NORML Op-Ed: Excessive Taxes on Cannabis Fuels the Unregulated Market

From Michigan to Maine, state governments are raising taxes on marijuana products. The New York Times is cheering them on, opining in a recent editorial that artificially raising the prices of legal cannabis through higher taxes and fees will dissuade adults from consuming it. 

Here’s why they are wrong.

Excessive taxation doesn’t discourage consumers from obtaining cannabis, but it does discourage consumers from purchasing state-legal cannabis from regulated markets. 

To disrupt the illicit cannabis market and permit legal markets to thrive, state-licensed retailers must offer competitive pricing. In today’s environment, few can. That’s because the federal government’s longstanding ban on cannabis prohibits state-legal marijuana operators from accessing traditional banking, taking standard business deductions, or using other tax incentives available to businesses in every other commercial industry. This makes their cost of doing business exponentially more expensive than it would otherwise be. 

In addition, most legal states impose taxes on cannabis products that far surpass those imposed upon other goods, including alcohol. In some states, consumers face a tax burden of more than 30 percent on retail cannabis.

This results in higher retail prices than many consumers are willing to pay. The outcome? These consumers turn to the unregulated market where they can purchase marijuana at far lower prices. This undermines the primary goal of legalization, which is to provide adults with safe, affordable, above-ground access to lab-tested products of known purity, potency and quality. 

Excessive taxation also hurts state-licensed businesses and their employees. Higher prices result in fewer customers visiting legal stores. Fewer customers equate to fewer jobs and less profits. Less profits result in fewer entrepreneurs willing to invest in the legal cannabis industry. After all, who is going to risk their capital on a business that relies upon selling a product that consumers can buy for far less on any street corner?

Nonetheless, many states are sacrificing the long-term health and sustainability of the legal cannabis market for theoretical short-term gains reaped by sky-high taxes. In Maryland, for example, state lawmakers last year raised the special cannabis sales tax on adult-use products by 25 percent. They weren’t alone. Minnesota lawmakers raised their state-specific cannabis sales tax by 50 percent. In Maine, lawmakers increased cannabis sales taxes by 30 percent. And in Michigan, legislators imposed a new 24 percent tax on marijuana goods. Predictably, legal marijuana sales crashed soon after. 

By contrast, California lawmakers recently rolled back a planned 25 percent tax increase on legal cannabis products. In addition, state legislators imposed a moratorium on any future tax hikes until 2030. “We’re rolling back this cannabis tax hike so the legal market can continue to grow, consumers can access safe products, and our local communities see the benefits,” Gov. Gavin Newsom explained.

He’s right.

Imposing excessive taxes on legal cannabis strengthens illicit markets while weakening legal ones. It encourages consumers to seek out unlicensed sellers who don’t check IDs, who lack the means or the desire to test their products for quality or purity, who operate without any regulatory oversight, and who don’t redistribute their revenues back into their local communities. 

The Times editors and lawmakers ought to know better.

A version of this op-ed originally appeared in The Detroit News and in The Boston Herald.