Marijuana has been in the decriminalization process since 1973 with many states over the years passing laws to either authorize the use of marijuana or prohibit it. It is time to stop treating marijuana like a deadly drug, when science and public opinion agree that it is relatively safe for adult recreational and medical use. With recreational and medical marijuana on the verge of nationwide legalization, marijuana growers and dispensaries are popping up everywhere.
Cannabis Industrial Marketplace is your equipment & supply information hub, aiding you with knowledge about growing and cultivation equipment, dispensary supplies and everything in between. Equipping you with up to date news about upcoming elections, tips on marketing, and specific state laws.
When the government starts taxing stuff, it tends to start out simply.
Take alcohol: The first liquor taxes in Colonial America were flat license fees for producers. Then came taxes based on the capacity of stills, or the number of gallons a distillery could theoretically produce. Before long, however, those primitive “capacity” taxes were replaced by taxes on gallons actually produced. Those gallonage taxes were then replaced by taxes on actual alcohol content. Stronger booze meant higher taxes.
At each turn, sophistication replaced simplicity. Today, a similar evolution is playing out with cannabis taxes.
Like it or not, most voters—not to mention politicians—like cannabis taxes better than they like cannabis itself. Cannabis consumers supposedly make up only about 20% of the public in fully legal states. The other 80% are bystanders, wondering, in the American capitalist way, “What’s in it for me?”
Not convinced? Consider this: Initiatives to legalize and tax cannabis tend to max out at around 57% of the vote, if they pass at all. Standalone cannabis tax initiatives, meanwhile, routinely get 75% to 80%. And no state has legalized commercial sale of nonmedical cannabis without taxing it.
In a sense, taxes have been the engine that helps pull legalization along. Systems that don’t work can hurt the cause. But taxes that are reliable, administrable, and difficult to game can offer the public a fair deal—and even give legalization a boost.
Yes, taxes can get too high to beat out the illicit market. But before you can decide how much to tax, you first have to decide how to tax. The top three options: price, pounds, and potency.
As with alcohol, the earliest states to legalize and tax cannabis, Colorado and Washington, tried to keep it simple. They taxed by percentage of price. Colorado taxed at 15% of wholesale price and 10% (now 15%) of retail. Washington started with cascading 25% taxes on separate layers of the industry, then consolidated them into a single 37% retail tax with the same overall tax burden.
The cannabis industry, unsurprisingly, hates cannabis taxes. But if forced to choose, most businesses would likely pick taxes based on price. So would the tax-averse “liberty movement.” Why? Because price-based taxes have consistently gone down over time as prices fell.
Here’s what happens: In the early days of legalization, prices are high because licenses are scarce and few businesses are open. (Don’t blame taxes when people are standing in line to buy taxed product.) Eventually, those prices collapse—or at least they have in every state so far. And when the price of cannabis goes down, a percentage tax goes down with it. When ounces in Oregon sold for $200, Oregon’s effective 20% tax brought in $40 an ounce. Now that ounces are selling for around $40, the public gets only $8 an ounce. The revenue the public was counting on melts away.
Price-based taxes are also gameable, for example by retailers offering discounts to industry members, relatives, or loyal customers. When those prices go down, so too does the amount the public gets.
When taxes come in low, prohibitionists get excited: “Marijuana legalization,” they argue, “is not worth the cost.” On top of that, my public health friends worry that too-low prices make cannabis too tempting for both children and the minority of consumers who overdo it.
Consumers may not care. “Cheap weed is great,” you might say. “Your public health cronies can go pound sand! And who cares about the public?”
Well, the public was, is, and will be part of the deal (at least until industry lobbying money pushes the public aside). And most states allow local jurisdictions to ban cannabis businesses. Choosing better ways of taxing cannabis can help keep the public satisfied and supportive of legalization even as prices inevitably go down.
In the 19th century, Colonial British India led the way by taxing intoxicating cannabis by weight. Products were ordinarily split into different grades and potencies—including bhang, charas, and four categories of ganja—and different weight-based tax rates applied to each. Rates ranged from 9 rupees per “sér” (933 grams) on chur ganja to one-half rupee per sér on bhang.
This article was first published on https://www.cannabisimp.com.