Wednesday, April 24, 2013

The Problem with Marijuana Legalization: They Want To Tax It Big Time

From NYT (my highlights):
This week, legislators here [in Colorado] will consider excise and sales taxes on marijuana of up to 30 percent combined. The proposal emerged from a task force of health officials, representatives of the state’s rapidly developing marijuana industry and others that was commissioned last year to help develop rules for marijuana.

The goal, task force members and lawmakers say, is to set taxes high enough to finance the administration of new laws, but not so high that customers are driven back to the black market[...] 
Under the proposal, the first $40 million collected from a 15 percent excise tax would be used to build public schools. Revenue from a 15 percent sales tax imposed, in addition to the state’s 2.9 percent sales tax and any local sales tax, would be apportioned to local governments and for enforcement[...] 
In Washington State, where voters in November passed a similar measure legalizing small amounts of marijuana for personal use, taxes will be levied in three tiers of 25 percent each on producers, processors and retailers. Those taxes were laid out in the initiative that voters approved, and will result in an effective rate for consumers of 44 percent, according to the state’s Liquor Control Board, which will administer marijuana regulations.


  1. This is pretty funny.

    IMO, as long as they keep the tax a percent of the sale price, it will be fine.

    There's a reason they call it WEED. It grows like one.

    Once the prohibition price is gone, we will all see how very, very cheap it is to produce marijuana.

    The other thing they will find out is that if they put a flat amount tax on it, people will simply grow their own.

    Regardless, we can't afford to lock up pot smokers. A lot of them do very well filling dull, boring jobs that can't be done without being anesthetized.

    1. It will be very interesting to find out just how cheap marijuana becomes once fully legalized. Economies of scale, resulting from nation-wide legalization, will bring the price down dramatically.
      Until then, nation-wide prohibitions will continue to force growers to remain relatively small-scale.

      I could go through the calculation, but a lb of indoor sinsemilla has fixed costs in the order of $200 - 400 a lb. (Given HID lighting and cooling). Growing marijuana is also fairly labor-intensive. Until economies of scale develop due to nation-wide legalization, I'd imagine the price wouldn't fall lower than $1000 a lb. or $2.50 a gram.

      (In states where the product is completely illegal, prices are in the $15 to $18 a gram range.) Even in California, where marijuana is legal for medicinal purposes, prices are still about $10 a gram. According to, it's slightly less costly in Colorado at this time. (Of course, much of the weed produced in these states is exported, affecting the local price.)

      A 44% effective tax rate on consumers would probably have to be absorbed by producers given that barriers to entry (i.e. illegality) would be lessened. The biggest barrier is the difficulty in growing your own. Although it "grows like a weed," it isn't easy to grow indoors and takes time to learn. There's a considerable learning curve which would, no doubt, be mitigated through legalization.

  2. Anytime I have a conversation about legalization with someone, their first justification is that "we" should tax it. Although an anecdote, this speaks to a lack of understanding of the primary justification for legalization, i.e. freedom. Furthermore, it demonstrates (among the few people I've spoken to) a desire to expropriate the labor of those working hard to bring a desired product to market.

    It is striking that so many "defenders of labor" are so willing to expropriate its product in the name of the state. This, I believe, is due to a general ignorance of the nature of taxation and its primary assumptions (i.e. that slavery is justifiable provided it is for the state).

  3. Which is better, legal and taxed or prohibited and untaxed? Two bad choices...