Marijuana Taxes and Restrictions Recreate Prohibition by the Back Door

Discussion in 'Marijuana News' started by dabs710, Aug 5, 2015.

  1. http://reason.com/archives/2015/08/04/marijuana-ta...


    As marijuana is being legalized around the country, control freaks try new ways to control.


    J.D. Tuccille | August 4, 2015


    Are you a government official who yearns for the good old days of
    marijuana prohibition? Do you feel out of place in an era of
    voter-approved legalization, grow clubs, and pot shops? My, how the
    world has changed! But you can feed your nostalgia for busts and
    streetcorner deals even while "respecting" the public's desire to
    legalize the stuff. All you have to do is pile so many taxes and
    regulations on the now officially sanctioned product that it's still cheaper and easier for people to buy their dope on the black market. Everybody wins!

    Well, maybe the only real winners are drug warriors
    nostalgic for the days when they had more power to boss people around,
    and their best frenemies, the underground dealers who know that money
    can be made with scales and grow lights when the "open" sign is lit on
    the black market.

    And the warriors and dealers are doing just fine despite legalization.

    After decades of reefer madness, with narcs chasing stoners (all in
    good fun unless it's your door getting kicked in or your kidneys
    stomped) recreational marijuana is now legal in Alaska, Colorado, Oregon, Washington, and Washington, D.C. Well, it's legal-ish. Just days after voters in the nation's capital approved Initiative 71, city officials responded with strict limits on where and when the stuff could be enjoyed. The U.S. House doubled down by slipping a two-year moratorium on pot sales in the federally dominated District into the budget bill.

    Which illustrates the important fact that "legal" and "illegal"
    aren't always concepts in opposition to one another. All too often,
    they're just points on a spectrum. Something can be banned, with the law
    so ignored that people forget it's there. And something can be
    permitted, but so restricted that everybody gets warm and fuzzy
    accolades for reform while underground business remains the only
    practical access.

    All four of the jurisdictions nominally backing off marijuana
    prohibition are having trouble making a clean break with restrictions.
    Which is why the warriors and dealers are doing just fine.

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    Alaska's main problem isn't of its own making-it's an imposition by
    the feds that distorts the marijuana market everywhere. That's the
    effect of financial restrictions that
    threaten dire consequences for financial institutions that open bank
    accounts or process payments for marijuana businesses. Facing shifting
    public opinion on the drug issues, the feds have promised to enforce the law with restraint-but
    without actually changing the rules. With fines and prison as the prize
    for bankers who guess wrong as to the limits of federal mercy, refusing
    to work with marijuana businesses remains the safest route.

    "The federal government says right now it won't prosecute businesses
    who take marijuana-related deposits in states where it's legal," Sarah
    Melton, legal counsel for Denali Alaskan Federal Credit Union, told the Alaska Journal of Commerce.
    "But what happens in 2016 when there's a new administration? And what's
    to stop the federal government from just prosecuting banks anyway? They
    could."

    A financial institution willing to take the risk--the Fourth Corner Credit Union-has been denied approval and filed suit against regulators last week.

    "tate marijuana commerce will stay as black a market as bootlegged
    rum during Prohibition until banks find ways to operate under
    restrictive financial laws," notes the Alaska Journal of Commerce. For now, businesses deal entirely in cash, or illegally bank through fake names or cut-outs.

    Still, Alaska's (and other states') banking woes are kid stuff
    compared to the roadblocks Washington officials threw in the way of
    enjoying marijuana after voters stuffed legalization down their throats.
    With a 37 percent excise tax on marijuana sales (actually down from an old 25 percent tax on each step of production and sale) and a strictly limited number of stores confined
    to inconvenient locations, the state has achieved an impressive result:
    a legal industry that is entire uncompetitive with the illegal trade
    it's supposed to replace.

    When I sold marijuana many years ago, I delivered to customers. It
    was a nice added value that built relationships and kept the business
    coming. I'll make the crazy assumption that Washington dealers
    discovered that little trick longer ago than I did.

    But Washington pot smokers who want to enjoy the new legal market have no access to such convenience. Instead, notes KIRO radio,
    "they need to drive to one of the 161 legal pot stores across the
    state, which are generally restricted to areas outside of main,
    accessible shopping districts." And the excise tax guarantees that the
    price is through the roof. As a result, "making the switch to legal pot
    requires serious dedication."

    Needless to say, black market dealing continues to thrive in the state.

    Colorado's underground marijuana market also thrived, partially because of taxes, even when the state's take from a specific marijuana levy was "only" 10 percent (on top of a
    15 percent excise tax and 2.9 percent sales tax). Once again, legal
    prices were higher than those from off-the-books dealers. State
    lawmakers had the good sense to drop the rate to 8 percent-though not until 2017. Dealers also must be licensed "and that can cost tens of thousands of dollars," PBS reported last year.

    The delayed tax drop will no doubt be welcomed by Colorado's smokers,
    but it won't lower barriers to entering the official industry-which is
    likely to keep the parallel one humming along very nicely so long as
    customers keep looking for bargains.

    Officials in Oregon, where legal sales begin October 1, apparently
    got the memo about high taxes being a tad counterproductive. Whether
    they fully understood it is another matter. In an explicit effort to avoid fueling the black market, lawmakers just passed a marijuana tax deliberately set lower than that in Colorado and Washington-at 17 percent. A bit of legislative messiness, however, has the rate going from zero this year, to 25 percent next year, before dropping to the "permanent" amount.

    That won't be too confusing.


    Sales will initially be permitted from existing medical dispensaries before retail operations are established. With 310 dispensaries currently
    operating, far outnumbering the pot shops licensed in Washington, and a
    somewhat lower tax rate, the state may be better positioned than its
    neighbors to discover just what it takes to separate marijuana fanciers
    from their long-time suppliers.


    Though I'm willing to bet that 17 percent, plus 3 percent for local governments, is still too high.

    Oregon dispensaries, incidentally, already find it difficult to
    compete against the black market in hash oil. A combination of taxes and
    licensing fees makes them uncompetitive.

    "We're barely surviving," Amy Zimmerman, owner of 1st Choice Cannabis in Salem, told the Statesman-Journal.
    "It's $4,000 a year to the state, and $4,500 was my city fee. Not to
    mention my business insurance, my payroll taxes-it's ridiculous."

    Arguably, the marijuana market is a new one in this country,
    relegalized after decades in the shadows, and with our last above-ground
    experience predating a popular taste for the stuff. Officials need time
    to experiment and find out what works.

    But marijuana isn't really all that unique a product. It's a
    substance that people consume because it makes them feel good. And it's a
    product (or range of products) disapproved of by many politicians and
    pundits for reasons both puritanical and presumptous. The market for
    marijuana, and policy toward it, closely resembles the treatment of both alcohol and tobacco. And our experience with those markets provide valuable lessons for anybody who cares to pay attention.

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    Booze and cigarettes are also products that are nominally legal, but
    subject to restrictive regimes and high taxes by the powers that be.
    The confused goal in those cases, as with marijuana, is to
    simultaneously fill government coffers while inconveniencing and
    punishing people who entertain disfavored vices. The ultimate result is
    "prohibition by price," as Michael LaFaive of Michigan's Mackinac Center
    for Public Policy describes the high tariffs on cigarettes.

    As with actual prohibition, official intent to discourage
    consumption accomplishes nothing of the sort. Whether through a ban or
    by excise impositions and licensing laws, attempts to choke off the
    official market just invigorate the black market. Black market
    cigarettes dominate the trade in high-tax states in this country (and around the world). Liquor smuggling is an equally booming business in places like Michigan, where governments restrict trade and hike prices.

    For what gain? Britain's Institute of Economic Affairs reported in 2012 that high alcohol taxes don't discourage drinking anywhere they looked on the planet.

    Why would the experience with marijuana be much different from that with alcohol and tobacco?

    Yes, officials nostalgic for those lost days of official prohibition
    are doing their best to recreate the ban by the back door. Drug warriors
    and underground dealers alike will enjoy the perfectly predictable host
    of consequences.

    The rest of us will have to decide whether the legal market is really
    all that preferable to the illegal one. Stay on your toes. Lots of
    officials think pot is underregulated.
     
  2. the craziest thing is how they are pricing before tax a black market price structure. the only way to absorb large amounts of tax while we all agree to pay it is to undermine the black market cost and then tax the shit out of it. why start at black market pricing and then tax on top, makes zero sense plus what legal uppity up market wants to be compared with the black market anyway?
     
  3. legalization won't work unless pot shops beat black market prices
     
  4. Thanks for the good read
     
  5. The pot shops are ran by the same people from the black market. Why would they want to compete with them selfs.
     

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