The Center for New Revenue

I’ve consistently said marijuana taxes can be too high at first. Fitch Ratings warns of that too, but supports its warning with this inaccurate statement: “Colorado, Washington and Oregon each lowered their cannabis taxes following legalization to address black market competition.”  https://www.fitchratings.com/site/pr/1029632. But it would be nice to get the facts straight.

Fitch apparently relies on material published April 20, 2016 (4/20 – get it?) by the Tax Foundation, which alleged, “Colorado, Washington, and Oregon have all taken steps to reduce their marijuana tax rates.” That was questionable too, even at the time, but there’s another problem: “lowered” is not the same as “taken steps to lower.”

Let’s start with Colorado. Continue reading “Inaccurate info about cannabis taxes”

The killer problem for carbon taxes is that they favor foreign manufacturers, and we want manufacturing jobs. Any carbon tax will provoke calls for border adjustment taxes – or border tax adjustments (BTAs). The difficulty in imposing BTAs is great. Professor Peter Barnes of Duke has guided my thinking on the issues involved, and some of this comes directly from him.  But this is my primitive thinking, for which he is not to blame.

How can we distinguish between imported goods that were manufactured using coal-generated electricity and goods manufactured using solar energy?  To create the right incentives, we should make that distinction.  But administering the distinction is impossible.    Continue reading “Border Tax Adjustments for Carbon Taxes — The ODC Model”

UPDATE 8 February 2018:  Thanks to my friend Keith Humphreys for linking to this post here.  THC in cannabis bud is very hard to measure reliably — and even if measurement were reliable, sampling can be gamed.  (Concentrates test more reliably.)  There’s a lot to this problem:  An analysis of taxing cannabis by THC content appears in RAND’s report for Vermont, starting on page 80 (free download). An analysis of taxing it by claimed THC content starts on page 84.

While a tax on claimed or stated THC might stand alone, the rest of this document looks at how a tax on THC might serve as an alternative minimum tax.

UPDATE 27 November 2017:  A stated THC tax can also serve as an alternative to a percentage of price (ad valorem) tax.  Such price-based taxes are typically the first cannabis taxes to appear — though they are primitive and weaker than weight-based taxes.

To start with a stated THC tax as an alternative minimum to a weight-based tax:  A cannabis flower tax could be imposed as the greater of a weight tax or a stated THC tax (using the THC figure the seller claims on packaging or in selling). The tax could be the greater of (1) $x per gram of product weight or (2) $Y per gram of stated THC weight.

Here are very rough notes on how such a tax might work (supplemented by comments from my friend Jon Caulkins at the end).

Example 1: Continue reading “Mechanics of stated THC tax on marijuana”

Minimum unit pricing – charging a minimum price for temptation goods – appeals to some students of cannabis legalization.

To me, government monopoly or high taxes can work better to serve policy goals. I’m just starting to think about this, and looking for pushback.

1. The successes claimed for minimum unit pricing often involve loss leaders – where temptation goods are sold at a low price so as to bring customers in to buy goods that produce more profit for the seller. To the extent that cannabis commerce is isolated, that problem goes away. Most cannabis retailers in the United States sell little other than cannabis. They may sell pipes, papers, and T-shirts, but none sell alcohol. I don’t know of any that sell food (other than cannabis-infused food) or household goods. So any price-cutting that cannabis sellers do today goes pretty much straight to the bottom line. Sellers are hardly making up for the loss by selling non-cannabis products..  A well-regulated cannabis market lets cannabis seller sell nothing or almost nothing but cannabis, I think.

Continue reading “Why minimum unit pricing for cannabis leaves me cold”

UPDATE:  Just tweeted (5 November 2017) that Oakland’s set-aside project is slowing legalization to a halt.  This link is illustrative:  “New hitch in Oakland pot permit pipeline.”

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The NORML Conference in DC on September 11 has me on a panel that with the proposed title, “Legalization as an Economic Stimulus for All.” And we may get into this question: “How is it that we can create a market that is inclusive to those who have been most disproportionately affected by prohibition?”  http://norml.org/conference

My take is: Let the government own the means of production, and hire people who were disproportionately affected. The government monopoly model is happening in North Bonneville, Washington, and in the State of Louisiana. Or take tax revenue to help those folks, or, in a less targeted way suggested by Arwa Mahdawi, to help African-Americans who have suffered especially from the War on Drugs. Continue reading “Panel for NORML: “Legalization as an Economic Stimulus for All””

Slides for talk in Denver August 30: Oglesby Revenue Cannabis Summit 3 post pub

 

The National Cannabis Summit has me speaking for an hour Wednesday, but its program, downloadable at https://www.nationalcannabissummit.org/program/, says I’m with the “Center for New Review.”  Googling that yielded nothing, so maybe this post will open up this website to anyone who’s curious.  (Welcome!  It’s Revenue.)

The National Library of Scotland has posted the enormous 1893-94 public domain Report of the British Indian Hemp Commission, and authorized anyone to repost it with attribution:  https://creativecommons.org/licenses/by/4.0/.  (Thanks.)  Any student of marijuana policy will learn something there.  There is lots of confusing vocabulary, and I’ll post some notes at some point, but I’m still wading through it.  Any student of marijuana policy will learn something there (and volume 3 is much more useful and understandable for a tax man — I’ll post that someday, but the entire report is at http://digital.nls.uk/indiapapers/browse/archive/74908458).   Dale Gieringer of California NORML told me about this Report years ago, but I just found it online.

So, in 20-page (or so) chunks, here it comes, starting with volume 1:

Vol 1 Indian Hemp text 1-19 74464868_19_38

IHD Vol 1 pages 19-38 or so74464868_39_58 Continue reading “British Indian Hemp Commission — Posting Volume 1”

I get to talk for an hour on marijuana revenue at the National Cannabis Summit in Denver on August 30 at 9 a.m. The sponsors write me: “Speakers are evaluated on several criteria, including audience engagement, and the results are posted online after the conference as part of our speaker ‘Zagat’s’ guide.”

OK then. I’ll try to be provocative, and hope for pushback (engagement) with statements like these:

• Cannabis revenue design should be a public policy issue; government revenue should be an afterthought.
• The optimal rate of crime is greater than zero. That includes black market crime of untaxed marijuana sales.
• Taxing marijuana only by price is untenable in the long run, and the Tax Foundation is simply wrong.
• Government monopoly is the safest way to distribute cannabis.
• Marijuana advertising should remain non-tax-deductible.
• Taxing bud or flower by THC is not realistic.
• Medical marijuana should not be tax exempt.

My friend Keith Stroup, past head of the marijuana consumer lobby NORML and still working with NORML for legalization, would not put government sales at the top of list of options for distributing marijuana. Bureaucratic inefficiency looms. Nonetheless, Keith authorized me to quote him expressing non-opposition to experimentation with the government as seller: “It is in the best interest of consumers to experiment with as many models of legalization as we can come up with so we can evaluate and see which models work best.” Continue reading “Stroup on government cannabis sales”

The marijuana community is not monolithic. The interests of consumers and industry often diverge.

My friend Jared Moffat, finishing up a stint with the Marijuana Policy Project in Rhode Island, authorized me to post this statement he had emailed me: “It’s fair to say that the medical marijuana players in the RI industry are doing little to advance legalization, and some of them are certainly obstacles because they want it done in a way that protects them/their investments. They only want to move forward if they think that’s advantageous to them. Very frustrating.” Continue reading “Marijuana Consumers vs. Industry”

Many of my friends who support marijuana legalization analytically point with satisfaction to taxes that marijuana brings in. Maybe my scheme to beat Colorado’s new marijuana producer tax procedure doesn’t work.  I don’t condone or encourage cheating — au contraire.  But I would be nervous that Colorado’s tax is beatable around the edges — not to let people pay zero tax, just to pay less than they owe.  Continue reading “Is Colorado’s new marijuana tax leaky?”

When I decided to study cannabis revenue, the most advanced thinking I could find early on was that of Dick Evans, a Northampton MA lawyer.  My first footnote in my first article , saying his website was then “probably the most comprehensive compilation of information about laws to tax marijuana” in the world, was a tip of the hat to Dick, who got me going in March 2010 by having me testify before a committee of the Massachusetts Legislature (which wasn’t much interested).

Dick has an opinion piece in the Boston Globe, and I agree with some of it – especially the last part. The title is, “On marijuana law, the Legislature is fixing something that isn’t broken.”

But here’s Dick’s conclusion:

“Allow the voter-enacted law to be implemented, tweaking it only to make up for the lost time. Let the bureaucrats do their jobs. Let people know where to file applications.

“Let’s catch up to Nevada.”

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So he’s not opposed to tweaking. And I’m with him on Nevada.  While I don’t think Dick necessarily had tax improvements and increases in mind, it’s worth noting that the Nevada Legislature took what the voters had done but then improved the tax structure: The Legislature increased the tax on medical at the pre-retail level and added a brand new recreational retail tax. Not only that, they are pioneering a new weight tax, with new categories that Colorado doesn’t have. ‪https://newrevenue.org/2017/07/02/nevadas-70-cent-per-gram-tax-on-marijuana-flower/ 

Now Nevada’s quick, if tormented, move to recreational sales (which started this month) is quicker than MA’s.  Maybe a strong tax plan is part of a sound overall plan, so NV’s success with both is part of shrewd thinking.  That’s pure speculation.

2018 UPDATE:  A.B. 420 failed to pass, and is dead for the moment.

California is considering letting individuals deduct all marijuana business expenses on California state income tax returns. The bill is A.B 420. A hearing is scheduled for July 12. http://sgf.senate.ca.gov/agenda

The real money here is in pass-through entities – S Corps, LLCs, and partnerships. These taxpayers get federal 280E treatment on California returns– they can deduct only cost of goods sold. California corporations can deduct all expenses. Here’s a long explanation of that California anomaly: https://newrevenue.org/2015/05/15/technicalities-of-california-marijuana-advertising-discrepancy/

The California Blue Ribbon Commission on marijuana legalization mentioned a possible rationale for part of California’s 280E nonconformity for individuals – as a way to limit advertising that opponents of legalization object to: Continue reading “California Marijuana Tax 280E Conformity”

Nevada taxes marijuana like Colorado, with a de facto weight tax (and a percentage-based retail tax).  Alaska taxes only by weight.  So three of the five states collecting marijuana taxes now are doing so by weighing every gram (Washington and Oregon tax only by percentage of retail price).  UPDATE:  California taxes by weight, too.  The Tax Foundation’s strange claim that taxing by anything other than price is “untenable” loses even more credibility.  After all, price taxes have almost no place in federal alcohol taxation.  States stick to volume for alcohol, too, in general.

UPDATED RATES JUNE 2018:
Nevada taxes marijuana by weight, de facto, with these categories and current rates:
Flower — 75 cents a gram
Trim — 20 cents a gram
Small bud — 50 cents a gram
Wet whole plant — 7 cents a gram.
NV taxes by the unit
immature plants ($15)
seeds (($0.90)
pre-rolls ($0.75)

Those are calculated, as described below, from this data:  https://tax.nv.gov/uploadedFiles/taxnvgov/Content/Forms/Retail-Marijuana-Fair-Market-Value-Jan-1-2018.pdf

Like Nevada, Colorado has seven categories, too.  https://newrevenue.org/2015/10/12/beyond-bud-trim/

ORIGINAL DATA:  Nevada starts with a percentage rate. Nevada’s new tax law, passed by the Legislature and effective July 1, 2017, taxes all cannabis, medical and adult-use, at “15 percent of the fair market value at wholesale of the marijuana.” https://www.leg.state.nv.us/App/NELIS/REL/79th2017/Bill/5688/Text.

That’s in addition to the 10-percent retail tax, which applies only to adult-use product, not to medical cannabis.
“The Fair Market Value at Wholesale is utilized by the Department in levying the wholesale excise tax imposed pursuant to NRS 453D.500 on the sale of marijuana by a marijuana cultivation facility.” https://tax.nv.gov/uploadedFiles/taxnvgov/Content/FAQs/Fair%20Market%20Value%20at%20Wholesale_July_1_2017.pdf

“The Department determined that the excise tax upon wholesale sales of retail marijuana can effectively be levied upon seven product categories:
1. Flower
2. Small Bud
3. Trim
4. Wet Whole Plants
5. Immature Plants
6. Pre-Rolls
7. Seeds.”

The prices to be multiplied by the 15-percent rate include $2,145 per pound for flower and $631 per pound for trim. So the tax per gram is 70 cents for flower and 21 cents for trim.  (The per-pound tax, at 15 percent of $2,145, is $321.75, and there are some 453 grams in a pound.)  The chart, with several more categories, is at https://tax.nv.gov/uploadedFiles/taxnvgov/Content/FAQs/Fair%20Market%20Value%20at%20Wholesale_July_1_2017.pdf.  NOTE:  Those per-pound rates have been updated:  https://tax.nv.gov/uploadedFiles/taxnvgov/Content/Forms/Retail-Marijuana-Fair-Market-Value-Jan-1-2018.pdf  Continue reading “Nevada’s 70-cent per gram tax on marijuana flower”

Oregon economist Beau Whitney’s early 2017 document, “Cannabis Employment Estimates” for the Oregon House Committee on Economic Development and Trade, is public, Continue reading “Oregon marijuana data from Beau Whitney”

My friend Jon Caulkins has a useful and thoughtful article on marijuana taxation here. Jon and I were among the co-authors of the RAND Report, “Considering Marijuana Legalization: Insights for Vermont and Other Jurisdictions.”  I don’t agree with all of Jon’s new article, but I agree with a lot.  (Some of it is line with my recent article in thehill.com.)

Here are some excerpts from Jon’s article:

“Marijuana prohibition is tottering, and procrastinating on doing the hard work of thinking through tax principles will more or less ensure a bad replacement.”

“The states leading the legalization charge have enacted primitive taxes that will fail as marijuana prices fall because they are computed as a percentage of value.” Continue reading “Caulkins on marijuana taxes”