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1 Ulrik Boesen, A Road Map to Recreational Marijuana Taxation 1 (2020)

handle is hein.taxfoundation/tfrdmpr0001 and id is 1 raw text is: A Road Map to Recreational Marijuana Taxation FISCAL FACT No. 713 June 2020 The Tax Foundation is the nation's leading independent tax policy research organization. Since 1937, our research, analysis, and experts have informed smarter tax policy at the federal, state, and global levels. We are a 501(c(3) nonproft organization. ©2020 Tax Foundation Distributed under Creative Commons CC-BY-NC 4.0 Editor, Rachel Shuster Designer, Dan Carvajal Tax Foundation 1325 G Street, NW, Suite 950 Washington, DC 20005 202.464.6200 taxfoundation.org Ulrik Boesen Senior Policy Analyst, Excise Taxes Key Points: Legal recreational marijuana sales are ongoing in nine states, covering 27 percent of the U.S. population. In 2018, 10.5 percent of adult Americans had used marijuana products in the last 30 days. States have designed different excise tax systems for recreational marijuana. While most tax based on price, states also tax marijuana based on weight or THC content. An excise tax on recreational marijuana should target the externality and raise sufficient revenue to fund marijuana-related spending while simultaneously outcompeting illicit operators. Excise taxes should not be implemented in an effort to raise general fund revenue. Changes to federal law would have implications for the tax revenue in states with legalized marijuana. If businesses had better access to banking, federal tax deductions, or interstate trading, prices would most likely fall. High taxes may limit adoption by minors and non-users but could hurt the competitiveness of the legal market. Low taxes may allow easy conversion from the illicit market but could increase consumption among non-users and minors. Taxing by price may not be stable, taxing by weight could encourage use of high potency products, and taxing by potency could complicate tax collection and add significant costs to both tax collectors and industry. A potency- and weight-based tax defined by THC levels may be the best short-term solution for lawmakers assuming that THC is an appropriate proxy for the externalities associated with consuming marijuana.

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