Marijuana tax class

Preparing for another guest lecture on marijuana tax policy, for the June 30 class of my old friend from Senate Finance Committee staff days, Chief Tax Court Judge Maurice Foley, Jurist in Residence at the University of San Diego, I shrink at the task.

Nobody knows how to tax cannabis.

We don’t even know what we’re dealing with.  Cannabis consists of at least 545 distinct compounds, like THC, the main intoxicant, and CBD, innocuous enough to be sold over the counter.  But some of those other 543 compounds, other cannabinoids and terpenes and maybe more, may create an “entourage effect” more powerful or at least different from what isolated compounds give.

And then we’ve got folks taking CBD and turning it into new, engineered products, like delta-8 – milder than delta-9 THC, but still an intoxicant.

And what are we so mad at that we want to tax weed?  Some people like weed so much that they overdo it, and can’t quit.  Jerry Brown worried that a nation of stoners would not accomplish much.  Maybe there’s a puritanical “kill-joy” streak that gets nervous when people have too much fun by artifice.  Well, keeping the price high makes it harder to kids to afford with their pocket change.

But marijuana can be medicine – or at least some of its compounds can, and the whole plant, with its entourage effect, can.  How can we know when it’s medicine and when it’s recreational?  (We can’t, at the margin.)  Meanwhile, recreational users say its benefits – to them and to society – outweigh its costs.

What tax base do we use?  The main nominees are price (ad valorem), weight, and THC (potency).  

Adding to complexity, we’ve got all kinds of products.  There’s raw plant matter, with subcategories of bud (flower), trim (leaves), and more – all taxed at by different states at different rates per gram.   

And there are products that are processed or “concentrated” from raw plant matter, like edibles (brownies, gummy bears) and other products, like tinctures, suppositories, and powerful “wax” or “shatter”.  

Taxing by price is simple, or it can be.  Most states that tax by price use one rate for everything.  Illinois complicates things, with a 20% rate for edibles, but a split rate for everything else:  a 10% rate for everything else with less than 35% THC, and a 25% rate for everything else with 35% or more THC.  In practice, that complication aims to tax flower at 10% and “wax” or “shatter” at 25%.  

Some states tax raw plant matter by weight, early in the supply change, whether it’s sold as raw plant matter or processed, with different categories – bud or flower being taxed at a higher rate per gram than less powerful and less valuable trim or leaves.  Many states create intermediate categories, like small bud and immature bud, with tax rates between the rate for flower and the rate for trim.

Canada taxes flower and trim (that is, raw plant matter) by weight, and everything else by THC content.  

New York and Connecticut tax by THC across the board – with different rates for different products.  Here are New York’s tax rates per milligram of THC:

(1) Flower 0.5 cents;

(2) Concentrated cannabis 0.8 cents; and

(3) Edibles 3 cents

Connecticut has different rates, but similar categories and ratios.

These ratios come, apparently, from a single study out of Colorado in 2015.

Maybe all this uncertainty, and these experiments, will show how marijuana needs to be taxed.  Don’t think it won’t happen just because it hasn’t happened yet.

Government monopoly cannabis retail sales in Canada — preliminary

How are government monopoly cannabis retail sales working in Canada? Pretty well, maybe.  There’s a lot to learn.

Most provinces allow private retailing.  Two of those that don’t, Quebec and Prince Edward Island, have reportedly done the best at capturing market share from bootleggers.

Brock University Business School Professor Michael J. Armstrong presents this data:

 Michael J. Armstrong, “Legal cannabis market shares during Canada’s first year of recreational legalisation”, International Journal of Drug Policy, Volume 88, February 2021, 103028,

I don’t know how much to make of that data, which is now old.  Ontario was having trouble then, and at one point switched from government to private retailing.  But government monopoly retailing in two provinces was reportedly doing well at defeating the illegal market.

Beyond market share, “[i]n 2019, Quebec’s monopoly marijuana retailer – Société québécoise du cannabis (SQDC) – said it would not carry cannabis vaporizers ‘in the light of many health problems.’  Quebec also bans ‘sweet or savory edible products,’ including marijuana-infused chocolates, as well as all topical cannabis products.”

Maybe that’s a bug, driving consumers to bootleggers, or to neighboring provinces.  Or maybe it’s a feature, keeping consumers away from vaping (when was that vaping scare, anyway?) and keeping kids away from cannabis candy.

Lots to think about.

Marijuana mega-millions

Legislatures that legalize marijuana are creating fortunes for friends, so how great the temptation must be to help campaign donors who want to get rich quick by getting licenses to sell marijuana.

Here are case studies from two states where recreational marijuana is not legal.  But medical marijuana alone brings in mega-millions.

Here’s what happened in Florida:

“Less than 24 hours before the Florida Legislature passed the state’s first medical marijuana law in May 2014, Matt Gaetz and other members of the state House of Representatives rewrote the bill to limit who would be able to get in on the ground floor of what has since become a billion-dollar business.

“A number of Gaetz’s friends and allies managed to squeeze through that narrow door. Among them:

“— The brother of Gaetz’s friend and fellow state Rep. Halsey Beshears, who co-founded one of Florida’s first licensed marijuana companies and amassed a fortune currently valued at about $600 million — and became a major Republican Party donor.”

And in Pennsylvania:

“Cultivation and processing operations are fetching $100 million and more. And dispensary licenses are commanding prices of $20 million-$35 million for each storefront as the state’s retail sector consolidates.”

Continue reading “Marijuana mega-millions”

Why the federal government won’t legalize marijuana soon

A friend who advocates for social equity in handling cannabis profits said on a webinar yesterday that federal legalization needs more time – so don’t rush it.  We don’t know how to protect social equity licensees, for one thing.

And Ulrik Boesen of the Tax Foundation has a bunch of questions, like these:

“How does the federal government design an excise tax for this complex market without disrupting state markets? How can federal and state testing and product safety requirements be aligned, considering how much these differ state by state?”

We do indeed need more time.  

To figure out how to reinstitute alcohol taxes after a lapse during Prohibition, Congress devoted four fill days of joint hearings to liquor taxes alone in December 1933.  Unlike with hemp drugs, we had already had lots of experience taxing liquor.  But Congress studied it thoroughly anyway.

Continue reading “Why the federal government won’t legalize marijuana soon”

Pennsylvania Marijuana Monopoly + Taxes = Belt + Suspenders

An article quotes me praising state marijuana retailing over the for-profit alternative — in light of a bill in Pennsylvania to allow just that. The article, at, is throrough, but paywalled. It gives no prediction for the bill’s prospects.

Continue reading “Pennsylvania Marijuana Monopoly + Taxes = Belt + Suspenders”

280E MJ Tax Technicality, Lawyering, and Risks

A draft sent from me to scholarly private marijuana tax attorney Kat Allen (Tax L.L.M. from NYU) is followed by her response.

My draft:

At a webinar put on by MJbizdaily last week, two contrasting styles of tax lawyering were on display.  Some say section 471(c) lets taxpayers reduce their tax bill under the section 280E Selling Expense Tax; some say it doesn’t.  I don’t know the merits of the 471(c) issue, and hope not to study them.

Continue reading “280E MJ Tax Technicality, Lawyering, and Risks”

Marijuana — Friend or Foe?

Many say marijuana is only good or only evil. (I’m for careful legalization, and sharing the wealth). But this septuagenarian friend, writing in early 2021, has a different take — but not one-sided. There are lots of folks who see both sides, like my old friend:

“I quit, roughly 13 years ago, give or take a few years.  I came to a fork in the road—tennis or reefer.  I could not continue to do both.  The reefer was having too much effect on my stamina and my tennis.  I was getting clobbered by people I used to beat.  So I gave up on the reefer—easily done and done in a fell swoop—and sure enough the tennis got better, until it didn’t, like recently, because of age.  I have never looked back and don’t miss being high.  If ever or when I become decrepit, I will do it again.  It was fun, but not, one hopes, for another decade or so.” 

Continue reading “Marijuana — Friend or Foe?”

280E Is a Bastard. So What?

Critics of the 280E marijuana Selling Expense Tax point out that it was conceived by advocates of the discredited War on Drugs:  “Section 280E was born of politics – at the height of the war on drugs, in 1982.”  Yeah, well, in some way, 280E is illegitimate. But a child born out of wedlock might turn out to be Alexander Hamilton.

The 280E Selling Expense Tax is overbroad, for sure, but it has two big things going for it – from the perspective of much of the marijuana community.

1.  Advertising and glitzy marketing appeal to kids – and irritate their parents, to the detriment of legalization efforts.  “Marijuana sells itself,” the saying goes.  The commercial free speech doctrine says we can’t ban ads, but sophisticated consumers don’t need the ads or glitz – or the celebrity endorsements.  The 280E Selling Expense Tax makes those kinds of thing non-tax-deductible. 

2.  Big Business advertises more than small business.  Mom & Pop – and social equity licensees – can’t afford the billboards, or deploy the marketing know-how that corporate giants specialize in.  Think Budweiser ads.  And recently, “$1 out of every $6 spent on restaurant advertising in America [was] done by McDonald’s.”  That doesn’t count Burger King, or KFC.   Mom & Pop rely on word of mouth. Big Marijuana wants to start deducting ad expenses — and Big Alcohol and Big Tobacco want to get in on the game.


The marijuana community, and especially small businesses and growers (whom the 280E Selling Expense Tax barely grazes), might consider not so much the parentage of 280E, but its qualities and defects (yes, it’s overbroad in denying deductions for wages of retail clerks – a selling expense).  But some tax is going to replace 280E — with a more direct hit on consumers if not growers.

Not all bastards deserve condemnation.

Here we go: Marijuana is coming to North Carolina

North Carolina medical marijuana just got real.

Medical marijuana legalization is the law in Georgia, and is advancing in South Carolina and Alabama.  Recreational marijuana legalization is the law in Virginia.  Here in North Carolina, nothing was happening.  Only Democrats supported even medical marijuana.

But that changed overnight as two Republican State Senators came out in support of medical marijuana.  So far as I know, they are the first GOP legislators to introduce a medical marijuana bill.

Continue reading “Here we go: Marijuana is coming to North Carolina”

CNR says strengthen the Privileged Heir Tax

The Center for New Revenue is honored to be listed by Americans for Tax Fairness as a supporter of the Sanders-Gomez Estate Tax Reform Bill, the “For The 99.5% Act.”  The wealthy like the term Death Tax; I like Privileged Heir Tax.  Here, I’ll stick to “estate tax” as the bill does.

I got my start in tax work at the Washington, D.C. law firm Covington and Burling in the early 1980s, splitting time between international tax and, under the estimable Doris Blazek-White, estate work.  Back then, the estate tax threshold was much lower, as it should be.  But even then, the rich were getting richer.  Not like now, but privileged heirs and heiresses were already lucking into plenty of wealth they hadn’t earned.

Continue reading “CNR says strengthen the Privileged Heir Tax”

NY legalizes, but keeps marijuna ads non-tax-deductible

We don’t know the best way to tax cannabis, but New York State is advancing the process.

A surprising and useful feature of the New York bill is that it leaves in place “280E conformity.”  The federal government imposes a Selling Expense Tax on cannabis in Internal Revenue Code section 280E, which allows marijuana sellers to deduct only cost of goods sold on federal income tax returns.  

For New York state income tax returns, sellers follow 280E.  So on both federal and state income taxes, they can deduct only outlays to produce or buy the product.  Growers can deduct salaries for ag workers, but no one can deduct outlays for billboards, payments to celebrity endorsers, glitzy showrooms, and much more.  Too much more, maybe – not even minimum wage salaries or health benefits for retail workers.

Continue reading “NY legalizes, but keeps marijuna ads non-tax-deductible”

New York’s Radical THC Potency Tax on Marijuana Flower

We don’t know the best way to tax cannabis, but New York State is advancing the process.

With a THC potency excise tax, New York is starting a bold and radical experiment.  It’s the first jurisdiction in the world to tax cannabis flower or bud – smokeable plant matter – by THC content.  Canada taxes processed cannabis at 1 Canadian cent per milligram of THC, but taxes flower with a weight-based tax, at $1 per gram.  Canada doesn’t tax flower by THC. New York’s tax of 0.7 cent per milligram of THC of flower is revolutionary.  

Continue reading “New York’s Radical THC Potency Tax on Marijuana Flower”

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,

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?

How Not to Be Wrong — Public Domain Book

Among Bill Gates’ ten favorite books,, along with The Great Gatsby and Sapiens and Parenting with Love and Logic, is How Not to Be Wrong: The Power of Mathematical Thinking, by Jordan Ellenberg. Any dense math is skimmable. It’s in the public domain, but the site where I got it said “Not Secure,” so I’m posting it here.

Administrability of Retail THC Tax

Having worked on a study for the State of Washington of the feasibility of taxing cannabis by THC content, I was nervous about the idea.  The report I helped write had this:

“[R]etailers . . .  had little confidence that the POS [Point of Sale] systems could provide the information that they would need to process sales efficiently. Unless potency readings are reliable and readily available at the point of sale, or unless the state uses a simpler model such as a product-based potency estimate to determine a product’s tax, retailers fear that their staff would have to manually calculate tax liability for each item at the point of sale. This would create impossible bottlenecks for stores, many of which move tens of thousands of dollars of product each day. The system of attributing potency to a product would need to be streamlined and automated so as to avoid bud tenders inadvertently collecting the wrong amount, or worse, gaming the system to create a commercial advantage.”

But maybe a retail THC tax is more feasible than we gave it credit for.

I wrote Jim Morgan, CFO of the Washington State Liquor and Cannabis Board (WSLCB) and a tax policy and finance expert, whom I had the good fortune to meet in Olympia while working on the study.

From: Pat Oglesby [] 
Sent: Tuesday, September 29, 2020 3:07 PM
To: Morgan, James E (Jim) (LCB) 
Subject: POS

Dear Jim,

After all this time, do you suppose that POS technology has advanced to the point where a stated THC tax would be about as administrable as an ad valorem tax?

With highest regards,


He wrote back, with a useful take:

Tue, Sep 29, 2020 at 6:54 PM


I am quite sure that POS vendors are skilled enough to build this functionality into their systems.  I believe that THC content is captured in many cases as an attribute of the inventory items in the POS system.  There is not much business value to the cannabis businesses beyond that, though.  Specific functionality that could use this information for tax purposes would only be developed in response to specific regulatory requirements.




I’ve been skeptical of retail ad valorem taxes, so I’m starting to think a retail THC tax is better on policy grounds (for reasons listed in Chapter Five of the RAND Vermont report, — and maybe feasible after all, if a state wants one. It would take some work, but so does every change.