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)
Thursday, June 13, 2019
Colorado public agencies yesterday produced this news release titled "Colorado marijuana industry continues to grow, revenue surpasses $1 billion to date." Here are excerpts:
Colorado has surpassed $1 billion in marijuana revenue to date since adult-use marijuana sales began in 2014, according to the Colorado Department of Revenue (CDOR)’s monthly reports for marijuana sales and revenue data released today.
“Today’s report continues to show that Colorado’s cannabis industry is thriving, but we can’t rest on our laurels. We can and we must do better in the face of increased national competition. We want Colorado to be the best state for investment, innovation and development for this growing economic sector,” said Governor Polis. “This industry is helping grow our economy by creating jobs and generating valuable revenue that is going towards preventing youth consumption, protecting public health and safety and investing in public school construction.”
To date, marijuana tax, license and fee revenue has reached just over $1.02 billion and marijuana sales to date exceeded $6.56 billion. Currently, Colorado has 2,917 licensed marijuana businesses and 41,076 individuals who are licensed to work in the industry....
Marijuana revenue supports statewide efforts such as licensing and regulation of legal marijuana businesses, youth prevention efforts, behavioral health treatment, protecting public health and safety, and coordination across state agencies.
Marijuana tax revenue funds Colorado Department of Education programs such as the Building Excellent Schools Today (BEST) capital construction assistance fund, as well as the Early Literacy Competitive Grant Program, School Health Professional Grant Program and the School Bullying Prevention and Education Grant Program.
The Colorado Department of Human Services uses marijuana revenue funds to support community behavioral health programs including mental health services for juveniles and adults, crisis services, criminal justice diversion, the Circle Program, substance use disorder and detoxification services. Additionally, funds support Mental Health Institutes at Pueblo and Fort Logan and Tony Grampsas Youth Services Program, which is a collection of community based programs that target youth and their families for prevention and intervention services in the effort to reduce incidents of youth crime and violence, to prevent youth marijuana use, and prevent child abuse and neglect.
Tuesday, May 21, 2019
As detailed in this press release, yesterday "the Center for American Progress released a new issue brief calling for states and the federal government to use marijuana tax revenue to fund the creation of thousands of public sector jobs in low-income communities of color that have been historically deprived of economic opportunity due to discriminatory drug enforcement." Here is more from the release:
The issue brief proposes a tangible way to pay for the creation of jobs in communities that have experienced the heaviest consequences of disparate criminal enforcement of marijuana. The authors calculate that annual tax revenues from the regulated marijuana market in California and Washington state, for example, could create nearly 20,000 jobs. This number is sure to increase as more and more Americans — 68 percent, according to a 2018 CAP/GBAO Strategies poll — favor marijuana legalization and more states consider legalizing the recreational use of marijuana as well as creating a regulated marijuana market.
The proposal is an outgrowth of CAP’s 2018 report, “Blueprint for the 21st Century: A Plan for Better Jobs and Stronger Communities,” which called for a massive investment in public sector job creation and a jobs guarantee for highly distressed communities.
The brief further describes the need to ensure that any marijuana legalization effort leads with provisions that ensure racial equity and correct injustices that have resulted from the war on drugs. Key recommendations include providing automatic and cost-free expungements of marijuana arrest and conviction records; reinvesting in essential services for communities most harmed by the war on drugs; and promoting equitable licensing systems and funding for minority-owned businesses. These measures would greatly help people who face barriers to economic opportunity, employment, and other basic necessities due to the collateral consequences of a marijuana-related conviction.
The full eight-page issue brief is titled “Using Marijuana Revenue to Create Jobs” and is authored by Maritza Perez, Olugbenga Ajilore, and Ed Chung. Here is its conclusion:
Today, states are raking in billion-dollar profits for activity that sent millions of African American and Latinx individuals into the criminal justice system, trapping their families and communities in poverty for generations. The movement to legalize marijuana presents an opportunity both to achieve justice for and to build economic opportunity in these communities. Creating public sector jobs and other policies outlined in this issue brief acknowledge the economic impact that the war on drugs has had on low-income people of color. With these policies, elected leaders can begin to address the structural barriers that states must rupture so that individuals from some of their most vulnerable communities have equal access to economic opportunity.
May 21, 2019 in Business laws and regulatory issues, Federal Marijuana Laws, Policies and Practices, Recreational Marijuana Commentary and Debate, Recreational Marijuana State Laws and Reforms, Taxation information and issues | Permalink | Comments (0)
Friday, May 3, 2019
The title of this post is the title of this interesting short piece that is available on SSRN and is a reprint from the Tax Management Real Estate Journal. The piece is authored by Libin Zhang, and here its abstract:
The law formerly known as the Tax Cuts and Jobs Act of 2017 created qualified opportunity zones (QOZs), which are low-income census tracts in which certain investments by qualified opportunity funds (QOFs) are provided tax benefits. The investments generally cannot include any golf course, country club, massage parlor, hot tub facility, suntan facility, racetrack or other facility used for gambling, or store the principal business of which is the sale of alcoholic beverages for consumption off premises (some practitioners refer to such businesses as "sin businesses," but this article uses the non-judgmental and less anti-golf term of "excluded business.")
Some commentators have stirred the pot by questioning the extent that QOFs can be involved in marijuana businesses. While the QOZ rules have their hazy areas, the excluded businesses should not include marijuana activities.
However, section 280E may disallow deductions for taxpayers that buy and sell marijuana. QOFs should ensure that they deal with marijuana in a different capacity, such as in a real estate rental business, in order to ensure that their deductions do not go up in smoke.
Tuesday, April 9, 2019
The title of this post is the title of a presentation to be made by one of my students in my Marijuana Law, Policy & Reform seminar this coming week. Here is part of his explanation of his topic and links to some background reading:
State legalization of marijuana, and the rising prevalence of marijuana businesses, has continually thrust Internal Revenue Code (IRC) § 280E into the spotlight. Many scholars have argued for the provision’s abolishment, but the IRS’s staunch stance remains unyielding. The literature seems to suggest a tacit assumption that IRC § 280E will remain a hurdle if/until marijuana is removed from Schedule I. Although IRC § 280E is a hurdle, other mechanisms are shifting to allow marijuana businesses to be successful despite this tax provision.
For example, in many cases, the Tax Cuts and Jobs Act of 2017 did more for marijuana businesses than a repeal of IRC § 280E would have. Yes, marijuana businesses are still worse off than other businesses from a tax perspective, but marijuana’s competition is not necessarily other sectors, it is the black market. There is something to be said for the fact that the marijuana industry continues to grow, despite claims of IRC § 280E making growth “impossible.” However, the primary focus of this paper is not to explain why IRC § 280E predictions were incorrect, it is to look forward at why and how the industry can continue to succeed regardless of IRC § 280E.
April 2015 white paper by the National Cannabis Industry Association, "Internal Revenue Code 280E: Creating An Impossible Situation For Legitimate Businesses": Download 2015-280E-White-Paper
Fortune article, "The Marijuana Industry’s Battle Against the IRS"
Cannabis Business Times article, "Tax Court Reinforces IRS Code 280E in Harborside Ruling"
Memo from Rosenberg Martin Greenberg law firm, "Are Owners of Cannabusinesses Eligible for the Qualified Business Income Deduction Under Section 199A?"
Tuesday, January 1, 2019
There has been some real impact since recreational marijuana showed up:
- Dozens of new roofs for crumbling schools across the state.
- Sprinklers in buildings built decades before they existed.
- Security systems in an age of concern for student safety.
- Additional classrooms to alleviate relentless overcrowding.
- New gyms to replace dilapidated ones.
- New schools because older ones are unsafe to enter.
But there have also been dozens of other similar projects statewide that have gone unfunded because not enough dollars are allocated to handle them all.
While the public’s attention has focused on the roughly quarter-billion dollars a year in marijuana-related revenue that flows into state coffers, the burgeoning marijuana business also has brought a bonanza in tax revenue for dozens of municipal and county governments.
Nobody comprehensively tracks the local figures, but as Colorado marks the five-year anniversary of legalization a Denver Post analysis fleshed out a large part of the picture based on available data: In 2017, at least $71 million was collected from recreational marijuana via local taxes and the “share-backs” provided by the state, which now returns a tenth of the total raised by its own 15 percent special marijuana sales tax.
Marijuana Tax Cash Fund ... is the largest pool of marijuana tax revenue in the state. Colorado collected $251 million during fiscal year 2017-2018, and 49 percent of that went into the Marijuana Cash Tax Fund. Three funds that support K-12 education received a collective $98 million, $16.7 million went to local governments and $12.4 million went into the general fund.
State law technically allows the General Assembly to appropriate its tax fund money for any purpose, but state legislators created a set of “allowable purposes” such as mental health treatment, marijuana research and law enforcement training and to provide services to school-age children. Each year, lawmakers tinker with the cash fund by running bills to create new grants and by adjusting how much marijuana money, if any, goes into programs they created in previous years.
Monday, December 24, 2018
The title of this post is the headline of this notable new New York Times piece by Ginia Bellafante. Here are excerpts:
Gov. Andrew M. Cuomo announced that he would push to make pot smoking — for fun — legal in New York State. It was quite a statement for a governor who had repeatedly questioned the wisdom before, calling it an enabler of more pernicious habits. The “facts have changed,” he had said several months before, meaning really that the polling had changed — in October of 2017, support for the legalization of marijuana reached its highest point in five decades with nearly two-thirds of Americans surveyed by Gallup expressing enthusiasm for the revision.
The governor made his argument deploying the progressive rhetoric he has turned to increasingly as his neoliberal leanings have become less politically expedient. That rhetoric rightly maintains that legalization of the drug is essential to redressing injustices in a criminal justice system that has overwhelmingly penalized young men of color for carrying or smoking pot.
Two days after Mr. Cuomo made his commitments known, in fact, Brooklyn’s district attorney, Eric Gonzalez, asked a judge to obliterate more than two dozen past marijuana convictions; his office vacated open warrants for more than 1,400 people who had missed court dates for possession cases. In the absence of such erasures on a broad scale, merely legalizing the drug would do nothing to remediate the damage inflicted on thousands of people ensnared in a legal universe that so severely handicaps them for doing what white people pull off with impunity. This is why mayor Bill de Blasio followed the governor’s announcement with his own endorsements of legalization — this too a reversal — recommending that convictions for marijuana-related crimes be expunged automatically.
In previous eras, decriminalization had been championed largely by libertarians, who saw a lot of government waste in a system that needlessly locked people up, and by hippies, who just wanted to be left alone to get stoned. It is only recently that pot has been widely imagined as an almost holy vessel of redemption, a cure-all for a full range of 21st century maladies — social division, chronic pain, chronic distraction, chronic boredom. Leafly, a journal of cannabis news, describes Cinex, a particular weed strain as providing a “wired euphoria that feeds creativity” while making daily chores less of a “drag.”
Of course, lawmakers in New York are not primarily motivated by the desire to make our daily chores less of a drag. They quickly suggested that taxing marijuana could fix the transit system, in need of $60 billion worth of repairs. They invited us to envision a world in which pot really was a gateway — to more efficient infrastructure!
Leaving aside for a moment whether these ambitions are all too utopian, it is easy to see what is problematic about legislators relying on our escapist pleasures to perform some of the most necessary functions of government. In 1951, for example, the federal excise tax on cigarettes was raised to help finance the Korean War. Given that the previous year had produced five separate epidemiological studies confirming the growing suspicion that smokers were more likely to contract lung cancer than nonsmokers, 1951 might have been a good time to mandate warning labels on cigarette packaging but, as it happened, that would take another 14 years to accomplish.
The enthusiasm for revising the legal status of pot around the country has for the most part obscured any debate about consequences to public health. That pot is regarded as relatively harmless is troubling, because much of what we know about it is based on studies conducted nearly 50 years ago at a time when what was consumed was much less potent than it is now.
Within the academic community, Jonathan P. Caulkins, a professor of public policy at Carnegie Mellon, has been a leading voice warning of marijuana’s attendant dangers. As he has put it, beyond the fact that pot use has been correlated with a wide variety of negative outcomes in terms of physical and mental health, the real issue is that more than half of marijuana is consumed by people who are high more than half of all their waking hours. Pot shouldn’t be dismissed simply because it won’t kill you.
Mr. Caulkins’s research also shows us who is likely to bear these health burdens to a disproportionate degree — and it is not snowboarders in Vail. Looking at a decade’s worth of federal surveys on drug use, he and a partner determined that Americans with a household income of less than $20,000 accounted for close to 30 percent of all marijuana use, even though they make up less than 20 percent of the population.
One fantasy that advocates of legalization have is that changes in the law will energize a redistribution of wealth, not only because tax revenue from pot sales can be funneled to various worthy causes but also because the poor will reap new entrepreneurial opportunities — in every neighborhood a Stringer Bell....
I asked Mark Kleiman, of the Marron Institute at New York University and one of the most sought-after experts on drug policy in the country, what the future looked like. He foresaw a world in which pot, legal in ever more states and eventually at the national level, will get cheaper and cheaper. The expected tax windfalls would become less likely, unless pot is taxed at the level of potency rather than sale price. The trend toward vaping means there will be greater demand for oil, and if you can melt everything down for oil, pot will be less expensive to produce, because at that point you can grow it like corn.
“You can produce all the intoxicant used in a year on 40,000 acres,” Mr. Kleiman said. “That’s 20 family farms in Iowa.” Eventually a joint could cost a nickel; Nabisco will take over edibles. “You will have pot grown in Iowa, processed by Cargill and sold by Amazon,” Mr. Kleiman said. “No one will make money except Jeff Bezos, who always makes money.”
December 24, 2018 in Criminal justice developments and reforms, History of Marijuana Laws in the United States, Recreational Marijuana Commentary and Debate, Taxation information and issues , Who decides | Permalink | Comments (0)
Thursday, December 6, 2018
New York City Comptroller Scott M. Stringer first caught my attention six months ago when he produced this notable report titled "Estimated Tax Revenues from Marijuana Legalization in New York." Today, Comptroller Stringer has my attention again with this notable new 15-page report titled "Addressing the Harms of Prohibition: What NYC Can do to Support an Equitable Cannabis Industry." I recommend the document in full, and here is part of its introductory section:
Over the last several decades, the prohibition of cannabis has had devastating impacts on communities in New York City, extending beyond incarceration to often long-lasting economic insecurity: damaged credit, loss of employment, housing, student loans, and more. Today, thousands of New Yorkers, overwhelmingly Black and Latinx, continue to endure the untold financial and social costs of marijuana-related enforcement, despite steps to decriminalize.
As New York joins neighboring jurisdictions in moving closer to legalizing cannabis for adult use, the State and the City must take action to ensure that the communities who have been most harmed by policies of the past are able to access the revenue, jobs, and opportunities that a regulated adultuse marijuana program would inevitably generate.
While the creation of a legal market brings the promise of new wealth, the uneven enforcement of marijuana policies in New York specifically and the lack of diversity in the cannabis industry generally foreshadow potential inequities in who will benefit — and, indeed, who will profit — from a legal adult-use cannabis industry. In anticipation of future legalization, this report, by New York City Comptroller Scott M. Stringer, offers a new neighborhood-by-neighborhood look at cannabis enforcement and charts a roadmap for building equity into the industry....
Together, the report findings show that the neighborhoods most impacted by prohibition are among the most economically insecure and disenfranchised in the city. It is precisely these New Yorkers then — those to whom the benefits of legalization should be targeted — who are most likely to face barriers to accessing opportunities in the industry, in particular financing. In addition to reinvesting tax revenue from legalization in these disproportionally impacted communities, steps should therefore be taken to equip those impacted by prohibition to secure the funding and other resources needed to become cannabis licensees. This report recommends that the City, in partnership with the State, develop a robust cannabis equity program to direct capital and technical assistance to impacted communities interested in participating in the adult-use industry.
December 6, 2018 in Business laws and regulatory issues, Campaigns, elections and public officials concerning reforms, Criminal justice developments and reforms, History of Marijuana Laws in the United States, Race, Gender and Class Issues, Recreational Marijuana Commentary and Debate, Recreational Marijuana State Laws and Reforms, Taxation information and issues | Permalink | Comments (0)
Wednesday, December 5, 2018
The title of this post is the title of this notable report authored by the Rudin Center for Transportation Policy and Management at NYU. Here is part of its introduction:
The centrality of the subways to the life of New York is the very reason why the public is alarmed about the condition of mass transit. The Citizens Budget Commission has systematically analyzed the failure of the Metropolitan Transportation Authority (MTA) to maintain a state of good repair and the need for fundamental reform of the MTA’s capital spending processes. A new plan, “Fast Forward,” has been proposed to improve accessibility, deploy new technologies, update signals, and acquire 21st century subway cars.
Clearly, increased fares and congestion pricing are insufficient to deal with the long-term financial needs of the subway system. This report argues that the subways need a dedicated revenue source with the potential for growth in future decades — one that does not divert funds from other public services, and that has yet to be tapped by the state and local government. The legalization of recreational cannabis offers New York State a unique opportunity to generate a new revenue stream dedicated to mass transit.
Monday, November 19, 2018
The Centennial Institute at Colorado Christian University, a think tank which has given considerable attention to marijuana issues. Its latest policy brief runs nearly 100 pages and is titled "Economic and Social Costs of Legalized Marijuana." Jeff Hunt, Director of the Centennial Institute, provides a summary of sorts at the start of the report and it begins this way:
The Centennial Institute at Colorado Christian University commissioned this study to better understand the economic and social costs of legalized marijuana. While much has been written about the tax revenue and total sales generated from commercial marijuana, there has been little research to understand how Coloradans are paying to mitigate the consequences of commercial marijuana.
No matter where you stand in the marijuana legalization debate, having more information is critical to making the best decisions for the future of Colorado and our nation. This report is an important first step in giving researchers and policymakers a sense of the breadth of costs associated with commercial marijuana. Furthermore, it is clear from the report that much more information is needed to fully understand the social costs associated with commercial marijuana.
The bad news is that the costs associated with commercial marijuana are only going to go up as the long-term health consequences have not been fully determined. Like tobacco, commercial marijuana is likely to have health consequences that we won’t be able to determine for decades. Those costs are not configured in this report.
This report is fair in presenting the economic benefits of commercial marijuana to Colorado including reporting tax revenue, jobs, and overall sales. It is contrasted with the economic and social costs of commercial marijuana, which took a very cautious approach in determining costs. Bottom line, the economic and social costs in this report are intentionally low and the comprehensive costs are likely much higher.
Here are the important findings from this report:
- For every dollar gained in tax revenue, Coloradans spent approximately $4.50 to mitigate the effects of legalization
- Costs related to the healthcare system and from high school drop-outs are the largest cost contributors
- While people who attended college and use marijuana has grown since legalization, marijuana use remains more prevalent in the population with less education
- Research shows a connection between marijuana use and the use of alcohol and other substances
- Calls to Poison Control related to marijuana increased dramatically since legalization of medical marijuana and legalization of recreational marijuana
- About 15 people are severely burned as a result of marijuana use per year
- People who use marijuana more frequently tend to be less physically active, and a sedentary or inactive lifestyle is associated with increased medical costs
- Adult marijuana users generally have lower educational attainment than non-users
- Research does suggest that long-term marijuana use may lead to reduced cognitive ability, particularly in people who begin using it before they turn 18
- Yearly cost-estimates for marijuana users: $2,200 for heavy users, $1,250 for moderate users, $650 for light users
- 69% of marijuana users say they have driven under the influence of marijuana at least once, and 27% admit to driving under the influence on a daily basis
- The estimated costs of DUIs for people who tested positive for marijuana only in 2016 approaches $25 million
- The marijuana industry used enough electricity to power 32,355 homes in 2016
- In 2016, the marijuana industry was responsible for approximately 393,053 pounds of CO2 emissions
- Marijuana packaging yielded over 18.78 million pieces of plastic
I sense many of the numbers in this report are contestable, especially given that the executive summary notes that "costs related to the healthcare system and from high school drop-outs are the largest cost contributors." Quantifying marijuana's exact impact on the healthcare system and high school drop-outs strikes me as an inherently inexact science. But it is still interesting to see this accounting effort and see who might engage with these numbers. It is also notable that a ratio of tax revenue to costs is here for marijuana "only" 1 to 4.5 given that I have seen studies showing that that ratio of tax revenue to costs for alcohol runs roughly 1 to 10.
Sunday, October 28, 2018
The folks at PoliFact have this lengthy new piece under the headline "Marijuana legalization in 5 charts: A 2018 midterm report" that is worth reading in full. This infographic under the title "Potential $7 Billion Recreational Marijuana Tax Revenue, By State," highlighting revenue from marijuana reform is alone worth the click-through, and here are excerpts from the piece providing a glimpse at what the "5 charts" cover:
About two in three Americans now favor marijuana legalization, a record-high measure of public support for a drug the federal government still puts in the same category as LSD and heroin.
With a majority of states now permitting legal use in some form, and several states poised to relax their laws this November, we decided to take a graphical look at the country’s most popular illicit drug.
Experts pointed to a number of reasons to explain the dramatic shift in Americans’ opinion of marijuana legalization over a relatively short timespan....
State marijuana laws
American laws around marijuana are complicated....
State tax revenue
Taxing marijuana can yield a large pot of money for states. The data is still somewhat scarce given that legalization is still in its infancy....
The country’s decades-long crackdown on drugs has had a disproportionate impact on minorities....
Some experts said the pros of legalization far outweighed the cons, while others said it’s too early to tell....
October 28, 2018 in Criminal justice developments and reforms, History of Marijuana Laws in the United States, Polling data and results, Recreational Marijuana Data and Research, Taxation information and issues | Permalink | Comments (0)
Wednesday, October 3, 2018
Prediction of hundreds of millions in tax revenues for Michigan if citizens vote for marijuana legalization
This local article, headlined "Estimated tax haul from marijuana sales would grow to $134 million per year," reports on a report on tax revenues being predicted if Michigan were this fall to become the 10th in the United States to legalize recreational marijuana. Here are some details:
By the time Michigan’s recreational marijuana market is fully fleshed out, $134.5 million in tax revenues will be flowing into the state’s coffers annually. But there’s a big caveat: Michigan voters will first have to pass a ballot proposal on Nov. 6 to legalize marijuana for adult recreational use.
The figures for state tax revenues — from the 6-percent sales tax and a 10-percent excise tax — come from VS Strategies, a Colorado-based cannabis consulting firm hired by the Coalition to Regulate Marijuana Like Alcohol, which is spearheading the campaign to legalize pot in Michigan. “We’re estimating $520 million in taxes from 2020-24,” said Andrew Livingston, a policy analyst with VS Strategies. “By 2023, Michigan will reach maturity with sales of just under $1.5 billion (for both medical and recreational marijuana).”
The revenues from recreational use will grow from $53.7 million in the first year to $134 million by the time the market matures, he said. When you add in the 6 percent sales tax and 3 percent excise tax on medical marijuana sales, the tax revenues jump another $40 million, according to the VS estimates.
The numbers are based on estimates of nearly 1 million Michiganders who have said that they’ve used marijuana in the past month and who could be expected to buy marijuana on a regular basis. Another 3.5 million people in Michigan have said they have used marijuana in their lifetime. The total number of marijuana users includes 300,000 people who are registered as medical marijuana users, Livingston said. Michigan’s tax rate is far lower than many of the other nine states that have legalized pot for recreational use... Michigan’s proposed rate is lower than other states in order to be more competitive and to attract more people to the state’s budding marijuana market, coalition spokesman Josh Hovey said.
The first $20 million in tax revenues for each of the first two years would go to research into the effects of marijuana use on different health ailments, including PTSD in veterans. Of the remainder, 35 percent would go toward roads, 35 percent to schools and 30 percent to the counties and communities that allowed marijuana businesses in their towns.
But the projected tax revenues, even when the market is fully established, fall well below the taxes generated in Colorado, the first state to legalize marijuana for recreational use, which collected $247.3 million in taxes in 2017.
Livingston said the Western states have higher numbers of users and he doesn’t expect Michigan to exceed those numbers. According to the annual National Survey on Drug Use and Health done for the U.S. Department of Health and Human Services in 2016, about 14.4 percent of Colorado’s population, or 727,000 people, used marijuana in the past month while 8.9 percent of Michigan’s population, or 886,000 people, used marijuana in the past month. “Mountain states have always led the rates of past-month consumption,” he said.
Michiganders shouldn’t just look at the tax revenues coming in from marijuana legalization, said Scott Greenlee, director of Healthy and Productive Michigan, a group opposing the ballot proposal. “What impact would it have in Michigan with a $57-billion budget? It’s just not that significant,” he said. “And then we have to deal with the unintended consequences of fighting increased addiction. I wonder if there would be anything left for Michigan other than a bad policy that will affect the state for decades to come.”
He said the 35 percent of tax revenues that would go toward improving Michigan’s roads would be a drop in the bucket for the state’s 120,000 miles of roads. “According to MDOT, the cost to improve roads is about $1 million per lane,” Greenlee said. “In their best case scenario, 35 miles of one lane of roads would be improved thanks to this new tax.”
Hovey said the coalition never promised that the marijuana tax revenues would be a cure-all for Michigan’s budget woes. “This will help fund the state’s most important needs. And we’ll be saving millions in wasted costs of continuing to enforce the prohibition of marijuana laws,” he said. “And I think the majority of the state’s residents would agree that our roads need more revenue.”
October 3, 2018 in Initiative reforms in states, Recreational Marijuana Data and Research, Recreational Marijuana State Laws and Reforms, Taxation information and issues , Who decides | Permalink | Comments (0)