Low Taxes on Cannabis: Not the Best Policy, the ONLY Policy

Cutting taxes isn’t always the answer to an economic problem. Donald Trump slashed corporate taxes, promising voters “economic growth” as a consequence.

What Americans have gotten is a much larger budget deficit (due to a big drop in corporate tax revenues). Meanwhile, the Fed just cut interest rates for the first time in a decade to address a slowing economy and it added a lot of dovish language that more cuts could be coming.

Corporate America took the tax handout but didn’t deliver any growth. Instead, senior executives embarked upon an orgy of share buy-backs with the windfall they got from Trump.

They did this to drive share prices higher so they could pay themselves bigger performance bonuses and cash-in to an even more nauseating degree on stock options. (Some readers may need to reach for barf-bags at this point.)

A broad cut in U.S. corporate taxes was not the right policy under current circumstances, where large corporations are led by self-serving pirates. It is the right approach to cannabis taxation, with numerous strong policy arguments that favor low cannabis taxes.

Such a discussion must begin with the #1 reason for low cannabis taxation.

High cannabis taxes don’t work

This argument against high cannabis taxes isn’t merely unique to the cannabis sector. It is an irrefutable point.

A low tax rate on cannabis is the only way to eliminate the massive cannabis black market that our governments created through nearly 100 years of their totally misguided cannabis Prohibition.

State and provincial governments across the United States and Canada have stated unanimously that “eliminating the black market” is one of their very highest priorities. These governments need to put their money where their mouth is.

Colorado has already shown the way. First through its own failure and then through learning from its mistake. (Yes, even politicians can learn.)

Colorado started with a high taxation rate on cannabis sales, effectively around 30%. The state failed to put a serious dent in the cannabis black market. It didn’t even generate a strong flow of tax dollars because of the modest size of the (over-taxed) legal industry.

Low cannabis taxes DO work

Then Colorado cut its tax rate on cannabis, by roughly half.

The legal industry flourished. The cannabis black market began to steadily shrink (it’s now the smallest in the U.S.). State taxes and fees from the legal cannabis industry soared.

Why?
 

• The legal cannabis industry became price-competitive with the black market. Give people the choice of a licensed/inspected legal product or a black market product (at roughly equivalent prices) and consumers will steadily gravitate toward the legal option.
• Legal cannabis products became more price-competitive with alcohol (and tobacco) products. There is an enormous consumer appetite to move away from toxic/addictive alcohol toward non-toxic/non-addictive cannabis. If cannabis products are priced attractively versus alcohol products, consumers will steadily migrate to this healthier alternative.

Diverting consumers away from alcohol and toward cannabis is not the only important public policy health objective in this area.

REAL hope in fighting the Opioid Crisis

There is now an abundance of data that shows the enormous potential of legalized cannabis to reduce the severity (and death toll) from opiate use/abuse. This is one of the earlier scientific studies.
 

More recent data frames this potential in a different way. Colorado is not only the most successful state in building a thriving legal cannabis industry (now generating nearly $2 billion per year in revenues). It is also having more success in reducing opiate use.
 

Colorado has been successful in reducing opiate use/abuse for the same reason it’s more successful than any other state in squeezing out the cannabis black market: low taxes.

Low taxes made Colorado’s legal cannabis products competitive with black market cannabis. Similarly, low taxes make it more economical for opiate users to shift from opiates to cannabis.

It’s good for business. It will save lives.

Low cannabis taxes INCREASE cannabis tax revenues

As already noted, Colorado cut its cannabis taxes substantially and state tax revenues went up – way up. Colorado has already reaped over $1 billion in total state cannabis taxes and fees. Unlike giving tax hand-outs to large corporations, this is taxation policy that works.

Low taxes make legal cannabis products competitive with black market cannabis. Sales rise, the state collects.
Low taxes make legal cannabis competitive with prescription and black market opiates. Sales rise, the state collects.

Low cannabis taxes SAVE tax dollars

Unlike cannabis, alcohol and tobacco are toxic and addictive. Unlike cannabis, alcohol and tobacco products cause numerous/severe health problems (including death).

Unlike cannabis, U.S. states spend enormous sums of tax dollars providing healthcare for alcohol- and tobacco-related health problems. Taxes on alcohol and tobacco cover only a small portion of those costs.

Cannabis doesn’t cause health problems. It’s prescribed to reduce them.

Using low cannabis taxes to encourage alcohol and tobacco users to shift some (or all) of their consumption to cannabis can potentially save states enormous sums on healthcare expenses. And save lives. And reduce productivity losses from alcohol/tobacco health problems.

Win/win/win.

Most U.S. states (and Canadian provinces) impose high taxes on cannabis, high fees on the cannabis industry, and other obstacles to legal cannabis commerce. And most of these jurisdictions are failing miserably in making the transition to legalized cannabis.

Colorado has already created the recipe for success here. Why is it so hard for politicians to copy what works instead of repeating what fails?
 

Cannabis taxation policy in most North American jurisdictions is insane.

The people deserve better. The cannabis industry deserves better. States (and provinces) should be doing better.