Building a Better Marijuana Tax
Drug Enforcement and Policy Center, Student Paper Series No. 23, September 2020
13 Pages Posted: 4 Sep 2020
Date Written: August 31, 2020
Eleven states and the District of Columbia have passed legislation legalizing adult possession and use of marijuana. Of those twelve jurisdictions, only eight of those jurisdictions have active markets where the substance can be legally bought and sold, and each imposes a different taxation scheme on the flow of marijuana goods in the marketplace. This paper analyzes each tax base and then proposes a bifurcated recreational marijuana tax scheme for states that are currently thinking about legalization: (i) tax flower, bud, and trim based on weight; and (ii) tax concentrates, edibles, oils, and other “distilled” marijuana products based on potency, currently measured by THC content. The idea behind taxing by potency is two-fold: first, the state may pursue public health goals by nudging consumers away from high-potency forms of marijuana – and prevent producers from gravitating even more strongly toward high-potency goods; second, taxing by potency may help normalize the recreational use of marijuana by encouraging society to treat marijuana more like other legal drugs such as alcohol and cigarettes. While no tax scheme is perfect, a hybrid weight/potency base combined with a sunset provision to allow further research on the area appears to be the ideal way to regulate marijuana at this moment in time.
Keywords: marijuana tax policy, potency, excise tax, recreational cannabis, THC content
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