This month, the Congressional Research Service (a research arm of Congress) released a comprehensive report, entitled Federal Proposals to Tax Marijuana: An Economic Analysis on the possibility of the federal government establishing a wholesale excise tax on cannabis products.
The economic analysis noted that studies in the UK and Canada suggest that the societal costs of individual marijuana consumption are between 12% and 28% of the costs of an individual alcohol user. This study also predicts cannabis prices eventually falling from today’s prices of $200-$300 an ounce to as low as $5-$18 an ounce. The report estimates a total market size of $40 billion and notes that a federal tax of $50 per ounce would raise about $6.8 billion annually.
Though the end to federal marijuana prohibition is probably at least a couple of years away, it is good to see the Congressional Research Service considering essential “what if” scenarios. We also recognize the importance tax structures can have on cannabis consumers and businesses alike, and even on the viability of an entire state regulatory system. If taxes are too high, the illegal market will thrive and legalization will fail or nearly fail. Conversely, low taxes will shrink the illegal market.
We touched on how things were playing out with Colorado’s taxation system in Marijuana Tourism 102, and we went much deeper into Colorado tax issues in Colorado Cannabis Taxes. Under Colorado’s cannabis taxation system, the state collects more taxes on its recreational marijuana sales than on its medical marijuana sales, due to the lower prices of medical marijuana in Colorado and to the state having chosen not to levy its excise tax on medical cannabis sales. We also wrote about what to expect by way of cannabis taxes under Oregon’s Measure 91 and Alaska’s Ballot Measure 2 here:
In Oregon, the state taxes are the lowest of any state in the country and it is widely predicted that Oregon will remain the state with the lowest marijuana prices. Oregon’s measure also explicitly prohibits municipalities from tacking on their own taxes — though a number of Oregon cities already did so before Measure 91′s passage. Measure 91′s goal is to keep legal marijuana prices low so as to limit illegal market sales. Alaska will be imposing a $50 per ounce excise tax on the sale of marijuana from a marijuana cultivation facility to a retail marijuana store or to a marijuana product manufacturing facility.
A federal excise tax would no doubt serve to increase legal marijuana prices and thereby increase illegal sales as compared to legal sales. A federal excise tax would also lead to higher cannabis prices. But if federal legalization were to occur, we too think that prices overall would decline considerably and more than make up for any federal excise tax. As strange as it may sound, we would have no problem with a federal excise tax as that would mean that cannabis has become legal nationwide and it would also mean that prices have declined nationwide as well.