Thursday, June 10, 2021
In this prior post, I flagged of this recent report and accounting from folks at the Marijuana Policy Project titled "Marijuana Tax Revenue in States that Regulate Marijuana for Adult Use." While that report focused on cumulative tax revenue in various states, this recent MJBiz Daily article, headlined "Marijuana legalization efforts get boost from billions in MJ tax dollars," drills into some more tax specifics while also discussing the MPP report. I recommend the piece in full, and here are excerpts:
Adult-use marijuana programs are generating billions of dollars in tax revenues for state governments each year – bolstering the economic and equity case for legalization in other markets across the country as well as at the federal level. The economic argument might particularly resonate among reluctant Republican lawmakers on Capitol Hill, experts say....MPP’s tax revenue report comes as the organization is involved in adult-use legalization advocacy efforts in Connecticut, Delaware and Rhode Island – and in the wake of successful recreational marijuana legalization across the country in the past few months from New York to New Mexico. Maryland is on MPP’s radar for next year ... as are potentially several other states....
Social equity and racial justice issues have become critical pieces in adult-use legalization negotiations, and tax revenues are important because they help fund those programs. In New York, state tax revenues will be directed toward community reinvestment grants (40%), public schools (20%) and drug-treatment and public-health programs (40%).
Other states also are using portions of the tax revenues for such areas as childcare services (California), conservation (Montana), environment (California), law enforcement (Oregon and Maine), mental-health services (Illinois), public transportation (Michigan) and reentry programs for those imprisoned with drug convictions (Alaska)....
The report doesn’t detail the hundreds of thousands of dollars of revenue generated for cities and towns from local cannabis taxes or the various economic development impacts such as job creation. But other studies have. The newly published MJBizFactbook, for example, estimates that the total U.S. economic impact from marijuana sales in 2021 is expected to reach $92 billion – up more than 30% from last year – and upwards of $160 billion in 2025.
Friday, May 28, 2021
The title of this post is the title of this notable new report and accounting from folks at the Marijuana Policy Project. Here is how it gets started (with my highlight):
Legalizing marijuana for adults has been a wise investment. Since 2014 when sales began in Colorado and Washington, legalization policies have provided states a new revenue stream to bolster budgets and fund important services and programs. As of May 2021, states reported a combined total of $7.9 billion in tax revenue from legal, adult-use marijuana sales. In addition to revenue generated for statewide budgets, cities and towns have also generated hundreds of thousands of dollars in new revenue from local adult-use cannabis taxes.
Eighteen states have enacted laws legalizing, taxing, and regulating cannabis for adults 21 and older. Eight of the laws passed in 2020 or 2021, and in seven of those states, licensing and tax collections have not yet begun. This document reviews each state’s adult-use cannabis tax structure, population, and revenue from legalization. It does not include medical cannabis tax revenue, application and licensing fees paid by cannabis businesses, additional income taxes generated by workers in the cannabis industry, or corporate taxes paid to the federal government.
The report provides a helpful overview of all the basic tax structures in place for adult-use marijuana as of May 2021, as well as reports on total collections in these states to date. Notably, while Colorado is often thought about as the first legalization state and California is rightly seen as the biggest legalization state, this report details that Washington is as of now the richest state in tax revenues with over $2.5 billion collected. (But California's tax revenue in 2020 was nearly twice that of Washington's according to this report, so by 2022 we should expect the Golden State to have collected the most tax gold from adult-use marijuana legalization.)
May 28, 2021 in Business laws and regulatory issues, History of Marijuana Laws in the United States, Recreational Marijuana Data and Research, Recreational Marijuana State Laws and Reforms, Taxation information and issues | Permalink | Comments (0)
Monday, May 10, 2021
I was very pleased to have received the following guest post content from Professor Andrew D. Appleby of Stetson University College of Law:
Although the recreational marijuana movement has gained momentum at the state level, several states may be unable to legalize recreational marijuana because of tax limitations in their state constitutions. A primary motivation for legalization is increased tax revenue, and every state that has legalized recreational marijuana also taxes it. Many states, however, have broad constitutional provisions designed to make tax increases more difficult, most notably provisions that require supermajority approval to create or increase any tax. There appears to be a third wave of these tax supermajority provisions proliferating. Florida voters approved a constitutional provision in 2018 and several other states, including New York in 2021, have considered supermajority approval provisions. These provisions have several unintended consequences, as discussed in my forthcoming article, "Designing the Tax Supermajority Requirement."
These provisions impact recreational marijuana in several ways. Most state tax supermajority provisions apply only to the legislative process, so many states are forced to use the voter approval process for marijuana legalization efforts. Prior to 2021, only two states had legalized recreational marijuana through the legislative process. Neither state has a tax supermajority requirement, and neither state would have satisfied the requirement. Vermont was unable to include a tax provision in its initial legalization bill and needed to enact a separate tax statute two years later. Three states legalized recreational marijuana through the legislative process in 2021. None of the legislation passed with two-thirds supermajority approval.
Recreational marijuana is still divisive in many states for many reasons, particularly as it remains illegal federally, so achieving supermajority approval is difficult. Even in politically liberal states, recreational marijuana legalization voter initiatives have passed by narrow margins. In the 2016 election year, for example, the Massachusetts initiative passed with 53% of the vote and the California initiative garnered only 57% approval. Four states legalized recreational marijuana through ballot initiatives in 2020. Only New Jersey achieved supermajority approval, and just barely, with 67% voting in favor. South Dakota, which has a tax supermajority provision and “one subject” provision in its constitution, had its legalization initiative declared unconstitutional, with the South Dakota Supreme Court currently considering the appeal.
Florida is also grappling with constitutional hurdles in its marijuana legalization efforts, as the Florida Supreme Court struck down a proposed ballot measure because of misleading language. Even if the measure were to appear on the ballot, Florida has an additional tax supermajority provision that requires two-thirds supermajority approval for voters to amend the constitution to create or increase a tax. The experiences in South Dakota and Florida illustrate how tax supermajority provisions have the unintended consequence of impeding recreational marijuana efforts.
May 10, 2021 in Business laws and regulatory issues, Political perspective on reforms, Recreational Marijuana Commentary and Debate, Taxation information and issues , Who decides | Permalink | Comments (1)
Thursday, March 25, 2021
I have been recently thinking about metrics used to assess marijuana reform, and this recent post at the Just Taxes blog from the Institute on Taxation and Economic Policy flags a new benchmark in a notable metric. The piece by Carl is titled "State and Local Cannabis Tax Revenue Jumps 58%, Surpassing $3 Billion in 2020," and here are excerpts:
Cannabis taxes are a small part of state and local budgets, clocking in at less than 2 percent of tax revenue in the states with legal adult-use sales. But they’re also one of states’ fastest-growing revenue sources.
Powered by an expanding legal market and a pandemic-driven boost in cannabis use, excise and sales taxes on cannabis jumped by more than $1 billion in 2020, or 58 percent, compared to a year earlier. In total, these taxes raised more than $3 billion last year, including $1 billion in California alone. These are the findings of an ITEP analysis of newly released tax revenue data from the 10 states where legal sales of adult–use cannabis took place last year.
About a third (36 percent) of the nation’s cannabis tax revenue growth occurred in California as the state’s relatively new adult-use market continued to gain its footing after a somewhat sluggish start. The next most significant source of new revenue was Illinois, which started legal retail cannabis sales on Jan. 1, 2020.
States with more established markets such as Washington, Colorado, Oregon, and Alaska also saw significant growth in revenue, likely driven in part by an increase in cannabis use during a time of stay-at-home orders and self-quarantining. The slowest year-over-year growth, by contrast, occurred in Nevada as would-be tourists wary of COVID steered clear of Las Vegas. Nevada’s economy and state budget have been among the hardest hit in the nation during the pandemic. Even so, Nevada’s cannabis tax revenues rose 14 percent compared to a year earlier.
While the pandemic has taken a significant toll on state and local budgets overall, its impact on cannabis taxes (and alcohol taxes, for that matter) appears to have mostly been a positive one. Total excise and sales tax revenue from cannabis during the first six months of the pandemic (March through August 2020) shot up by 44 percent compared to the previous six-month period. That’s compared to 17 percent growth in the six months prior. The spike in revenue is clearly visible in the figure below. Notably, it occurred not just in the states with new markets like Illinois and Michigan where rapid growth would have been expected even under normal circumstances, but also across the five states with more established legal markets that launched between 2014 and 2017.
March 25, 2021 in History of Marijuana Laws in the United States, Medical Marijuana Data and Research, Recreational Marijuana Data and Research, Taxation information and issues | Permalink | Comments (0)
Tuesday, December 15, 2020
The title of this post is the title of this recent article authored by Erik M. Jensen that I just saw on SSRN. Here is its abstract:
Quite a few judicial opinions in recent years have discussed the constitutionality of Internal Revenue Code section 280E, which denies income-tax deductions and credits to taxpayers for any trade or business that involves “trafficking in controlled substances,” as the section is applied to cannabis businesses. Since marijuana is a controlled substance under federal law, section 280E comes into play for those in the cannabis industry even though that industry has been legalized in many states. This article makes two main points. One is that, even though courts have consistently rejected taxpayers’ arguments that Congress may not impose limits on business-related deductions, that shouldn’t mean that Congress can deny all deductions from gross income for trafficking individuals and still have a “tax on incomes” exempted from the direct-tax apportionment rule by the Sixteenth Amendment. The second is that the Sixteenth Amendment isn’t even arguably relevant if the taxpayer engaged in the cannabis business is a C corporation, a taxable entity. The Supreme Court concluded, before the 1913 ratification of the amendment, that a corporate income tax is not a direct tax that has to be apportioned to be valid. Denial of significant deductions to a corporate taxpayer may be an important policy issue, but it’s not a constitutional one.
Thursday, December 10, 2020
The question in the title of this post is the headline of this new piece from folks at Pew. Here are excerpts:
Voters in Arizona, Montana, New Jersey, and South Dakota on Nov. 3 legalized recreational marijuana in their states, joining 11 others that already allow regulated use and sale of the drug.
Policymakers in these states pitched legal cannabis in part to bring in much-needed revenue. For example, in New Jersey, Governor Phil Murphy (D) said the money would “help fund critical priorities like education and infrastructure.” But tax revenue from marijuana has proved uncertain in normal times, and pandemic-driven economic disruptions and consumer behavior shifts may only add to that uncertainty....
One of the challenges of legalized recreational marijuana is that the tax revenue is difficult to forecast because of the lack of historical data. Even Colorado and Washington, the first states to begin legal marijuana sales in 2014, have only a few years of data on which to base projections. (See Figure 1 for details on which states have legalized marijuana and when.)
This uncertainty may be compounded by the recession, the first to hit since the sale and use of recreational marijuana has been legal in any state. Although revenue forecasters have historical data on sales and excise taxes for other goods over the business cycle, this is not true for recreational marijuana, which was first legalized well after the official end of the Great Recession more than a decade ago. The 2020 downturn — driven by a disease that has prompted significant shifts in individual behavior — could prove especially difficult for forecasters trying to predict how much states could collect in marijuana taxes.
In addition, states’ experiences so far suggest that the initial years may be the most volatile as supply tries to meet demand. Recreational marijuana may provide a burst of revenue upon introduction, but policymakers should not expect consistent growth over the long term. In Colorado, for example, revenue has been volatile in recent months, in large part because of the disruption to the state economy caused by the pandemic. April usually brings an uptick in marijuana revenue, but this year tax collections were down 2% over the previous month. In the following months, however, the state has seen record-breaking revenue. It is unclear whether this spike is temporary and related to the recession or part of a longer-term trend.
Policymakers can hedge against the uncertainty and volatility of marijuana revenue by budgeting it cautiously. They can put the money toward savings, for example, or spend it after it is collected. If states are considering using the funds for ongoing spending priorities that require sustainable revenue streams, they should be careful about relying too heavily on marijuana taxes. Understanding the short- and long-term effects of budget balancing actions such as these can help officials make decisions that put their states on sound fiscal footing for years to come.
Monday, December 7, 2020
Congressional Budget Office reports MORE Act would generate over $13 billion in net federal revenue over next 10 years
As reported in this new Marijuana Moment article, the MORE Act "passed in a historic vote last week by the U.S. House of Representatives would generate about $13.7 billion in net revenue for the U.S. treasury over the next decade, according to a new report by the Congressional Budget Office (CBO)." Here is more:
Most of the new funds — roughly $8 billion — would come from business taxes on the legal marijuana industry, such as income and payroll taxes. A separate excise tax, initially based on the price of cannabis products, is estimated to yield another $5.7 billion.
“CBO and the staff of the Joint Committee on Taxation estimate that H.R. 3884 would increase revenues, on net, by about $13.7 billion over the 2021-2030 period,” says the nonpartisan report, published Friday....
Legalization would also bring additional government costs, the CBO report says, though all spending would be entirely offset by new revenue. The expected reduction in the federal prison population, for example, would lead to an estimated $636 million in new spending on federal benefits programs, such as Medicare and Medicaid.
“Federal prisoners generally are not eligible for these benefits,” says the report. “By reducing the prison population, CBO estimates, H.R. 3884 would increase the number of federal beneficiaries, compared with current law, and thus increase direct spending for federal benefit programs.”
The $5.7 billion in expected revenue from the marijuana excise tax, meanwhile, would go into the so-called Opportunity Trust Fund. From that, an estimated $3 billion would be spent by the Department of Justice over the 10-year period to provide job training, legal aid and other services to disproportionately impacted communities. The remaining $2.7 billion would go to the Small Business Administration to be used on state and local grants to cannabis-related small businesses that help develop licensing rules.
It wasn’t immediately clear whether the CBO report analyzed the bill as originally introduced last year or included the impacts of new changes made to the legislation last week that would adjust cannabis excise taxes as the market matures. Under the amendment, the excise tax would initially start at 5 percent of a product’s cost, then increase over time to 8 percent and later shift to a weight-based tax.
The new CBO report was a long time coming. The office is supposed to assess the financial impact of most bills that advance out of congressional committees, but it’s been more than a year since the MORE Act won approval from the House Judiciary Committee....
While the MORE Act faces an uphill battle in the Senate — some have called the issue a nonstarter unless Democrats gain control of the chamber — legalization proponents have nevertheless cheered the bill’s House passage as a major milestone.
Tuesday, September 8, 2020
The title of this post is the title of this new paper recently posted to SSRN and authored by Carl Crow, a recent graduate of The Ohio State University Moritz College of Law. (This paper is yet another in the on-going series of student papers supported by the Drug Enforcement and Policy Center.) Here is this latest paper's abstract:
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.
Monday, June 29, 2020
The title of this post is the title of this recent notable Politico article. Here are excerpts:
California local governments scrambling to find tax revenues during the coronavirus pandemic are turning toward an industry they had considered taboo until now: cannabis.
It has been almost four years since voters legalized recreational marijuana in California, and nearly 70 percent of cities and counties have yet to embrace pot businesses because they see regulatory problems or have concerns about public safety and negative publicity.
But some, facing insurmountable budget gaps as unemployment rises to its worst level since the Great Depression, would now rather open their doors to cannabis than lay off more workers or cut services. So far, a handful of cities have begun developing cannabis tax measures for the November ballot since voter approval is required to add local taxes. It's a trend many in the industry expect to continue over the next month absent approval of a federal bailout for state and local governments....
San Bruno, a Bay Area city that two years ago banned marijuana businesses, is among the governments with a change of heart. Last week, city council members voted unanimously to fund a tax measure and public education campaign, while voicing support for the idea of exploring an ordinance that would allow a dispensary or delivery service to open sometime next year.
According to projections from city officials, an operational cannabis shop could reduce San Bruno’s projected $8.2 million deficit in the upcoming fiscal year by around $300,000. “It's not gonna solve our problems, but it's going to keep $300,000 that we desperately need to hire whomever it is to make our city better,” Councilmember Marty Medina said at the meeting.
The city of Montclair in San Bernardino County is facing a similar budget crunch as sales tax revenue has cratered following the temporary closure of its mall. There, city officials are considering proposals to repeal a marijuana ban and create regulations for commercial activity. The plan could raise up to $2 million annually, according to City Manager Edward Starr.
While both San Bruno and Montclair are left-leaning cities where a majority of residents voted to approve the Prop. 64 legalization initiative in 2016, Republican-led jurisdictions where voters rejected the statewide measure are also starting to consider cannabis — to the surprise of industry observers. Last month, councilmembers in Yucaipa asked city staff to begin looking into alternative revenue streams, including marijuana businesses, amid a 15 percent decline in sales tax revenue and increasing public safety costs. Republicans hold a 20-point registration advantage over Democrats in the San Bernardino County jurisdiction, where a majority voted against Prop. 64....
Calls for jurisdictions to dive into the legal market have even come from some of the highest levels of state leadership, with Treasurer Fiona Ma calling the tax revenues a potential “game changer” during a virtual round table last month....
Among the other jurisdictions that have already begun developing cannabis tax measures or have shown interest in doing so are Sonoma, Signal Hill, Wildomar, Lemon Grove and Yountville. As in Yucaipa, one of the prevailing themes in council meetings elsewhere has been that their residents are sending tax dollars to neighboring jurisdictions by purchasing marijuana products from other cities with licensed stores or from the state’s robust illicit market.
Industry research firms BDS Analytics and Arcview Market Research estimate that unlicensed operations brought in $8.7 billion in untaxed revenue in 2019, compared to the legal market's $3.1 billion.
According to Jackie McGowan, founder of Green Street Consulting, local leaders are also looking at nearby jurisdictions that have developed their cannabis markets and don’t want to be left behind. Among those that have already allowed marijuana businesses, Monterey County is counting on $10.2 million in projected cannabis tax revenues to cover general fund shortfalls and avoid layoffs in the upcoming fiscal year and Santa Barbara County leaders believe $10.6 million in marijuana revenue will help offset coronavirus losses.
June 29, 2020 in Business laws and regulatory issues, Recreational Marijuana Commentary and Debate, Recreational Marijuana State Laws and Reforms, Taxation information and issues , Who decides | Permalink | Comments (1)
Tuesday, June 9, 2020
The title of this post is the title of this great new 39-page report from the Tax Foundation authored by Ulrik Boesen. Here are the "Key Points" that are set forth at the start of the document:
• Legal recreational marijuana sales are ongoing in nine states, covering 27 percent of the U.S. population. In 2018, 10.5 percent of adult Americans had used marijuana products in the last 30 days.
• States have designed different excise tax systems for recreational marijuana. While most tax based on price, states also tax marijuana based on weight or THC content.
• An excise tax on recreational marijuana should target the externality and raise sufficient revenue to fund marijuana-related spending while simultaneously outcompeting illicit operators. Excise taxes should not be implemented in an effort to raise general fund revenue.
• Changes to federal law would have implications for the tax revenue in states with legalized marijuana. If businesses had better access to banking, federal tax deductions, or interstate trading, prices would most likely fall.
• High taxes may limit adoption by minors and non-users but could hurt the competitiveness of the legal market. Low taxes may allow easy conversion from the illicit market but could increase consumption among non-users and minors. Taxing by price may not be stable, taxing by weight could encourage use of high potency products, and taxing by potency could complicate tax collection and add significant costs to both tax collectors and industry.
• A potency- and weight-based tax defined by THC levels may be the best short-term solution for lawmakers assuming that THC is an appropriate proxy for the externalities associated with consuming marijuana
June 9, 2020 in Recreational Marijuana Commentary and Debate, Recreational Marijuana Data and Research, Recreational Marijuana State Laws and Reforms, Taxation information and issues | Permalink | Comments (0)
Monday, June 8, 2020
The title of this post is the headline of this timely new Forbes piece worth reading in full. Here are excerpts:
Bribing the cops is illegal, but not in politics. Without paying off the cops, California might not have legalized recreational cannabis.
But now, four years later, with the legal industry struggling and police unable to protect legal merchants from either the illicit market or organized thieves, there’s serious doubt whether devoting tax revenue from marijuana sales to police budgets was smart politics. And in light of calls to defund or cut police spending throughout the country, California’s experience is a warning for legalization efforts in other states. Should police get a cut before education, healthcare, or disadvantaged communities shut out of the legal market? And does law enforcement have any business making money off of legalization at all?
Eager to sell regulating and taxing cannabis to uneasy suburban and conservative voters, the authors of Proposition 64, the Adult Use of Marijuana Act, offered the state’s powerful law-enforcement lobbies a gift. Twenty percent of the promised $1 billion in annual tax revenue legalization would create was earmarked for “public safety.” Legalization advocates heard an earful from growers and merchants eager to go legal — why reward the crews that had spent decades trying to arrest them? — but it was sold as necessary and practical electoral strategy. And from a public-safety standpoint, the gambit worked — sort of. Though the cop lobbies opposed the measure anyway, they also didn’t run a massive scare campaign. On Election Day 2016, AUMA won more than 57 percent of the vote....
Similar tactics have been employed elsewhere. California’s generosity was notable only in its size. Marijuana legalization has meant money for American police everywhere the social experiment’s been tried.... In Nevada, pot taxes help pay the police to “enforce” the measure (along with, one assumes, other laws). In Colorado, cannabis taxes fund diversion and addiction-recovery programs, which are administered by the police. In Portland, Oregon, most of a special 3 percent city tax on cannabis, part of which was meant to help jump-start minority entrepreneurs, somehow ended up in the police budget, infuriating local lawmakers who thought the cash would go to minority entrepreneurs....
Either Arizona, New Jersey, or maybe New Mexico or New York will be the next state to legalize cannabis for adults. All need money, badly. And in all states, elected officials and policymakers have suggested cannabis could provide that money. This is the ATM argument for legalization. But anyone running those campaigns will now have a harder sell promising cash to cops — at all, and not just up front.
As for California, lawmakers are now in a bind. “I can think of a lot of betters uses of those funds,” said Matt Kumin, a San Francisco-based lawyer who advocated for Prop. 64’s passage. In the coronavirus pandemic, with millions of Americans going untested for COVID-19 symptoms and millions more out of work, he’s not the only one.
Redirecting legalization money away from police budgets will require modifying the voter-approved legalization law. This can probably be done by the state Legislature, but not without a fight. “The cops use blackmail, threaten, and practice low enforcement activity if pols threaten their budgets,” Kumin added. Hints of this were underway before the pandemic and the protests. In December, an effort to cut local weed taxes in Oakland, where Goldsberry and other merchants paid a 10 percent local tax on top of state taxes, in order to stimulate the industry was opposed — by the local police union.
Defunding the police will be a lengthy and divisive political project. Whether legalization should fund the police in the first place may be a question settled much sooner.
Wednesday, April 22, 2020
Students in my Marijuana Law, Policy & Reform seminar are continuing to complete their presentations on research topics of their choice, and the second presentation slated for this week will focus on marijuana tax issues. Here is the student's description of his topic and some some "light" reading selected to help set the stage for his presentation.
In my paper, I set out to find a tax scheme that gives greater weight to the public health concerns of legalization while balancing the desire for revenue and fairness. In doing so, I analyze the three primary tax bases that may be chosen by a legislature: (1) Price, (2) Weight, and (3) Potency, pausing a moment to describe just how complex the concept of marijuana "potency" really is. In doing so, I lay out the benefits and disadvantages of each tax base and use Illinois' tax scheme to illustrate these pros and cons. I also consider whether medical marijuana should be taxed on a separate scheme, exempted from tax, or treated the same as product intended for adult use. Finally, I make a case for a hybrid tax base: tax flower and bud by weight, and edibles and concentrates by potency (as measured by THC).
In making my case, I recognize that there is no perfect marijuana tax scheme. The science is too young, marijuana is too complex a substance (both scientifically and by dint of being both "fun" and medicine), and these factors serve to amplify the push-pull between social goals, revenue, simplicity, and fairness inherent in any tax. I have thus included in my proposal a five-year sunset provision that will force legislators to return to the table and incorporate new science (along with the previous five years of data what worked and did not work in the original law) and hopefully produce a better tax scheme.
BOTEC Analysis LLC, Cannabis Potency Tax Feasibility Study (Oct 2019)
BOTEC Analysis Corp., Testing for Psychoactive Agents (Aug 2013)
Tax Foundation, How High Are Recreational Marijuana Taxes in Your State? (Apr 2019)
Pat Oglesby, Laws to Tax Marijuana (How To Tax It) (June 2012)
Wednesday, April 15, 2020
As students "take over" my Marijuana Law, Policy & Reform seminar through presentations on research topics of their choice, I continue to enjoy hearing about (and posting here about) their selected topics. The third presentation slated for this week will focus on marijuana stocks. Here is part of the student's description of the issue and some background readings he has flagged:
While the market for investors is nearly impossible to predict, as the Covid-19 pandemic is currently demonstrating, certain industries seem to be “recession proof” and are viewed as “safer” investments. One such industry is the “sin” industry. Stocks that fall under this category include tobacco, alcohol, weapons, gambling, sex, and most importantly, marijuana. While many of these industries have been publicly traded on major US stock exchanges for decades, the first marijuana stock was not traded until February 27, 2018. Thus, the industry is still in its infancy with many questions left unanswered. I will focus on three areas of law impacting marijuana stocks: 1) the Controlled Substance Act, 2) taxes, and 3) fraud. Further, the history of marijuana stocks in the US, the potential outlook for marijuana stocks in the future, and my opinion on which marijuana stock will be the most successful will be discussed.
Fabian Gorsler, A Marijuana Company is Listed on the U.S. Stock Exchange for the First Time, Highsnobiety (Feb. 27, 2018).
Casey W. Baker, Marijuana’s Continuing Illegality and Investors’ Securities Fraud Problem: The Doctrines of Unclean Hands and IN PARI Delicto, 12 J. Bus. Entrepreneurship & L. 93 (2019).
Erin Fuchs, The Legal Risk of Investing in Weed is ‘Remote’ and ‘Theoretical’, Yahoo Finance (Nov. 3, 2018).
April 15, 2020 in Assembled readings on specific topics, Business laws and regulatory issues, Federal Marijuana Laws, Policies and Practices, History of Marijuana Laws in the United States, Recreational Marijuana Commentary and Debate, Taxation information and issues | Permalink | Comments (0)
Thursday, March 26, 2020
In a post-COVID economy, will job creation and tax revenue from marijuana reform become irresistible?
Even before we have a real handle on the public health tragedy created by the coronavirus in the US, the economic fallout is already profound as represented by just one headline this morning: "A record 3.3 million Americans filed for unemployment benefits as the coronavirus slams economy." The Chair of the Federal Reserve is now saying "We may well be in a recession,” and the Treasury Secretary has been talking about a possible 20% unemployment rate. Though I do not know how extreme will be our economic struggle in the weeks and month ahead, I do know that advocates for marijuana reform are likely to waste no time stressing the potential job creation and tax revenue benefits from marijuana reform. As this title of this post suggests, I cannot help but wonder if in many states, and maybe even at the federal level, an economic development argument for marijuana reform may start to become nearly irresistible.
I do not have the time right now to do a comprehensive review of pre-COVID press pieces and articles and reports making much of the varied potential economic benefits of marijuana reform. But this haphazard collection of titles and links provides a flavor for what I expect we will be hearing a lot from marijuana reform advocates in the weeks and months ahead:
UPDATE: I just saw this new Yahoo Finance article headlined "Coronavirus could accelerate US cannabis legalization." Here are excerpts:
DataTrek Research’s Jessica Rabe writes in a note, “there’s a simple and effective solution for states and cities to help cover their huge budget shortfalls after the COVID-19 pandemic subsides: legalize recreational sales of marijuana.”...
“We’ve been thinking a lot about how life will change post-virus, and one big difference will be that state and local governments are going to encounter large unexpected tax receipt shortages,” Rabe wrote. “That’s particularly true when it comes to sales and income taxes amid stressed consumer balance sheets and massive layoffs. And unlike the Federal government, states can’t print unlimited amounts of money.”
Legalization of cannabis for adults, Rabe points out, could be a really easy way to shore up tax basis without driving people out of state, as raising income tax might do. Already it has been successful at raising “hundreds of millions of dollars annually in states like Colorado,” she said.
March 26, 2020 in Employment and labor law issues, History of Marijuana Laws in the United States, Recreational Marijuana Commentary and Debate, Taxation information and issues , Who decides | Permalink | Comments (0)
Wednesday, March 4, 2020
In the midst of broader discussions of issues surrounding the full legalization of marijuana in various states, I asked my students to give some particularized attention to tax issues. Tax issues in the marijuana space strike me as especially interesting because they present (a) value issues of what goals that tax here is designed to achieve (e.g., raise revenue vs. impact consumption patterns), (b) practical issues about how best to impose a tax (e.g., sales v. excise; weight v. potency of products), and (c) policy issues about whether and how to earmark tax revenues (e.g., for certain infrastructure, social equity, public health).
Against the backdrop of these big issues, and as my students do some independent research on tax matters, I thought I might here round up some relatively newer resources on tax matters. These materials cover only a very small slice of important marijuana tax issues, but I hope it still might prove useful to readers as well as to my students:
From Illinois Policy in January 2020, "Among Nation’s Highest, Could Keep Black Market Thriving"
From the Federation of Tax Administrators from various sources in December 2019, "Status of State Taxation/Sales of Marijuana"
From Pew Trusts in August 2019, "Forecasts Hazy for State Marijuana Revenue"
From Tax Foundation in April 2019, "How High Are Taxes on Recreational Marijuana in Your State?"
From the Institute on Taxation & Economic Policy in January 2019, "Taxing Cannabis"
Wednesday, February 19, 2020
"Colorado marijuana sales hit a record $1.75 billion in 2019: Cannabis sales have now reached a total of $7.79 billion in the 6 years since legalization"
The title of this post is the full headline of this new Denver Post piece, which provides a reminder of how easy it is to identify (some) economic metrics that follow from marijuana reform. Here are the details:
Last year was the most lucrative 12 months for cannabis sales in Colorado since the state’s voters legalized recreational marijuana. Medical and recreational cannabis sales hit a record $1.75 billion in 2019, up 13% from 2018, according to data from the Department of Revenue’s Marijuana Enforcement Division. Marijuana tax collections also hit an all-time high, at more than $302 million in 2019.
December closed out the year with strong sales totaling more than $144 million, up 6.7% compared to the previous year. But that wasn’t the biggest month of 2019; instead, August topped the calendar year with $173 million in sales. All told, Colorado marijuana sales now have hit $7.79 billion since recreational sales began in 2014.
Truman Bradley, the newly appointed executive director of the Marijuana Industry Group, said the revenue increases in Colorado track with expectations. “People are moving from the unregulated market to the regulated market,” Bradley said. “As reefer madness goes away, as the stigmatism of cannabis reduces and people come over to the regulated market, I would expect that trend to continue.”
Since January 2014, Colorado’s cannabis industry has generated $1.21 billion in tax revenue. Those taxes are allocated to the state’s public education fund, which covers initiatives such as the Colorado Department of Education’s Building Excellent Schools Today (BEST) fund; the state general fund, which covers agencies’ expenses; and the marijuana tax fund, which benefits programs related to substances abuse and treatment, health research, youth education and more. Tax revenues also benefit local governments.
In recent posts (here and here and here) and in my marijuana seminar, I have been exploring in various ways what might be the proper metrics for assessing medical marijuana reform regimes. This new data from Colorado, in turn, prompts similar questions about assessing recreational reform regimes. I am inclined to believe these numbers represent positive economic realities like increased employment, wealth and valuable wealth reallocation via taxes. But public health experts might see these numbers as representing negative health trends and they might also perhaps demonstrate problematic wealth reallocation from the vulnerable to the already privileged.
February 19, 2020 in Business laws and regulatory issues, History of Marijuana Laws in the United States, Recreational Marijuana Commentary and Debate, Recreational Marijuana Data and Research, Taxation information and issues | Permalink | Comments (0)
Sunday, February 16, 2020
As students in my marijuana reform seminar know all too well, I think the phrase "the devil is in the details" has particular salience when considering the import and impact of state-level marijuana reform. So I was intrigued, but not surprised, to see news reports this week of some encouraging details emerging in California and some discouraging details in Massachusetts. Here are links to press pieces with a few of the key details:
Citing the need to bring relief to people of color who are disproportionately impacted by drug laws, Los Angeles County District Attorney Jackie Lacey dismissed nearly 66,000 marijuana convictions on Thursday. Prosecutors asked a Los Angeles Superior Court judge to dismiss 62,000 felony cannabis convictions for cases dating back to 1961, according to a news release. An additional 4,000 misdemeanor cases were dismissed across 10 cities in Los Angeles County....
According to the District Attorney’s Office, “Approximately 53,000 individuals will receive conviction relief through this partnership.
Of those, approximately 32% are Black or African American, 20% are White, 45% are Latinx, and 3% are other or unknown.”
California legalized recreational marijuana years ago. Thursday’s announcement was made in partnership with Code for America, a nonprofit which created an algorithm to identify convictions eligible to be dismissed under Proposition 64, which voters approved in 2016. Code for America has offered its Clear My Record technology free to all 58 state district attorneys [and the technology has already] helped reduce or dismiss more than 85,000 Proposition 64 eligible convictions across five counties.
Assembly Bill 1793, which passed in 2018, charges prosecutors with reviewing convictions eligible for dismissal or reduction under Proposition 64 by July 1 of this year -- the District Attorney’s office said only 3% of people eligible for conviction relief have received it before Thursday’s announcement. The current process for clearing records involves petitioning the court, which the District Attorney’s Office calls “time-consuming, expensive and confusing.”
From the Boston Globe, "A law said pot taxes should help communities harmed by the war on drugs. That hasn’t happened":
It was a hard-fought victory for Black and Latino lawmakers — a provision in the state’s marijuana legalization law that said some of the pot tax proceeds would benefit communities targeted most by the war on drugs. Leaders in minority neighborhoods envisioned the money helping people to find housing and jobs, including in the new cannabis industry. Police chiefs, too, celebrated that the law reserved some taxes for officer training, hoping the funds would aid in catching stoned drivers.
But a year and a half into the state’s recreational cannabis rollout, none of the $67 million in excise taxes and fees left over after paying for the cost of regulators has benefited either of those causes, a Globe data analysis has found.
Instead, most of that revenue has gone to the state’s Bureau of Substance Addiction Services for existing programs, including treatment for the uninsured, criminal defendants, and impaired-driving offenders. The bureau has not used the marijuana cash to add any new staff or programs, a spokeswoman said, but the money has allowed the state to cut in half its general fund allocation to the bureau.
The failure to fulfill the tax pledges has frustrated minority leaders who say racially targeted policing left many in their neighborhoods with criminal records and unemployed — and they have yet to see the booming new industry benefit them. That’s especially painful in a state where voters passed the first legalization law in the country that mandates the pot industry include people harmed most by prohibition.
“It’s not only a broken promise, but a fraud,” said Chauncy Spencer, 43, a Dorchester man formerly incarcerated over marijuana who has faced delays opening a cannabis business. “There was always the suspicion that the money would never be rerouted to the communities, so for [that scenario] to come to fruition is no surprise."... The Marijuana Regulation Fund ... covers marijuana public-awareness campaigns and the budget of regulators at the Cannabis Control Commission and the Massachusetts Department of Agricultural Resources. The remainder, state law says, “shall be expended for” five causes: public health, public safety, municipal police training, illness prevention, and assistance for communities hardest hit by the war on drugs.
But none of those causes besides public health have received any marijuana money — and aren’t slated to this year or next year. That’s because the law’s wording is vague and doesn’t specify how numerically the money should be divided among the five purposes, allowing the possibility that some don’t receive anything. The law also requires annual action by the Legislature and governor to allocate the money within the massive state budget where pot revenues, though sizable, can be overlooked among other priorities.
Since the revenues started flowing in July 2018, the fund has collected nearly $81 million through early January, state comptroller records show. Each year since, Governor Charlie Baker’s administration has proposed using the funds to support the Bureau of Substance Addiction Services, which the Legislature has approved.
So far, $13.9 million has funded cannabis regulators and $45.6 million was directed to the Bureau of Substance Addiction Services — which Baker’s administration sees as fulfilling the law’s requirements. But to minority community advocates, the state is violating the spirit, if not the letter, of the law.
February 16, 2020 in Criminal justice developments and reforms, Race, Gender and Class Issues, Recreational Marijuana State Laws and Reforms, Taxation information and issues , Who decides | Permalink | Comments (0)
Tuesday, December 24, 2019
The title of this post is the clever title of this interesting new report from California's Legislative Analyst's Office released last week. (Hat top: Crime & Consequences.) Here is part of the report's "Executive Summary":
Proposition 64 (2016) directed our office to submit a report to the Legislature by January 1, 2020, with recommendations for adjustments to the state’s cannabis tax rate to achieve three goals: (1) undercutting illicit market prices, (2) ensuring sufficient revenues are generated to fund the types of programs designated by the measure, and (3) discouraging youth use. This report responds to this statutory requirement and discusses other potential changes to the state’s cannabis taxes. While this report focuses on cannabis taxes, nontax policy changes also could affect these goals.
Proposition 64 established two state excise taxes on cannabis. The first is a 15 percent retail excise tax, effectively a wholesale tax under current law. The second is a tax based on the weight of harvested plants, often called a cultivation tax. (The measure authorizes the Legislature to amend its tax provisions without voter approval, but the scope of this authorization is unclear.)...
We analyze four types of taxes: basic ad valorem (set as a percentage of price, such as the current retail excise tax), weight-based (such as the current cultivation tax), potency-based (for example, based on tetrahydrocannabinol [THC]), and tiered ad valorem (set as a percentage of price with different rates based on potency and/or product type). Our analysis focuses primarily on three main criteria: (1) effectiveness at reducing harmful use, (2) revenue stability, and (3) ease of administration and compliance. No individual type of tax performs best on all criteria. For example, tiered ad valorem and potency-based likely are best for reducing harmful use, but basic ad valorem is easiest to administer. Given these trade-offs, the Legislature’s choice depends heavily on the relative importance it places on each criterion. That said, the weight-based tax is generally weakest, performing similarly to or worse than the potency-based tax on the three main criteria....
Any tax rate change would help the state meet certain goals while likely making it harder to achieve others. On one hand, for example, reducing the tax rate would expand the legal market and reduce the size of the illicit market. On the other hand, such a tax cut would reduce revenue in the short term, potentially to the extent that revenue could be insufficient. Furthermore, lower tax rates could lead to higher rates of youth cannabis use. With a thriving illicit market, however, much of the cannabis used by youth could avoid taxation. Where possible, this report provides quantitative estimates of the short-term effects of rate changes....
We view reducing harmful use as the most compelling reason to levy an excise tax. Accordingly, we recommend that the Legislature replace the existing retail excise tax and cultivation tax with a potency-based or tiered ad valorem tax, as these taxes could reduce harmful use more effectively. If policymakers value ease of administration and compliance more highly than reducing harmful use, however, the Legislature might prefer to keep the existing retail excise tax. In contrast, we see little reason for the Legislature to retain the weight-based cultivation tax....
If the Legislature decides not to adopt a potency-based or tiered ad valorem cannabis tax, we nevertheless recommend that the Legislature eliminate the cultivation tax. In this case, we recommend that the Legislature set the retail excise tax rate somewhere in the range of 15 percent to 20 percent depending on its policy preferences.
December 24, 2019 in Recreational Marijuana Commentary and Debate, Recreational Marijuana Data and Research, Recreational Marijuana State Laws and Reforms, Taxation information and issues , Who decides | Permalink | Comments (1)
Monday, September 9, 2019
The title of this post is the title of this new paper recently posted to SSRN and authored by Patrick Cleary, a student at The Ohio State University Moritz College of Law. This paper is the eleventh in an on-going series of student papers supported by Drug Enforcement and Policy Center. (The ten prior papers in this series are linked below.) Here is this latest paper's abstract:
Taxes implicate nearly every area of business. The recent marijuana boom has thrust one tax code provision into the spotlight. IRC § 280E prohibits tax deductions and credits for expenses paid or incurred in the trafficking of Schedule I or II controlled substances. This increases tax liability for marijuana businesses who commonly refer to the provision as an “industry killer.” This paper intentionally goes against the grain to show how IRC § 280E is not the “industry killer” it is portrayed to be and explores ways in which slow growth may be marijuana’s best path forward.
The argument in favor of IRC § 280E is made by explaining the provisions’ development and legal framework before applying it to the marijuana industry . Next, IRC § 280E must be contextualized within the marijuana industry’s rapid growth and the 2017 Tax Cuts and Jobs Act. Lastly, the Oregon example is used to exemplify how IRC § 280E is helping the industry by providing a check on cash flow and preventing prices from being driven down further through saturation.
Prior student papers in this series:
- "The Canna(business) of Higher Education"
- "Marijuana Banking in New York and Around the US: 'Swim at Your Own Risk'"
- "Intellectual Property Survey: Cannabis Plant Types, Methods of Extraction, IP Protection, and One Patent That Could Ruin It All"
- "Marijuana in the Workplace: Distinguishing Between On-Duty and Off-Duty Consumption"
- "An Argument Against Regulating Cannabis Like Alcohol"
- "The State of Marijuana in The Buckeye State and Fiscal Policy Considerations of Legalized Recreational Marijuana"
- "Race Based Statutes at Play with Cannabis: Cultivating a Process for Weeding Out the Competition"
- "Tribal Cannabis: Balancing Tribal Sovereignty and Cooperative Enforcement"
- "Land of the Free, Home of the (Disgruntled) Brave: The Case for Allowing Veterans Access to Medical Marijuana"
- "Cannabidiol (CBD) in the Therapeutics Industry"
Wednesday, August 21, 2019
The fine folks at Pew have this very fine new brief about state marijuana tax revenues titled "Forecasts Hazy for State Marijuana Revenue." I recommend this 16-page document (which is also available on-line here) for many reasons, and here is its astute conclusion:
Supporters of legalizing recreational marijuana expected a new revenue source for states, but market uncertainties continue to challenge revenue forecasters and policymakers. The difficulty in forecasting revenue is compounded by the fact that states have only recently begun to understand the recreational marijuana market: the level of consumer demand for recreational marijuana products, the types of users and how much they might pay for the drug, and competition with the black market. States have learned some lessons but continue to grapple with unknowns.
While forecasters and budget staff gain more information, state officials can avoid budget shortfalls and keep program funding stable by being prudent in how they use these new collections. States should be careful to distinguish between marijuana revenue’s short-term growth and long-term sustainability. While these new dollars can fill immediate budget needs, they may prove unreliable for ongoing spending demands. Policymakers should look to other, more familiar sin taxes for lessons on how to manage marijuana tax revenue most effectively.
August 21, 2019 in Business laws and regulatory issues, History of Marijuana Laws in the United States, Recreational Marijuana Commentary and Debate, Recreational Marijuana Data and Research, Taxation information and issues | Permalink | Comments (2)