The Federal Shake-Up of America’s Marijuana Taxes

Abstract

Marijuana taxation is here to stay. The evergreen issues for states, before federal complications, are how much, how, and where to tax marijuana. But federal legalization could create a new, competing federal tax and eliminate the controversial section 280E selling expense tax, to which many states conform. Any federal cannabis tax changes would jolt state tax regimes, as would opening state markets to interstate commerce. Taxes in Alaska, California, Colorado, Illinois, Maine, and Nevada are particularly vulnerable to a federal shock. Ahead lies uncharted territory. Cannabis tax experiments in the laboratories of the republic and the world are playing out, including using THC as a tax base.

Keywords: Marijuana, cannabis, tax, ad valorem, THC, federal

JEL Classification: H21, H23, H25, H26