$100 prize for guessing Colorado weed flower tax AMR for Q1 2021

What will Colrado’s Average Market Rate for flower be as of January 1, 2021?  It’s $1,316 today.  Best guess wins $100.  Enter at CO2021@newrevenue.org.

In case of tie, earliest sent message wins.  (Hint:  All AMRs have been whole dollar figures so far – no pennies.) Entries close when Colorado releases the price, at which time winner will be announced and check for $100 issued.  One guess per entrant, for now.  Employees of the State of Colorado are ineligible.

Here’s some background: Continue reading “$100 prize for guessing Colorado weed flower tax AMR for Q1 2021”

California Marijuana Weight Taxes as of January 2020 — and Alaska, Maine, Colorado and Nevada

For the record, here are weight tax rates for cannabis in U.S. states as far as I know.  I’m preserving the documents here, since the rates will change.

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California adjusts its marijuana tax rates for inflation. Here is a copy of the rates as of early 2020.

Flower, $9.65 per ounce; leaves, $2.87 per ounce; and fresh cannabis plant, $1.35 per ounce.[1] New categories can be created by regulation as needed.

[1] https://www.cdtfa.ca.gov/industry/cannabis.htm#Overview; copied at https://newrevenue.org/2020/02/19/california-marijuana-tax-rates-as-of-january-2020/.

https://www.cdtfa.ca.gov/industry/cannabis.htm#Overview

2020 January Tax Guide for Cannabis Businesses

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Here are Alaska’s rates, from http://tax.alaska.gov/programs/programs/help/faq/faq.aspx?60000, Average Market Rate for Unprocessed Retail Marijuana | Department of Revenue – Taxation:

“Effective January 1, 2019, sales and transfers of marijuana are subject to new tax rates. Mature bud/flower are taxed at $50 per ounces and trim is taxed at $15 per ounce. A new rate has been added at $25 per ounces for bud/flower that is considered immature or abnormal. This is bud/flower that did not fully mature or develop, contains seeds, or failed testing. Clones are taxed at a flat rate of $1 per clone and not on the estimated weight.”

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Here are Maine’s rates, from https://legislature.maine.gov/statutes/36/title36sec4923.html:

(Title 36, §4923: Excise tax imposed has a copy.)

1.  Excise tax on marijuana flower and mature marijuana plants.   A cultivation facility licensee shall pay an excise tax of $335 per pound or fraction thereof of marijuana flower or mature marijuana plants sold to other licensees in the State.

[PL 2019, c. 231, Pt. B, §7 (NEW).]

2.  Excise tax on marijuana trim.   A cultivation facility licensee shall pay an excise tax of $94 per pound or fraction thereof of marijuana trim sold to other licensees in the State.

[PL 2019, c. 231, Pt. B, §7 (NEW).]

3.  Excise tax on immature marijuana plants and seedlings.   A cultivation facility licensee shall pay an excise tax of $1.50 per immature marijuana plant or seedling sold to other licensees in the State.

[PL 2019, c. 231, Pt. B, §7 (NEW).]

4.  Excise tax on marijuana seeds.   A cultivation facility licensee shall pay an excise tax of 30¢ per marijuana seed sold to other licensees in the State.

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Here are Nevada’s, with fair market value to be multiplied by 15 percent:

As of 1-1-2019:

Click to access Marijuana-Fair-Market-Value-Jan-1-2019.pdf

Marijuana-Fair-Market-Value-Jan-1-2019

Here are newer rates:  https://tax.nv.gov/uploadedFiles/taxnvgov/Content/Home/Features/Fair%20Market%20Value%20at%20Wholesale%20Summary%20Jan%2020%20(Final%20Draft).pdf

Fair Market Value at Wholesale Summary Jan 20 (Final Draft).

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Here are Colorado’s — 15 percent of the numbers below:

https://www.colorado.gov/pacific/tax/marijuana-AMR

Average Market Rate for Unprocessed Retail Marijuana | Department of Revenue – Taxation

Period Rate: January 1 to March 31, 2020

 Retail Bud Rate  $1,316 per pound
 Retail Trim Rate  $350 per pound
 Retail Immature Plant Rate  $9 per plant
 Wet Whole Plant Rate  $191 per pound
 Seed Rate  $5 per seed
 Trim Allocated for Extraction Rate  $247 per pound
 Bud Allocated for Extraction Rate  $299 per pound

Fear of a federal marijuana crackdown in Utah?

What stopped state-run marijuana sales in Utah?  Fear of a federal crackdown?  Or something else?

“Officials in Utah last year abandoned a plan to operate state-run medical marijuana dispensaries, in part because of fears the federal government might intervene or withhold unrelated funding as punishment,” says a Boston Globe story by Dan Adams and Felicia Gans.

I don’t think those fears were warranted.  I suspect they were manufactured. Continue reading “Fear of a federal marijuana crackdown in Utah?”

Exaggerating mj taxes in California?

California story:  “The CDTFA says its analysts determined a 60% markup on wholesale collected by distributors must be raised to 80%. It will ensure the tax paid on all products is equal to 15% as required by law.  Cultivation fees are also going up. Basically, Blurton said that means a product that’s $60 today will be $70 tomorrow.”  https://fox40.com/2019/12/31/marijuana-dispensaries-worried-about-californias-2020-tax-increase-on-wholesale/

Not following the math.  I don’t know what figures to use, but I’m having trouble seeing why a product that’s “$60 today will be $70 tomorrow” on account of taxes.  Looks to me like it should go up a lot less.

  1. Cultivation per-ounce tax

Let’s say that $60 is for an eighth.  The cultivation tax on an eighth went from $1.16 (1/8 x the old rate of $9.25 per eighth) to $1.21 (1/8 x the new rate of $9.65).  That’s a nickel more tax, but maybe it gets marked up in reselling to . . . a dime?  A quarter?

  1. Retail excise tax of 15% of imputed price.

What is the new wholesale price that gets multiplied by 15%?

Say wholesale pre-tax and pre-markup price is and was $25.  The old markup was $15 (60% of $25); the new markup is $20 (80% of $25).  So the pre-tax price on which tax is calculated goes from $40 to $45.  The tax goes from $6 (15% of $40) to $6.75 (15% of $45).

More realisitically, maybe, say wholesale pre-tax and pre-markup price is and was $36.  The old markup was $21.60 (60% of $36); the new markup is $28.80 (80% of $36).  So the pre-tax price on which tax is calculated goes from $57.60 to $64.80.  The tax goes from $8.64 (15% of $57.60) to $9.72 (15% of $64.80).

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Hard to see why the after-tax retail price should go up by $10 when one tax goes up by a nickel and the other goes up by around a dollar.  There are markups on the taxes, but not 1,000% markups.  Maybe I’m missing something.  I’ll ask some friends in California.

 

 

Center for New Revenue Person of the Decade

Steve Shay, when he was at the Obama Treasury, worked on and pushed through regulations to slow down “corporate inversions”– companies shifting headquarters overseas – over vehement corporate objection.  That should have made him Center for New Revenue Person of the Year then, but the idea of having a Person of the Year needed to percolate.

He has kept fighting for sound tax policy by writing and speaking, over and over, and is just this month out with a capillary-level article explaining how the Trump Administration gave away more to multinationals, by simple regulatory action, than tax professionals though possible.  The Democrats can fix that in 2021.

So Steve Shay is the inaugural Center for New Revenue Person of the Decade.

Draft defense of weight tax on marijuana vs. CA LAO

Working on a response to the LAO report (subject of December 18 post on this blog) for a paper that won’t go final before April 10 – a defense of the weight tax in California (people there call it a cultivator tax, which reflects the confusion – it’s actually collected downstream).  Would welcome comments and pushback.

  1. Weight tax isn’t the worst tax; it’s the best – and clearly better than ad valorem (percentage of price) excise taxes on cannabis. Look at federal alcohol and tobacco taxes.  And all 50 states have non-ad valorem excises on tobacco; all but government monopoly states  have non-ad valorem excises on all three forms of beverage alcohol.

California’s weight tax is not working, but the few problems I’ve heard about (there may be more) can be readily fixed.

a.  Flash frozen stuff needs a separate category – fine.Maybe Colorado’s “wet whole plants” category plugs right in. https://www.colorado.gov/pacific/sites/default/files/Excise23.pdf

b.  CA’s collection mechanism for the weight tax is Byzantine.  Simplification – to tax payment by first distributor, for instance, seems doable.

  1. Federal marijuana legalization won’t happen until there’s a proven method of collecting taxes that doesn’t put the federal government taxing every retail sale in every state.That’s too far-flung a network to supervise, so the tax will need to be collected upstream of retail.

An upstream ad valorem tax is too tricky to work.  Look at Colorado and Nevada, whose nominal ad valorem upstream taxes (15% of producer price) are de facto converted to weight-based taxes. https://newrevenue.org/2017/07/02/nevadas-70-cent-per-gram-tax-on-marijuana-flower/

State taxes will be the model for federal taxes, and federal legalization won’t happen without new taxes (at least if 280E is repealed).  Ad valorem (percentage of price) taxes aren’t that model.  Switching from weight to ad valorem by California would sow confusion in an already glacial federal legalization process.

  1. The LAO’s problems with the weight tax are not stated, except:

“[T]he state has not established any mechanism for consistent, direct third‑party verification of the weight of harvested plants.” How hard could that be?  As @DaveSilberman tweeted, “Any experienced cannabis consumer can tell by sight whether the seller is overstating weight.”  That’s the beauty of a weight tax – it’s verifiable.

So the California tax folks must have higher priorities than this “mechanism.”  (The actual problem, if any, is not stated – just lack of a “mechanism” for figuring out how many grams something weighs.)  California’s enforcement needs a lot of work done.  And third party verification is a strange hook to hand your hat on – its is inferior to state audit verification, which the Dominion of Canada does with its per gram taxes on flower and leaves.

The LAO doesn’t get to any distinction for THC taxes between raw plant material and processed products – and whether that distinction, rather than the number of grams on the scale, isn’t the real tricky part of a weight tax.

  1. The British Indian Hemp Drugs Commission revealed at least six categories of weight-based taxes in use in 1893. https://newtax.files.wordpress.com/2018/09/ihd-vol-3-pages-title-17-or-so74464868_53_72.pdf, page 8. This is the tried and true method.  All these little ad valorem taxes were enacted because they were so easy to draft.  Price collapse, bundling, related party deals (and phony prices) – ad valorem taxes are primitive.

??

 

First glance at LAO mj tax report

Updated 18 December 2019:

On Twitter, I saw a California LAO report on marijuana taxes, just released: https://lao.ca.gov/Publications/Report/4125; H/T @Johnschroyer

I started to skim it, but this brought me up short:

“a potency‑based tax has two key advantages with regard to administration and compliance. First, testing labs verify the potency of cannabis products. (As we understand it, these tests rarely find substantial differences between labeled and actual cannabinoid content. More commonly, products fail lab tests for other reasons, such as high levels of pesticides.) In contrast, the state has not established any mechanism for consistent, direct third‑party verification of the weight of harvested plants. Second, THC content appears on the labels of all cannabis products, allowing for further verification opportunities upon retail purchase. In contrast, once a cannabis product has entered the manufacturing process, there is no way to verify the weight of the raw plant material used to make it.”

That strikes me as wrong, in seeming to say says measuring potency is easy; measuring weight is hard.  It overlooks lab shopping in other states,  “[T]esting labs. . . rarely find substantial differences between labeled and actual cannabinoid content”?  No.  That’s certainly not true in Washington State, where lab shopping is a serious problem, as noted in the Washington State document the LAO cites.

So the California tax folks must have higher priorities than working on this “mechanism” for vertifying weight.  California’s enforcement needs a lot of work done, and finding weight-tax cheaters doesn’t seem to need a lot of “mechanism” — just auditing.. Anyway, “third party verification” seems inferior to state audit verification (wouldn’t the state be the “second party”?), which Canada does with its per gram taxes on flower and leaves.

And once liquor has been manufactured and taxed alcohol content, does anyone take advantage of  “further verification opportunities upon retail purchase”?  It’s a lot easier for consumers to measure alcohol content than THC content of retail purchases.

Weight, it seems to me, is much simpler to verify than THC, especially and prohibitively in raw plant material.  No one taxes THC in plant material, because it’s not homogeneous — just as no one taxes tobacco by tar and nicotine content.  The report doesn’t directly criticize (in what I read) the possible Achilles’s Heel of weight taxes – the line drawing between categories.  For sales of processed material, weight of the inputs (flower, trim, etc.) before processing can be a pretty good proxy for what “we are mad at” — intoxication.  To be sure, weight is a blunt instrument, but it’s state of the art.

The report doesn’t propose (in what I read) any distinction for THC taxes between raw plant material and processed products.  I’m all for the Canadian system — tax raw plant material by the gram of flower or bud, with an ad valorem minimum tax, but tax processed products by THC.

That’s enough for now.  At some point, I’m going to take a close look at the LAO report, because I’m guest lecturing at the Duke Law Tax Policy Class on marijuana next spring and I need a paper to present.  For the Center for New Revenue, border tax adjustments for carbon taxes need work a lot more than marijuana taxes do.  Maybe I’ve missed stuff in the LAO report.

A final nit: The LAO report states, “[T]he state has not established any mechanism for consistent, direct third‑party verification of the weight of harvested plants.” How hard could that be?  As stated in this @DaveSilberman tweet, “Any experienced cannabis consumer can tell by sight whether the seller is overstating weight.”  That’s the beauty of a weight tax – it’s verifiable.

Guest post — Audrey Dong on workplace externalities of marijuana legalization

Xiuming (Audrey) Dong of Syracuse University, whom I met at the National Tax Association conference in Tampa, has allowed me to post her paper on workplace externalities of marijuana legalization, which contains this:  “My estimates suggest workplace injury rate is approximately 5%-20% higher for treated relative to control counties post-[recreational marijuana legalization] RML. It also indicates that RML increases work injury costs [in Oregon] roughly by $7 to $34 million (or $5 to $24 per capita) per year.”

So Ms. Dong’s paper calculates negative externalities, but she is now working on a project whose preliminary results show that legalization may reduce disability insurance claims.  Still, that is an on-going project.   Myself, I wonder about any results based on movement from illegality to legality, for reasons the paper mentions, and especially because the change in consumption is very gradual, since the black market existed before legalization, and because legalization takes root slowly.

As my friends in social science (unlike my friends in tax policy) often say, more research is needed.

Downloadable pdf:  Job Market Paper_Xiuming(Audrey) Dong or https://drive.google.com/file/d/1OhHNwO2JymRqfbLM-wfUISCLDpCNVCd6/view via https://sites.google.com/view/xiumingdong/research?authuser=0

 

Marijuana tax chart and slides

Slides are at Generic weed ALCOHOL FIRST tax slides 4 December 2019-4

Here is chart:

Center for New Revenue

Pat Oglesby, Www.newrevenue.org, 4 December 2019

 

Recreational FLOWER Excise Taxes STATUTORY Pre-Retail ACTUAL Pre-Retail % OR /gram Retail
Canada (ex Manitoba) Greater of 10% or $1/gram Greater of 10% or $1 Provinces vary
Alaska $50/oz. $1.76 0
California $9.25/oz. indexed; now $9.65/oz. $0.34 15% X (Wholesale price + 80%)
Colorado 15% $0.33 15%
Illinois 7% 7% 10% target
Maine $335/pound $0.74 10%
Massachusetts 0 13.75%
Michigan 0 10%
Oregon 0 20%
Nevada 15% $0.76 10%
Washington 0 37%

 

All states taxing weight have categories taxed lower than flower (bud) — like trim (leaves, shake).  Most recreational states impose standard retail sales (non-excise) taxes, too, if they have them; e.g., Massachusetts’s total retail tax goes from 13.75% to 20%.  Colorado and Nevada adjust weight taxes periodically to tax 15% of recent market prices.  California indexes its weight tax for inflation.  California and Colorado use actual price in certain non-related party sales.  Canada taxes some products by THC content.

 

Taxes on medical range from zero to 100% of the recreational rate.

 

More at https://newrevenue.org/2018/06/06/cnr-recommends-cannabis-tax-chart/; https://itep.org/taxing-cannabis/.  Corrections: po@newrevenue.orgor 919 619 8838.  Updates and more info at www.newrevenue.org.  More background on cannabis revenue at https://www.rand.org/pubs/research_reports/RR864.html (Chapters 4 and 5 and Appendix B).

 

 

 

 

Taxes on Recreational Marijuana Flower, 2 December 2019

Recreational FLOWER Excise Taxes STATUTORY  Pre-Retail ACTUAL Pre-Retail % OR /gram Retail
       
Canada (ex Manitoba) Greater of 10% or $1/gram Greater of 10% or $1 Provinces vary
       
Alaska $50/oz. $1.76 0
California $9.25/oz. indexed; now $9.65 $0.34 15% X (Wholesale price + 80%)
Colorado 15% $0.33 15%
Illinois 7% 7% 10%-20%-25%
Maine $335/pound $0.74 10%
Massachusetts 0   13.75%
Michigan 0   10%
Oregon 0   20%
Nevada 15% $0.76 10%
Washington 0   37%

 

As of 2 December 2019.  Please send corrections:  po@newrevenue.org.

Colorado and Nevada adjust weight taxes periodically to tax 15% of recent market prices.  California indexes its weight tax for inflation.  All states taxing weight have categories taxed lower than flower (bud) — like trim (leaves, shake).  Most recreational states impose standard retail sales taxes, too, if they have them.

Taxes on medical range from zero to 100% of the recreational rate.

More at https://newrevenue.org/2018/06/06/cnr-recommends-cannabis-tax-chart/; https://itep.org/taxing-cannabis/

 

Taxing weed and wealth

At the National Tax Association conference in Tampa earlier this month, my panel on marijuana tax policy was a sideshow.  The hot and trendy topic was taxation of wealth.

It has always been better to tax wealth than to tax income.  As the old adage says:  Money is like manure.  When it’s piled up, it stinks; when it’s spread around, it makes things grow.  Discouraging income is kind of weird.  But we can observe income much more readily than we can observe wealth.  Income moves, so it should be visible; wealth stands still, so it can be invisible.  This is the distinction between flow and stock.  An income tax is a weak proxy for a wealth tax, but it may be the best we can do, so that’s what we’ve got.

So an income tax is like a tax on weed by weight.  Taxing marijuana flower or any raw plant material by THC appeals to drug policy purists, but it’s not practical, for reasons easily findable on this website.  Taxing raw plant material is much easier to do.  Like the income tax, it’s not theoretically great, but it kind of works.  A more perfect tax may not.

 

 

Best,

Income tax purity and 280E

The anti-ad feature of 280E will be a hard sell at a marijuana tax panel for the National Tax Association in Tampa today.  The audience is mostly economists.  Many economists start with the notion that all income should be taxed alike – capital gains and ordinary income, for instance.  And many think deductions should not discriminate, either, so corporate integration fans don’t like favoring interest over dividends.  So singling out marijuana ads (I’d add ads for tobacco and alcohol) will find principled objections.  But we’re not going to tax marijuana like milk.  Excise taxes are OK, but since Free Speech means we can’t ban ads, taxation is a middle ground.

Veterinary marijuana

The hardest issue around marijuana taxation is medical.  I stipulated in my first article, in 2011, that cannabis has medical uses.  But how to decide who is using medically?  I’m speaking Friday at a conference of mostly economists, the National Tax Association, in Tampa.  I don’t expect much help in answering the medical vs. recreational question.

Here’s a story, from California activist Brett Stone, about veterinary use for his dog Walley: Continue reading “Veterinary marijuana”