firms that finance this industry.  They talk a lot about racial equity but it’s remarkable how almost uniformly white the people who run that industry are.  But state retail monopolies do better than that and that might be a way to promote more equitable employment 

The second point is that our experience with alcohol, of which we have a lot, is that retail monopolies reduce consumption and related problems.  The states that have ABC stores have lower rates of youth binge drinking, automobile accidents involving alcohol, and so on.  So if you decide to go forward a retail monopoly could give you some public health protections as you move the system out across the state.

The last point is that the incentives of profit retailers are to promote a lot and have two for one sales and hype the product and so on, but you don’t have that in a state retail monopoly, so that’s another way to — if you want to go forward — not have some of the costs that come when the when a drug gets linked to the pursuit of profit.

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And here is the unedited transcript of the entire session, with Dr. Humphreys followed by Dr. Steve Wyatt, a board certified psychiatrist and the current chairman of the North Carolina Psychiatric Association’s Addiction Psychiatry Committee, and Eric Sweden, a DWI Program Specialist at the North Carolina Department of Health And Human Services:

Continue reading “State retail marijuana monopoly — Stanford Professor Keith Humphreys “

Whatever we think of judge-made law attempting to read Congress’s unexpressed mind, allowing states to restrict commerce in something the federal government expressly refrains from legalizing (because it doesn’t know how ) helps the goal of allowing states to run experiments, even bad ones, with all the freedom we can muster , as we try to figure out how to legalize federally.  Let the Labs of Democracy percolate.

And wouldn’t Congress opposed to marijuana applaud any restrictions states might put on?