Supporting Marijuana Tax Cut

I support a lot of marijuana taxes, even the wildly unpopular 280E Selling Expense Tax, because it favors small business over  Big Marijuana, and it keeps the noise down some so as not to irritate fence-sitters on legalization, as explained here: https://newrevenue.org/2021/04/15/280e-is-a-bastard-so-what/.

But pre-consumer taxes in subordinate jurisdictions don’t make sense to me, so when I read that Humboldt County was reconsidering that kind of tax, I puffed myself up and intruded with this email:

Dear Members of the Humboldt County Board of Supervisors:

While I do not belong to your community, I had a delightful visit to Humboldt County in 2015 when I was on then-Lieutenant Governor Newsom’s Blue Ribbon Commission on Marijuana Legalization, and enjoyed meeting lots of people there then.  I was co-chair of the Regulatory and Tax Structure Working Group of the Commission, and have consulted on tax policy for various governments.

I don’t envy you your task.  I write to you from Theoryland, without a sense of the facts on the ground, but with some analogies to provide.

It’s natural to want to put a local tax on marijuana growers, but conditions conspire against that tax, and against amy tax imposed by a “subordinate jurisdiction” on production of a good that faces competition from producers in other jurisdictions.  Examples of a subordinate jurisdiction are a state in a nation with legalized tobacco and a county in a state with legalized marijuana.  

So my state of North Carolina has tobacco farmers and tobacco manufacturing, but we don’t put any special tax on them.  We understand, for instance, that our farmers have competition in Kentucky, and our manufacturers have competitors in Virginia, and those states don’t tax our people’s competitors.  We can deplore this race to the bottom, but there is.  Now a state-wide California tax on square footage of cannabis grow area could be as workable as any other state tax, but a county tax on square footage of cannabis grow area is hard to sustain.  Here is a more detailed explanation:  http://thehill.com/opinion/finance/372396-how-tax-competition-can-threaten-marijuana-revenue

Allegations of problems with cannabis aim at its consumption, which some say causes negative externalities.  Production is not a big source of negative externalities.  There may be perceived negative externalities from growing rather than consumption beyond odor, but odor is the one externality where taxes rather than regulations might need to be relied on.  (Environmental impacts seem easier to handle with regulations rather than with taxation.)  And the negative externality of odor seems trivial, if it’s a problem at all.

How you make your budget work in light of these conditions, I don’t know, but I wish you the best.  I see only one piece of the puzzle.  Please take this for what it’s worth.  And please contact me if I may be of any help.

Patrick Oglesby, MBA, JD

Attorney at Law

po@newrevenue.orgThe Center for New RevenueWww.newrevenue.orgLandline 919 967 1982Cell 919 619 8838  1830 North Lakeshore Drive
Chapel Hill NC 27514-6733 USACV at 

+++ Photo from 2015 Humboldt trip, not included in email:

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Cannabis Tax Policy Webinar Video and Transcript

The Ohio State University’s Drug Education and Policy Center and and the Center for New Revenue sponsored a webinar January 26 on marijuana tax policy.

My co-panelists were Ulrik Boesen of the D.C. think tank Tax Foundation, Tax Professor Ben Leff of American University Law School, and prominent California cannabis lawyer Hilary Bricken.  Shaleen Title of the Parabola Center moderated.

A video link to youtube is

Here’s a searchable transcript, uncorrected and without slides or polling, from

Solving the Cannabis Tax Puzzle: Approaches for an

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Marijuana tax policy webinar, January 26 at noon Eastern

My friend, Center for New Revenue board member, and law professor Doug Berman of the Ohio State University heads up the Drug Education and Policy Center there. That Center and the Center for New Revenue are sponsoring a webinar Wednesday, January 26 at noon Eastern time – on marijuana tax policy.

My co-panelists are Ulrik Boesen of the D.C. think tank Tax Foundation, Tax Professor Ben Leff of American University Law School, and prominent California cannabis lawyer Hilary Bricken.  Shaleen Title of the Parabola Center will moderate.

More info is here https://moritzlaw.osu.edu/solving-cannabis-tax-puzzle-approaches-emergent-industry?utm_campaign=law_marketing-activity_fy22&utm_content=1638540324&utm_medium=social&utm_source=twitter

Registration is required, and to the right of that page.

Candidate questionnaire draft

Having given money to Democratic candidates in the past, I’ve been getting calls from candidates asking for my support.

I’m working up a questionnaire to see whom to support; here’s a draft. There will be more questions; suggestions welcomed.

Do you support taking away the carried interest tax advantage for hedge fund operators?

Do you support increasing the federal estate tax?

Do you support eliminating planning opportunities that allow avoidance of the federal estate tax?

Do you propose to let marijuana companies start deducting their advertising and marketing expenses on either federal and North Carolina tax returns?  That is, would you take away the 280E Selling Expense Tax on the books now? 

Do you support government rather than for-profit private marijuana retailing in North Carolina?

My own answers would be yes to all questions except the fourth one about 280E.  

Remembering Bob Dole

I was a big fan of Bob Dole when I worked for Congressional tax-writing committees in the 1980s.  He chaired the Senate Finance Committee until he became Majority Leader, and he stayed on the committee.  He was a statesman in his own way, and funny.  After Dole died, Al Franken started claiming to be the funniest living ex-Senator.

Here’s some marijuana tax trivia.  Bob Dole inserted the 280E Selling Expense Tax into the tax law in 1982 when he was Senate Finance Committee chair.  I was on the staff of the Joint Committee on Taxation then, and must have known about 280E back then, because the staff had proofed the technical explanation of the entire bill during Congressional downtime for staff, but I didn’t work on it.

Dole got the idea from Senator Bill Armstrong (R-CO) who was on the Finance Committee.  Armstrong was a pretty shrewd operator.  He was described by Dole as the “the father of tax indexing” – a change called the most dramatic tax law development in a generation by Ken Kies on the right and Jim Wetzler on the left.  So that makes Armstrong a key figure in tax policy.  280E is hated by the marijuana industry, but by making advertising and marketing non-deductible, 280E keeps the noise down.  

New leader in tax-haters’ contest

A new marijuana legalization bill by freshman Republican U.S. House Member Nancy Mace of South Carolina imposes a tiny three- percent ad valorem tax on the drug, which is not enough to offset the disappearance of the current 280E Selling Expense Tax (which applies only to federally illegal drugs).

To prove how anti-tax she is, the bill adds a “Moratorium” – no increase in that tiny tax for 10 years, unless three-quarters of each House agrees to an increase.  Now that moratorium can be rescinded by a simple majority Act of Congress at any time:  One Congress cannot bind another.  Still the filibuster (requiring 60 Senate votes) could be repealed by a simple majority Act of Congress at any time, but that time has not come.  I know of no current rule tying Congress’s hands on taxes.

In any event, if you’re looking for anti-tax sentiment, the Mace bill tops the list.

Identify Stoned Drivers

Testing drivers for cannabis impairment is something I’ve been thinking about just a little with legalizers in North Carolina and California.  Some of this thinking is theirs.

One argument prohibitionists use against legalization of marijuana is that stoned drivers are a menace to everyone on the streets and roads.  Marijuana is much less impairing than alcohol, but stoned driving worries people.

Figuring out which cannabis-consuming drivers make the roads unsafe is hard.  With alcohol, breath and blood tests produce numerical results that allow “per se” determinations of intoxication:  if the amount of alcohol in a driver’s system reaches .08 percent, or some bright-line numerical threshold, they’re guilty.

Finding a bright-line threshold for marijuana seemed like a way to find stoned drivers.  Colorado, for instance, started out saying that 5 nanoliters per (milliliter?) of some THC chemical in blood were per se evidence of intoxicated driving.  That was a political bone thrown to folks worried about the issue so as to get legalization passed.

Impaired driving is a battle NC NORML is fighting here, so they propose a five-minute roadside test for impairment, not involving bodily fluids.  

To expand on that:  Maybe some jurisdiction will say, “No conviction for cannabis-impaired driving without video evidence.”  No video, no probable cause, no search, no arrest, no nothing.  

The discussion below aims at that result.

If setting a bright line number of minutes (say five) the police can acquire roadside behavioral evidence of intoxication is worth pursuing, how might a five-minute rule interact with blood, oral fluid, or breath tests that detect active THC? (We can test hair and urine to show use, but they don’t show intoxication.  they only detect non-psychoactive metabolites which don’t affect driving.  Only blood, oral fluid, or breath tests detect active THC. o one even supposes a hair test shows intoxication.)

No conviction without failing both tests?  (Presumably failing video-recorded the roadside behavioral test is ultimately a jury question – does the community think this person is impaired?  Jury questions usually get plea-bargained away these days.)  But what if someone shows no THC or alcohol or anything in bodily fluids or breath but does terribly on the behavioral test?

Anyway, if failure on both tests is required for a conviction, what’s the order of testing?

1.  Police administer blood, oral fluid, or breath test and then, if it shows (enough?) THC have a go at the roadside behavioral test?  How quickly do results come back from the tests?

Or 

2. Police administer a roadside behavioral test and if police say the suspect failed, then administer a blood, oral fluid, or breath test?  And when the police say the driver failed the behavioral test, who oversees the police’s determination?  A magistrate eventually?  A magistrate on Zoom immediately?  A jury (or prosecutor evaluating the case to present to a jury)?

Not my field . . . 

Regulatory Capture: Friend or Foe?

I wonder what free market conservatives think of the regulatory capture in North Carolina SB711:  New N.C.G.S. section 90-113.122 would say the Medical Cannabis Production Commission is to have two industry representatives among its 11 members. 

Is that bad, because regulatory capture is bad, or good, because regulation is bad, so weakening it is good?

Marijuana policy reading

Drafting a pamphlet: “What North Carolinians Need To Know About Marijuana Money.” Here’s what I’m thinking for background reading references:  

For marijuana issues generally, I don’t know a better place to start than Mark Kleiman’s Marijuana Legalization:  What Everyone Needs to Know (2d ed. 2016, with Caulkins and Kilmer, under $20), which inspired the title here.  A more technical 2015 analysis by Kleiman and others for the State of Vermont is in the public domain at https://www.rand.org/pubs/research_reports/RR864.html.

Kleiman’s work is a little dated; a recent multi-author issue of the B.U. Law Review provides a good update in the public domain. https://www.bu.edu/bulawreview/2021/07/14/volume-101-number-3-may-2021/.

For an ideological prohibitionist view, the group Smart Approaches to Marijuana, https://learnaboutsam.org, provides online material and offers a book for sale.  

An anti-prohibition view is thought through in a free online book by the U.K. Transform Drugs Foundation: https://transformdrugs.org/publications/how-to-regulate-cannabis-a-practical-guide

Ad valorem excise taxes are not the way to go for marijuana. 

Ad valorem excise taxes are not the way to go for marijuana.  Ideological adversaries agree on that, if on little else!  The left-leaning Institute for Taxation and Economic Policy warned, in a detailed report, that ad valorem price-based “ad valorem” taxes on marijuana are a recipe for trouble when prices go down – as they do in every jurisdiction where legalization takes hold. https://itep.org/taxing-cannabis/  

More recently, the right-leaning Tax Foundation has joined the warning:  “states risk losing out on forecasted revenue if prices continue to go down.” https://taxfoundation.org/safe-banking-act-state-marijuana-revenues/

We needn’t use ad valorem taxes at all for marijuana.  The bill phases ad valorem taxes out, but keeps them too long, then compounds the error by de facto freezing them.  

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Tax on Intoxicating Liquor, Joint Hearings Before the Committee on Ways and Means, House of Representatives and the Committee on Finance, United States Senate, 73d Congress, Interim, 1st and 2d Sessions, Dec. 11-14, 1933

Hold Hearings before legalizaing marijuana federally

Here’s one of my messages to sponsors of federal marijuana legalization bill:

Dear Senators and Staffers,

On the joint Congressional Committee that devoted four full days of public hearings to liquor taxes alone in December 1933 were a future Supreme Court Justice (Vinson), a future Speaker of the House (McCormack), and a future Vice President (Barkley).  That kind of work might well help Congress today.  The 1933 hearings were hardly a political graveyard for those who took time to listen and study tricky issues.

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Technical tax comment on federal marijuana bill

Comment on the Cannabis Administration and Opportunity Act draft submitted to the Act’s authors:

I don’t understand what (B) is doing in new 26 U.S.C. 5902(a)(2).  

‘‘(2) THC-MEASURABLE CANNABIS PRODUCT.—

The term ‘THC-measurable cannabis product’ means any cannabis product—

‘‘(A) with respect to which the Secretary has made a determination that the amount of tetrahydrocannabinol in such product (or any particular category of products which includes such product) can be measured with a reasonable degree of accuracy—

 ‘‘(i) consistent with good commercial practice, and

 ‘‘(ii) sufficient to protect the revenue and the public, or

 ‘‘(B) which is not cannabis flower and the concentration of tetrahydrocannabinol in which
is significantly higher than the average such concentration in cannabis flower.

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Confusing definitions of cannabis and cannabis product in federal legalization bill

Definitions of cannabis and cannabis product — submitted to U.S. Senate Finance Committee, which accepts comment on a draft bill at Cannabis_Reform@finance.senate.gov. https://www.democrats.senate.gov/imo/media/doc/CAOA%20Detailed%20Summary%20-.pdf

Summary:

Something “derived” from the plant is a product taxable by THC content, while a “derivative” of the plant is not a cannabis product, but simply cannabis not taxable by THC content.  That confuses me.

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The profit motive and medical marijuana in North Carolina

Here are comments on North Carolina SB711 sent to Senators on the Health Committee.

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John D. Rockefeller, Jr., was a Baptist teetotaler who opposed alcohol and a Republican businessman who liked the profit motive.  When prohibition was repealed in 1933, Rockefeller didn’t want profit-maximizers retailing liquor.  For health and temperance, he said, let the states themselves sell liquor—and that’s the North Carolina way.  

This bill would let just 10 big companies sell medical cannabis.  If the recreational kind is legalized, those companies will say, “Hooray,” and line up to control the recreational market.  That’s the profit motive.

There’s a more restrictive way than SB711, proven in Canada: Sell medical cannabis only through government retailers—online only, delivered to the patient’s door.  No glitzy storefronts, no marketing to tempt the weak.  No lawsuits claiming cartoons and advertising are protected free speech under the North Carolina Constitution.

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