Over the next year, California officials said last week, the state expects to seize “over $1 billion in illegal cannabis products.” That announcement came a few weeks after the U.S. Department of Justice touted the guilty pleas of 11 unlicensed California marijuana dealers who had been caught with the help of state and local law enforcement agencies.
The ongoing war on weed in California, which supposedly legalized marijuana in 2016, reflects the stunning failure to replace black market dealers with state-licensed sellers, a plan that has been condemned for high taxes, local bans and overregulation. Judging by the marijuana legalization bill he introduced last week, Senate Majority Leader Chuck Schumer, D-New York, learned nothing from that experience.
Six years after California voters approved recreational marijuana, unlicensed vendors still account for two-thirds to three-quarters of sales. A recent report by the Reason Foundation (my employer) highlights one of the main reasons licensed companies have had so much trouble competing with illegal suppliers: taxes are too high.
Geoff Lawrence, the foundation’s managing director of drug policy, found that California’s effective tax rate ranged from $42 to $90 per ounce, depending on the jurisdiction, compared to an estimated wholesale production cost of $35 per ounce. The corresponding fees in Colorado and Oregon, which have been most successful in displacing the black market, are about $33 and $21, respectively.
Despite modest tax relief passed this year, legal marijuana remains too expensive in California. It’s also inconvenient to shop in much of the state, Lawrence notes, thanks to local sales bans that have created “massive cannabis deserts” where “consumers don’t have access to a legal retailer within a reasonable distance of their home.”
Legal sellers must also contend with burdensome licensing requirements and regulations. Dale Gieringer, California director of the National Organization for Marijuana Law Reform, says those rules help explain why legal marijuana prices are much higher than he expected.
“It turned out that he had greatly underestimated the cost of the regulations imposed by the new law,” Gieringer writes in an introduction to the Razón Foundation’s report. “In addition to state and local licensing fees, there were elaborate rules on cultivation, retail, transportation, manufacturing, testing, facility location, ownership, security, storage, on-site consumption, wholesale distribution, tracking of seed to sale and waste disposal, labeling, packaging, environmental compliance, water use, etc. ad nauseam.”
Despite years of complaints about these barriers, Schumer has decided that the cannabis industry needs more taxes and regulations. His 296-page Cannabis Stewardship and Opportunity Act, which is co-sponsored by Senators Ron Wyden, D-Oregon, and Cory Booker, D-NJ, includes 52 pages dealing with taxation and 71 pages prescribing new regulations for the marijuana companies.
Schumer’s bill calls for a federal excise tax starting at 10% and rising to 25% by the fifth year, which would be on top of often high state and local taxes. Implicitly acknowledging the counterproductive impact of these taxes, the bill would cut rates in half for businesses with revenues below specified levels.
Schumer wants to charge the Food and Drug Administration (FDA) with registering marijuana companies, establishing product standards, establishing labeling requirements, controlling “adulterated” and “misbranded” products, regulating advertising and promotion, and imposing “restrictions on the sale and distribution”. In addition to requiring specific rules, such as a national minimum purchase age of 21 and a ban on adding flavors to cannabis vaping products, the bill would authorize the FDA to impose restrictions it deems “appropriate for the protection of health public”.
Given the FDA’s dubious sense of what it means to protect public health in other areas, such as the regulation of tobacco and nicotine vaping products, that’s a pretty scary clause. As in those contexts, whatever arbitrary rules the agency proposes are bound to restrict consumer choice and help perpetuate the black market.
“By not acting,” Wyden says, “the federal government is empowering the illicit cannabis market.” That is exactly what the taxes and regulations in this bill would do.
Jacob Sullum is a senior editor at Reason magazine. Follow him on Twitter: @JacobSullum.
California’s overtaxing, overregulation of marijuana should be a lesson for Congress – Press Telegram Source link California’s overtaxing, overregulation of marijuana should be a lesson for Congress – Press Telegram