MPP Rhode Island Report

I can’t find the 2018 Marijuana Policy Project report for Rhode Island on the web, so here it is:  2018 mpp report regulation-report.

Here is an excerpt:

price-based taxes suffer from two problems. First, the price of legal marijuana will likely continue to fall as the market becomes more efficient and production costs decline. Revenue from a price-based tax will thus fluctuate with price, meaning that it will likely decline over time. If states are looking to marijuana taxes for a consistent revenue stream to fund other programs, taxing the price of marijuana is not necessarily a dependable way to do that. The second problem Oglesby identifies is “phony pricing,” such as product bundling. Product bundling could, for example, involve a retailer selling a marijuana pipe for much more than it’s worth and including marijuana as a free “gift” alongside, effectively avoiding the marijuana tax. He warns that states with price-based taxes should be sure to include language in their legalization law that prohibits this kind of tax evasion. Price-based taxes are also vulnerable to other tactics (some of them legitimate) such as employee discounts and quantity discounts. Continue reading MPP Rhode Island Report

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Taxing by price ≠ Taxing by potency

A criticism of taxing marijuana by weight is that it should incentivize more potent product, while a price-based tax should not.  Critics have suggested that customers will pay much more for an ounce of potent product – which would bear the same tax as a weak ounce.  Taxing by price, they say, will avoid that incentive.

But new data shows that  potency and price are not tightly related.

Dr. Caroline Weber of the University of Washington sent me this chart:  https://newtax.files.wordpress.com/2018/11/table_for_pat_oglesby.pdf.  It comes from her and from two University of Oregon economists, Ben Hansen and Keaton Miller, and considers about 60 million retail transactions.

If price followed potency directly, if a gram of 10-percent THC cannabis sells for $7, a gram of 15-percent THC cannabis would sell for $10.50 = $7 (15/10).

But in fact, in those 60 million transactions, a shift between 10 and 15 percent potency typically increases the price of a gram by much less than the 50 percent increase in potency.

In Table 1, the regression coefficient of THC concentration for the tax-inclusive price of cannabis in Washington State is 0.188, if I have the terminology right.

Using Table 1: If a gram of 10-percent THC cannabis sells for $7, a gram of 15-percent THC cannabis would sell for $7.94 = $7 + ((15 – 10) 0.188).

Meanwhile, using Table 2: If THC increases by one percentage point, price increases by 2.05 percent. So if a gram of 10-percent THC cannabis sells for $7, a gram of 15-percent THC cannabis would sell for $7.75 = $7 X (1.0205 to the 5th power)).

Now the sophisticated weight-based schemes in place in Alaska, California, Colorado, Maine, and Nevada, all tax multiple categories of product to tax.  Potent bud is typically taxed at about three times the rate per ounce used for less potent bud.  These weight based taxes may reflect potency better than price-based taxes.

In any event, price is not a very good proxy for potency.

 

Official 280E revenue cost — $5 billion over 10 years

Click on 370531229-Senator-Gardner-280E-Score-12-04-2017 for a letter from Joint Tax Deputy Chief of Staff Robert P. Harvey to Senator Cory Gardner (R-CO) indicating that repeal of the section 280E limitation on tax deductions for state-legal marijuana sellers would cost $5 billion over 10 years.  That letter, dated December 1, went out before Massachusetts voted to legalize.  The estimate could go up over time.

I do a speculative analysis, independent of the Joint Tax analysis, at https://newrevenue.org/2017/02/02/5119/.

Price doesn’t follow THC content closely

Dr. Caroline Weber of the University of Washington sent me this chart:  table_for_pat_oglesby.  It comes from her and from two University of Oregon economists, Ben Hansen and Keaton Miller, and considers about 60 million retail transactions.

The regression coefficient of THC concentration for the tax-inclusive price of cannabis in Washington State is 0.188, if I have the terminology right.

A shift between 10 and 20 percent potency would only increase the price of a gram by much less than a doubling.

Maine’s weight-based marijuana taxes

Here are Maine’s marijuana producer tax rates, in addition to its 10 percent retail tax.  The Legislature overrode the price-based producer taxes that the voter initiative contained:

  • $335 per pound of marijuana flower or mature marijuana plants;
  • $94 per pound of marijuana trim;
  • $1.50 per immature marijuana plant or seedling; and
  • $0.30 per marijuana seed.

http://news.cchgroup.com/2018/05/07/maine-enacts-marijuana-taxes/

 

 

Weak correlation between THC concentration and cannabis price

I’m posting a table covering cannabis sales in Washington that was prepared by Ben Hansen, Keaton Miller, and Caroline Weber – academic economists out west, the first two authors at the University of Oregon, the last at the University of Washington.  They authorized me to share it.  Click here:  table_for_pat_oglesby

The table shows only a small correlation, 0.188, between (reported or claimed) THC concentration and price per gram, so it seems to chip away at the claim that a price tax base is a pretty good proxy for a THC tax.

The research considers about 60 million retail transactions.

If price followed potency directly, if a gram of 10-percent THC cannabis sells for $7, a gram of 15-percent THC cannabis would sell for $10.50 = $7 (15/10).

But in fact, in those 60 million transactions, a shift between 10 and 15 percent potency typically increases the price of a gram by much less than the 50 percent increase in potency.

In Table 1, the regression coefficient of THC concentration for the tax-inclusive price of cannabis in Washington State is 0.188, if I have the terminology right.

Using Table 1: If a gram of 10-percent THC cannabis sells for $7, a gram of 15-percent THC cannabis would sell for $7.94 = $7 + ((15 – 10) 0.188).

Meanwhile, using Table 2: If THC increases by one percentage point, price increases by 2.05 percent. So if a gram of 10-percent THC cannabis sells for $7, a gram of 15-percent THC cannabis would sell for $7.75 = $7 X (1.0205 to the 5th power).

So upon a 50-percent increase in potency, instead of a 50-percent increase in price from $7 to $10.50, the expected price is less than $8.  The price increase is less than 14 percent.

Now the sophisticated weight-based schemes in place in Alaska, California, Colorado, Maine, and Nevada, all tax multiple categories of product.  Potent bud is typically taxed at about three times the rate per ounce used for less potent bud.  California’s tax for flower is $9.25 per ounce; for leaves or trim, it’s $2.75.

In any event, price is not a very good proxy for potency.  Those weight-based taxes may well correlate with potency better than price-based taxes do.