Tuesday, April 15, 2014

Pat Oglesby's new paper: "The Ace in the Game: Revenue from Legalized Marijuana"

The title of this post is the title of Pat Oglesby's latest paper which, as always, is a must read for anyone who follows these issues.  The paper is part of the program for the upcoming International Society for the Study of Drug Policy conference in Rome (which looks fantastic and which I'm very sad I won't be able toattend.)

Ogleby's paper, available at his blog, serves as a great guide to a range of options and issues related to taxing marijuana.  Here is the abstract: 

After marijuana is legalized, the costs of producing and selling it will collapse. A windfall economic gain will be up for grabs. Policymakers might allow that gain to go to consumers (encouraging use) or to cannabusinesses (encouraging production). Or, through revenue measures, they might direct the gain to elsewhere, or to society as a whole. New revenue for government does not justify legalization of marijuana. New revenue may not cover the costs that legalization creates, and a revenue stream gives government a permanent stake in intoxication. Revenue is only one card in a large deck of drug policy options. But it is the most powerful card.


How to play it? The safest, correctable way to distribute an intoxicant is government monopoly, Uruguay style. Retail-only monopoly can match or beat bootleggers’ wares. But monopoly breeds cronyism and corruption, unless power is spread around and transparent. In the United States, states might need to tweak the monopoly model to keep state control over location and price while assigning sales concessions to businesses.


A riskier plan is taxed commercial distribution, Colorado and Washington style. In the inevitable price war, bootleggers will act in a New York minute; Legislatures will not. That is a handicap. And no tax is perfect. Taxing by THC potency is theoretically appealing, but unworkable. A price tax base has several pitfalls. Even a weight base is problematic.


Three other models are possible: auctioning licenses, collective farming, and sales by non- profits.


Since no one really knows how to legalize, flexibility to change course is of the utmost importance. 


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