According to a report by a nonprofit think-tank, a nationwide legalization of marijuana in all states could increase annual cannabis tax revenues to $8.5 billion. The report also includes a blueprint for taxing sales.
Tax Foundation, based in Washington D.C., proposes a model of state and federal marijuana taxes that would keep costs low to reduce illicit sales but impose higher rates on potent products. The Tax Foundation says that the current state cannabis laws, which tax mainly by the sales price, are “chaotic.” While marijuana is still federally illegal it’s important to consider the pros and cons of creating a new framework taking into consideration revenue and public safety.
The design of an excise is very important. It says that well-designed taxes produce revenue with a far lower impact on society than poorly designed taxes.
The report states that marijuana sales generated nearly $3 billion dollars in tax revenue last year for the legal states. The report estimates that revenue would almost triple, to $8.5 billion if cannabis was legalized throughout the United States.
The foundation stated that, in theory, it would make sense to tax cannabis in the same way as alcohol and tobacco. However, the foundation pointed out that, “cannabis has not developed into a standard product like tobacco where taxes are levied per stick (cigarettes) or per pack. Nor is the intoxicating component (THC), as easily measured for an appropriate targeted tax as alcohol content.”
The potential revenue is huge: More than 40% of states tax #marijuana for recreational use. States collected almost $3 billion in marijuana revenue last year. Legalization across the country could bring $8.5 billion per year. pic.twitter.com/mNGc6gkcRz
Tax Foundation (@TaxFoundation 14 December 2023
The report recommends that marijuana be taxed based on potency, “wherever possible.” If it is “impractical” for products to be measured by THC, then they should be taxed based on weight.
The organization believes that either approach would be preferable to the current taxation of cannabis in many states, which is a percentage of the sales price.
The weight-based method would be able to capture the harm caused by the use of smokable product. It says that eventually, as product testing for THC in plant materials becomes cheaper, products taxed on weight will transition to being taxed on potency. In the short-term, a weighted approach captures externalities more accurately than an system based on ad valorem and is simple enough for new products to be introduced to the market without prohibitively expensive barriers to testing product simply for tax reasons.
The report states that “taxes on potency increase as the THC content in a product increases, making concentrated products more costly and yielding higher revenue. This reflects the higher costs to society associated with potent products.” The report suggests that a separate category for concentrates and edibles should be established because they are easier to test. Weight and potency may not be perfect, but they are both better substitutes than price-based taxation.
The Tax Foundation describes three important “lessons”, that state taxing marijuana experiences should be kept in mind by policymakers:
- According to the report, cannabis tax rates should be “low enough to allow the legal market to undercut the illicit market, or at the very least, gain price parity.” A tax rate that is too high has hindered the ability of some states to effectively reduce unregulated sales.
- States have demonstrated that “the revenue potential from legal cannabis markets is significant,” however, it could take years for this to materialize. Even then, the tax revenue may be volatile under certain tax models.
- The foundation stated that “consistency between jurisdictions is very important,” which will be even more relevant when interstate commerce becomes legal. Companies could pay twice as much tax if they receive state taxes on retail at the point-of-sale, but the state of origin taxes raw flowers. In the opposite situation, “products exported from states that only tax retail sales into states that only tax raw materials may not be taxed at all.”
Adam Hoffer said, “Legal cannabis markets are still in their infancy. As are the tax policies that are applied to these markets.” Adam Hoffer is the director of excise policy at the Tax Foundation. He stated this in a Thursday press release. “A simple and inexpensive tax system can raise substantial amounts of revenue while reducing social harms caused by cannabis.
The majority of states have a cannabis excise tax, ranging from 6 percent in Missouri up to 37 percent in Washington State. Connecticut and New York are among the states that have implemented potency-based taxes into their systems. However, it is rare.
A simple, low-rate, and low-cost tax system has the potential to raise significant amounts of revenue, while simultaneously decreasing social harms from #cannabis by bringing illicit market transactions into a legal market framework.https://t.co/bcEaKed9wP @AdamJHoffer
Tax Foundation (@TaxFoundation 14 December 2023
The U.S. Census Bureau is tracking state-level cannabis tax trends. In October, it launched an interactive map that details the proportion of state revenue made up by marijuana tax dollars. The U.S. Census Bureau tracks state-level cannabis taxes. In October, it launched an interactive map that detailed the percentage of state revenue comprised by marijuana tax dollars.
Census also updated its survey of a data-google-interstitial=”false” href=”https://www.marijuanamoment.net/census-bureau’s beginning to collect data about marijuana business and economic activity as the market enters mainstream/” rel=”noopener” target=”_blank>private businesses in order to better capture marijuana related economic activity/a>. Census updated its survey of private businesses in order to better capture marijuana related economic activity.
The Congressional Research Service (CRS), released a report in October warning that if marijuana is legalized federally, lawmakers should take into consideration the unintended effects of imposing high taxes on marijuana products.
A top Virginia senator wants to legalize marijuana sales in exchange for approving a sports stadium preferred by the Governor
The post National Marijuana Legalization Could Increase Tax Revenues To $8.5 Billion In All States, According to Think Tank Estimates in New Taxation “Blueprint” first appeared on Marijuana Moment.
