A Principled Approach to Taxing Marijuana


Marijuana policy has been changing radically. Beginning with Colorado and Washington, eight states — including California — have now legalized not just medical use but large-scale commercial production, marketing, and sales for non-medical use. Canada expects to do the same next year. These developments are accelerating the decline in prices that has been underway since the Obama administration’s 2009 decision to tolerate state legalizations of first medical and then recreational marijuana, despite federal laws prohibiting all use. Legal marijuana now flows readily across state borders; a year’s supply for a heavy user weighs about as much as one 22-ounce can of beer. And once people can easily obtain marijuana next door, more states will legalize.

The federal government will be forced to either shut down these state-legal operations or seek to bring order to the dysfunctional contradictions between state and federal law by legalizing marijuana nationwide. Taxes figure prominently in these debates, but no one, it seems, knows how to tax marijuana prudently. The states leading the legalization charge have enacted primitive taxes that will fail as marijuana prices fall because they are computed as a percentage of value. As the Trump administration weighs its options, it is worth thinking carefully about what the best tax regime would look like, and what limitations even the best regime will face.

Some legalization advocates compare marijuana to alcohol. Yet, in Tom Babor’s memorable phrase, “alcohol is no ordinary commodity.” Neither is marijuana. While marijuana has tens of millions of happy occasional users, they account for a trivial share of industry sales. Consumption is concentrated among the smaller number of high-frequency users; half of marijuana is consumed by people with a medically diagnosable substance-use disorder, and these individuals are disproportionately poor and less educated. Policy — including tax policy — should be designed to protect these problem users from exploitation by industry and from their own bad choices, rather than cater to the convenience of occasional users.

Lower prices for marijuana have been shown to increase use, particularly for younger and heavier marijuana users. Hence, a major goal should be to keep after-tax prices from falling too sharply (ideally by no more than 50%). Dictating that outcome only via minimum-pricing rules, however, would let industry pocket excess profits. Propping up prices with excise taxes — a favored strategy for tobacco — would achieve the public-health goal of discouraging excessive marijuana use, while relieving the public of having to finance government via other less-popular and more-counterproductive taxes.

Alas, taxing marijuana is not simple. Federal legalization — specifically, allowing for-profit corporations to sell marijuana — would unleash a dynamic market that would evolve precipitously and unpredictably, with the potential for aggressive anti-tax lobbying, price collapses, rapidly changing marijuana-derived products, and black- and gray-market tax evasion. All this would create complicated secondary goals: Taxes would need to be nearly uniform across states; they would need to cover a wide variety of products; and they would need to increase dramatically over time.

These challenges and corresponding goals present unexpected pitfalls for approaches that at first seem sensible. Four principles could help marijuana-tax models avoid such traps: the equity principle, the “Goldilocks” principle, the complexity principle, and the political principle.

Together, they imply that tax policy will need to adjust dynamically to changing circumstances, and nimble tax policy is not what lawmakers are known for. Two options exist that could achieve the necessary flexibility, but neither would be easy to implement. This raises the question of whether it is wise to legalize marijuana like alcohol when there are forms of legalization that may better serve the public interest.



“If you can't figure it out, figure out a "work-around!" The NestEggg Group was founded with a firm belief that working exclusively with professional firms to help them see past their history into the potential of their futures. Your potential is limited only by your creativity. Jeff's business purpose— “why”—centers on changing results through viewing things in new ways. He expounds: “Changing our results requires changing our actions. Because what we do proves what we believe, only when we change our beliefs can we progress. New insights are what cause us to shift our beliefs.” So what results do you want to attain? Call Jeffrey (1-888-987-NEST) when it’s time for progress. About Robert "Jeffrey" Wolter, President The NestEggg Group, Inc & EgggsAct Tax, Inc. & Managing Member NestEggg Investment Advisors Jeffrey is a common sense and productivity strategist. He facilitates and teaches about growth, positioning, and pricing strategies; leadership; operations; business communications and philanthropy. What he does best—differently from others—is energize people while he shows them how to solve business effectiveness. He clarifies the intricate, huts new light. He encourages hope. He sets you up to make development possible. Jeffrey is recognized for his original ideas and success with practical implementation, even as he challenges the "norm". Jeffery is a skilled facilitator. His deep knowledge of his firm(s) operations and ability to understand the intricacies of All of his clients, gives way to sharp observation skills allow his grasp a firm’s nuances quickly. He then guides firm owners and their teams on their unique paths toward improved profitability, smoother operations, stronger cultures and how and when to give back. Since 1998, he's helped more than 5,024 QuickBooks users and business owners achieve results such as: expanding revenues, attracting and inspiring talent, aligning operations with long-term objectives, discovering and leveraging their differentiation, substantially increasing sales and proposal results, strengthening relationships with their clients, and finding more joy in their work. His 25+ year career background includes roles as entrepreneur, finance director, board of director for several nonprofit, creative business development, insurances agency owner, Wealth Management Firm owner, editor, Tax Specialist, Accounting Director, Mediator and more. Before creating his firm in 2007, Jeffrey was an accountant for several well know local firms and individuals. After building a successful accounting practice, he became intrigued and inspired by the uniqueness of how Insurance, Investment's/Wealth Management, Taxes and Accounting/Bookkeeping all tend to work together, he branched out and created his list of Affiliate Companies in 2012 & 2013 In 2013, joined the Intuit Accountants Council and has assisted in the continued enhancement of the popular QuickBooks (Desktop and Online versions) and did so until late 2015. In 2014 with the legalization of Marijuana, Jeff and his team have committed themselves to knowing as much about the industry and being there to offer Cannabis Compliant, Accounting, Tax & Insurance to business owners that have or need help in keeping in with the Federal government's "280E"
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