Bifurcated potency and weight taxes solve dangerous uses and distributor circumvention

IV. LESSONS FROM ILLINOIS AND CANADA Earlier, I criticized the Illinois tax scheme as choosing the worst of both worlds, a point which should have been illustrated by the preceding discussion. In devising a marijuana tax, Illinois failed by choosing retail price for products that could have been taxed in a more efficient manner—products “not intended to be smoked.” For these products, potency was a more logical choice. Potency is easier to test for in edibles—which often are the cause of adverse effects from marijuana consumption—since it is distilled before being incorporated into the final product, and in oils and topical lotions (ditto). A tax on potency would have discouraged high-strength consumables and oils and at the same time would have been resistant to falling prices as the legal market becomes efficient. On the other hand, Illinois chose a potency tax base for “products intended to be smoked.” This tax specifically targets concentrates (i.e. dabs), but also ropes in bud and flower. It is the overly broad characterization, not the policy goal, that is the problem for this category. While concentrates frequently feature THC content of 80 or 90%, and are thus rightfully targeted by any public-health-facing-tax, bud and flower are less worrisome than either concentrates or edibles. Moreover, the cannabis plant naturally has a ceiling of around 35% THC, so potency is not the most efficient way to tax bud and flower from either a revenue collection standpoint nor from a public health standpoint. Lastly, Illinois failed in creating a tax cliff—product up to 35% THC will be taxed at a starkly lower rate than product that contains more than 35% THC. As mentioned earlier, this will incentivize producers to land their product just a hair below 35% THC, therefore creating a product with high enough THC content to appeal to current market trends, while being taxed as if it were much safer product. By learning from the mistakes of states that have already established legal markets for adult-use marijuana, I propose a hybrid solution for states still in the process of legalizing—such as Ohio. A bifurcated tax base would seem to be the most ideal form of a marijuana tax at this time, considering both our current level of research on the health effects of marijuana use and our understanding of how the entourage effect works to produce potency calculations. First, I would tax flower, bud, and trim based on weight. Doing so is the simplest and most efficient way of taxing marijuana plant matter. Revenue will not fall with market stabilization, there is little opportunity for leakage or bundling, and creating records of all plant matter as early as possible allows for maximum auditing efficiency moving forward. Second, I would tax concentrates, edibles, oils, and other “distilled” marijuana products based on potency. For now, I would measure such potency based on THC content. I understand the limitation of calculating potency by THC alone, but considering how little we understand about how the multitude of cannabinoids and terpenes work together to impair the human body, THC is a useful proxy. Some experts argue that a potency base should include CBD in its calculation—even going so far as to suggest that potency be calculated based on a ratio of THC:CBD 56—since CBD is an antagonist of THC, but I argue that our understanding is too crude to do this in a way that is grounded in science. Taxing only concentrates and other products that use distilled marijuana by potency should be feasible, even allowing for the inconsistent testing and lack of standard methodology that marks the current legal market. These forms of distilled marijuana are much more similar to alcohol, or even sugary soda, in that they are homogeneous, and testing liquid matter is far easier than testing plant matter—no “weed slurry” required here. To avoid the problem of gaming a potency tax, I propose a continuous tax, i.e. one where the percentage tax is proportionate to the milligram THC content of a product.57 I believe that potency is the ideal base for a marijuana tax, at least for products that are easily tested. Although the science is still young, higher potency product seems to correlate with harsher health effects of marijuana consumption. The same way that society is okay with alcohol so long as the negative externalities of alcohol use 56 Prieger, supra note 11 at 20. 57 For a more in-depth discussion of tax continuity, see Prieger, supra note 10 at 28-30. DRUG ENFORCEMENT AND POLICY CENTER | THE OHIO STATE UNIVERSITY 11 Electronic copy available at: https://ssrn.com/abstract=3683799 are kept to a minimum, I believe that society will be okay with marijuana if it follows the same path. The reason that the federal government levies a higher excise tax on distilled spirits than on beer stems from this societal norm—society knows that distilled spirits have a higher alcohol content and are thus more likely to harm those who partake, so the government imposes this norm via the tax system.