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

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A Road Map to Recreational

Marijuana Taxation

No. 713
June  2020

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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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