congressional research service marijuana
Marijuana Business News

Congressional Report On The Federal Government Taxing Marijuana

congressional research service marijuanaBy Allen St. Pierre, NORML Executive Director

The Congressional Research Service (CRS) released a comprehensive thirty five-page report last week examining the federal government establishing a wholesale excise tax on the production and sale of cannabis-related products.

In what is one of the most comprehensive policy and fiscal reviews to date of how cannabis can be taxed and regulated numerous areas of consideration were reviewed including enforcement, discouraging youth use, choosing the base to tax (i.e., weight, potency and price), restrictions, labeling, measurement, special tax rates, home production and medical cannabis. Members of Congress initiate these reports to CRS.

CRS’ economic analysis indicates that cannabis prices are likely to fall from today’s prohibition-influenced prices of $200-$300 an ounce to as low $5-$18 ounce. Economic modeling based on a $40 billion annual cannabis market in the United States tests a $50 per ounce federal excise tax price point (generating nearly $7 billion in federal excise taxes).

When making the logical comparison of alcohol and cannabis’ ‘external costs’ (i.e., taxation to equate with external costs of the drug use to society), researchers peg alcohol’s external costs to the nation at $30 billion annually; cannabis, at $0.5 – $1.6 billion.

NORML Executive Director Allen St. Pierre commenting on the new CRS paper: “This CRS report on the prospects of the federal government taxing and regulating cannabis is another clear indication of the political saliency and fiscal appeal of ending cannabis prohibition at the state, and increasingly at the federal level (replacing the nearly eighty-year old failed federal policy with tax-n-regulate policies that are similar to alcohol and tobacco products).

With fours states and the District of Columbia since 2012 opting for legalizing cannabis, dozens of members of Congress from both major political parties—from states with legalization and those that pine for it—are getting serious about making sure the federal government does not lose out on hundreds of millions annually in tax revenue from the ever-growing cannabis industry in the United States.”

Source: NORML - make a donation

international canna pro expo

  • wowFAD

    I spent the morning reading this, and I have to say I’m very happy with what I’ve seen.

    One of my all-time favorite citations made the report:
    Mark D. Anderson, Benjamin Hansen, and Daniel I. Rees, “Medical Marijuana Laws, Traffic Fatalities, and Alcohol Consumption,” Journal of Law and Economics, vol.56, no. 2 (2013), pp. 333-369.This study reports that medical marijuana legalization was associated with decreased traffic fatalities.

    This was another great citation included in the report:
    Christopher Ingraham, “Study: Couples Who Smoke Marijuana are Less Likely to Engage in Domestic Violence,” Washington Post, August 26, 2014. An abstract of the study, to be published in the Psychology of Addictive Behavior, can be found at http://www.ncbi.nlm.nih.gov/pu

    And another good one:
    American College of Physicians, Supporting Research into the Therapeutic Role of Marijuana, 2008, at http://www.acponline.org/acp_p

    Things did get a little iffy in the report where they discuss possible taxation with regards to home grows. The report fairly discusses the parallels of home-grown cannabis to home-brewed beer and home-grown tobacco. One reference suggests home grows of “hobby” size would not seriously impact potential tax revenue, the same way home-brewed beer does not impact beer sales.

    But the section concludes with “However, Caulkins et al., suggest that home production would seriously undermine enforcement because anyone in possession of nontaxed product could claim home production. Banning home production could also increase the revenue generated from a marijuana tax.” That didn’t make me very happy, but I suppose it’s true — banning home grows would certainly increase tax revenues. They could have done a better job of juxtaposing the fact that very few people brew their own beer, despite having the right to do so, opting instead to participate in the taxed/regulated market. No reason to ban hobbyists for just a few extra nickels and dimes.

    I do appreciate how much serious consideration was given to tax exemption for medical cannabis. A tax burden imposed on someone simply for choosing a safer alternative to pharmaceuticals would not be right. I like the report stressing how the Schedule 1 status hinders any realistic study of cannabis, as well.

    All things considered, the CRS report is a solid practical assessment of the cost/benefits of legalization, regulation, and taxation of cannabis in the United States, and the assessment was overwhelmingly positive. I hope this report makes its way around Congress. It may dislodge some well-entrenched sticks from some very dark crevices.

    • Joshua

      Hey wowFAD, I haven’t had a chance to look at this thoroughly but maybe you can give me some insight. The CRS pricing model of $5-18 dollar per ounce forecast is very low considering the current effort to produce an ounce of quality cannabis. Looking at the proposed $50/oz excise tax (An excise is considered an indirect tax, meaning that the producer or seller who pays the tax to the government is expected to try to recover or shift the tax by raising the price paid by the buyer), doesn’t that hinder the legalization movement when the government is getting more out of the growers efforts than the growers? I don’t see the prices being anywhere near $20/oz if there is an excise and a sales/sin tax added to the product. Surely they are not forecasting based on expectations of automated production vs. the current labor intensive model. Again I haven’t read it completely but am I missing something?
      Isn’t this the type of legislative idea that had NorCal growers up in arms when legalization failed a few years back? I am all for legalization and even taxation but am very hesitant to give Washington the majority of the profits. I worry the prices will rise as the front end of production tries to earn a living before taxation eats up all the profits.

      • wowFAD

        That’s the tightrope that must be walked, in this case. If the tax burden is too high, the black market will not shrivel on the vine. But you’re right — the estimate is fairly low, but the report admits to not accounting for quality, potency, and other QA factors. They were trying to guestimate average prices. The notion is that there will be mass producers of cannabis who are able to keep their costs per ounce so low that, even with higher priced, superior quality cannabis taken into account, they still expect the average price to fall into the price range they gave.

        A broader discussion about “sin taxes” is honestly needed in this country. Should sin taxes apply to products/services that are considered objectively unhealthy for us (alcohol, tobacco, sugar, caffeine) or should sin taxes unjustly continue to tax the products/services that are morally judged as “sinful” in the subjective opinion of a minority of our society (social conservatives)? Just because they say cannabis is a “sin” doesn’t mean it actually is one. I’d argue it isn’t unhealthy or immoral, but that’s a battle that should be fought after cannabis legalization is achieved because it applies to so many other things besides cannabis, specifically.

        The report’s estimations will be different from what will happen in practice. They acknowledge how much uncertain information they had to incorporate in their math, for example, how much cannabis consumption will fluctuate *after* legalization. They simply assumed there will be an increase in cannabis consumption by 25% — a very round number they clearly pulled out of thin air.

        The report also does not, for example, take into account or try to parallel the high-end alcohol and spirits market to a hypothetical high-end cannabis market, let alone estimate the prices in such a setting. I don’t know how they would be able to estimate that, really — I cannot say how many people will participate in the market as cannabis connoisseurs willing to pay top-dollar for the best cannabis vs. the folks who will be perfectly content engaging the market in a more “Wal-Mart” sense, willing to pay low prices for low quality, mass-produced ditch shwag.

        Suffice it to say, I don’t believe they’ll be any more tax-happy for cannabis than they are for tobacco and alcohol, although admittedly, that’s a small comfort. The taxation and regulation scheme will most likely mirror tobacco in terms of production and alcohol in terms of distribution, which like most everything else in the US, will favor the mass-producers of low quality products.

        • Joshua

          Thanks for the reply. I have time now to read on it and appreciate your thoughts. I was just dumbfounded that they would consider the pricing vs. tax rate at the price levels mentioned in this article. I know the “tight rope” pricing for killing the black market will be a potential nightmare for awhile and hope they understand that it will take time to gear up reasonable production facilities after Washington backs off the prosecution path. As I started out supporting legalization I never thought about the complexities involved with actually legalizing the plant. It almost makes your brain hurt trying to second guess every outcome. This report seems to try and do just that at least with respect to the topics they include. 35 pages and still I have questions-suggestions but at least CRS has made an attempt. Have a great Thanksgiving man.

          • wowFAD

            Same to you. Happy holidays!

  • This sounds like a very positive development in the push for legal Banking for the industry #MMJBank #MMJConsulting #CannabisBank @green_aml

  • Scott Eaton

    And the Republicans just want to keep busting our balls

    • Denny

      We need to back off the political finger pointing and focus on educating people about the overall benefits.

  • ted mishler

    really, how can we put a price on the happiness the magical weed sometimes can present
    i suppose people deserve something for their labors of producing the nifty product
    the time wasted without it is my only resent
    love out to the good pals
    you are a blessing to me
    for without your help
    i’d have no one to yelp
    and that would be no life to be
    so blessings to you and may you have many more years without strife
    you have umm, i guess i got carried away
    but really thanks
    and may God bless ya!
    :-)

  • painkills2

  • painkills2

    It’s very irritating when my posts go into the “Pending” category on TWB (like the one I just posted). In fact, I have some posts from a year ago that are still marked as “Pending.” Well, at least those old posts must show up, because I get an occasional up-vote on them. But my latest post is nowhere to be seen…

  • painkills2

    Deleted.

  • painkills2

    Deleted. Post now at my wordpress blog.

  • Nathaniel

    A $50 excise tax would keep prices inordinately high in certain regions [namely here in Oregon] and would allow the black market a reason to continue to exist.
    Providing the feds were interested in funneling the assumed tax revenue to one of the following, education, the FDA, the EPA, updating the grid, high speed rail, using imminent domain and placing wind turbines on both coast from Maine to Florida and from the northern tip of Washington to the southern end of California, or the same usage of power to build a wealth of solar paneling throughout NW, AZ, and Texas, or paying down the national debt, I would be all game for them taking on the additional income.
    As it stands though, the feds refuse to effectively manage the money they currently possess and show no signs of discontinuing the obvious unsustainable trend of borrowing without a care as to how they might pay the debt down/off.
    The long and the short of it is, the feds should allow the tax dollars to stay local and allow states to decide how they would like to use said revenue to better serve their constituents.

  • ted mishler

    if legality if our objective, if i may interject a thought, why not let the black market have it it too?
    kind of tired of hearing some body say that we need to prevent this people or that people from the happiness that cannabis can bring, it just does not seem right, of course, that means what kind of fear? lol
    really, their would not be any violence they are indicted for would their if there is nor risk of robberies, as the cops would have their backs if they got robbed or what not, just a thought, wonder if it could fly
    lol
    there is a detox commercial, i think that prohibs of cannabis really think that cannabis is toxic, which it isnt, but well, i guess it is time lol to toxify myself some more, thanks to pals:-)