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How States Allocate Cannabis Tax Revenue Is Complicated And Varies By Market

October 12, 2020 9:59 am
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Due to the ongoing U.S. federal prohibition of cannabis, states must implement their own regulations and various excise and sales taxes. Excise taxes in many Western U.S. states tend to hover 15% while others, like Washington, charge 37%.

Additional charges may come in the form of additional municipal taxes, per ounce cultivation rates, potency and other measures, depending on regulations.

Cannabis markets typically see varying success with the revenue they generate, as well as what the money goes towards.

How States Tend To Allocate Cannabis Tax Revenue

"Most states allocate their cannabis tax revenue towards various public health and safety, education and social equity programs," says Laura Bianchi, a partner at cannabis legal firm Bianchi & Brandt.

Funds also often go toward programs aimed at combating substance abuse and the effects of the drug war.

"Programs that provide transparency to the public, including a clear understanding of the use and application of such revenue is essential," Bianchi said. "Tax models that track the use and impact of those funds is also important both from a public policy, community support and efficiency perspective."

States must also balance the benefits of cannabis taxes without making the illicit market appealing to consumers, she says.

In Oregon, funds are allocated towards education, the city, police and government health boards, but not social justice reform.

"You are seeing more states write this in their legislative passing of legalization," said Kendra Freeman, co-founder and chief product officer of Portland, Oregon-based CBD brand Mendi. Illinois and Michigan have more robust social equity plans, she added.

See Also: IRS Greenlights Tax Loophole For Cannabis Businesses

Police Funding

Freeman is among those in the cannabis community who say funds should not go towards policing so long as the war on drugs and arrest disparities continue.

"Cannabis was made illegal to keep BIPOC in poverty and to keep them locked up," Freeman said. "We have a lot of work to do to untangle that."

Bianchi empathized while stating that the manner isn't cut and dry.

"Unfortunately, I do not think a simple yes or no is appropriate," she said. The legal partner noted the unique needs of each state.

"If a state has a population of people who have been disproportionately affected by marijuana criminalization, then it might be worthwhile to allocate a portion of revenue towards police education and training," said Bianchi.

While understanding the possible need for police funding, Bianchi opined that the process starts with targeted education, training and community involvement.

Uniform Tax Code Prospects

Often, the fragmented cannabis market leads to calls for standardization, usually via federal legalization.

Such calls for standardization typically back reform legislation, such as the MORE or SAFE Banking Acts. That said, a unified tax code for the market isn't uniformly well-received or seemingly feasible in the near future.

"Uniformity in the cannabis industry would be great. However, that's something we won't likely see until federal legalization and the allowance of interstate commerce," Bianchi says, adding that a unified code would be needed at that point to avoid double taxation.

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