In recent findings, it was revealed that a staggering 72 percent of the marijuana market in the United States is operating outside the bounds of the law. This stark figure underscores the failure of federal marijuana criminalization to curb its sale and consumption effectively.
The existing landscape of widespread defiance towards federal marijuana prohibition, mounting public backing for legalization, and the allure of potential excise revenues have triggered serious contemplation among policymakers regarding substantial reforms in federal marijuana policy. Just last December, an initiative known as the STATES 2.0 Act was put forth by members of Congress. This act proposes the removal of marijuana from the Controlled Substances Act, thereby legalizing its sale and usage on a federal level while also allowing for interstate commerce.
Should federal marijuana prohibition be lifted, individual states would have the autonomy to decide whether cannabis would be permitted within their borders, a decision many have already made over the past decades. Furthermore, states would be equipped to determine how the legal cannabis market would be taxed.
Numerous challenges plague the existing legal markets due to federal prohibition and harsh taxation practices, resulting in substantially higher prices compared to illegal markets. The inadvertent consequence of bolstering black markets has been a common outcome of prohibition, a reality that has not escaped the realm of marijuana, even with certain states legalizing its consumption. The proposed revisions in federal cannabis policies, as is the case with the STATES 2.0 Act, offer a glimmer of hope for much-needed reform within a sector that has grappled with a convoluted policy framework.
Regulating Cannabis Markets
Rather than entrusting the task of enforcing marijuana prohibition to the Drug Enforcement Administration, the STATES 2.0 Act suggests assigning the responsibility to regulate marijuana products in US markets to the Food and Drug Administration (FDA). Additionally, the Alcohol and Tobacco Tax and Trade Bureau (TTB) would oversee tracking products and collecting taxes. By shifting focus and resources away from minor offenses related to marijuana possession, federal and state law enforcement agencies can concentrate on eliminating more potent substances from illicit markets, thus curbing violent and property-related crimes.
The failed oversight of the legal vaping market by the FDA raises concerns about its capability to manage a legalized cannabis market. However, the STATES 2.0 Act stipulates that no premarket approval would be mandatory, thus steering clear of the chaos witnessed in the vaping industry.
Facilitating legitimate businesses to produce and sell cannabis products, along with granting banks the leeway to engage with a legal cannabis industry, has the potential to foster a secure, legal market that can rival the current illicit market controlled by cartels.
Furthermore, the proposed legislation would permit interstate commerce in cannabis and cannabis products when traveling between states that have legalized marijuana within their jurisdiction, even if one passes through states that have opted to uphold marijuana as illegal. TTB would be charged with maintaining a national track-and-trace system, similar to the systems already in place in states that have legalized recreational marijuana.
Tax Design and Tax Rate
The legalization of marijuana at the federal level offers multiple advantages, with revenue generation from excise taxes being a key motivator for federal and state policymakers. However, the focus should shift from mere revenue generation to harm reduction by transitioning users to a safer, legal market. The essence of proper tax design and setting the right tax rate cannot be overstated in achieving these dual objectives.
The imposition of exorbitant taxes on legal markets often drives consumers towards illicit markets, where products pose higher risks. Additionally, illicit products are more potent and unchecked for toxic elements. The federal prohibition necessitates each state to maintain isolated production processes and markets, thereby resulting in diverse tax structures across states.
Taxing cannabis based on price fails to target elements causing harm effectively and amplifies revenue volatility. Conversely, taxing by weight directly tackles harm-causing components but disregards product potency. Opting for a potency-based tax, per milligram of THC, proves to be the most effective solution, albeit faced with technology limitations in measuring THC content accurately in various cannabis products.
A judicious approach would involve taxing by potency wherever feasible and resorting to a weight-based method in cases where measuring THC content remains impractical. Eventually, products taxed by weight can transition to a potency-based model as technology evolves. Maintaining a low total tax burden from federal and state excise taxes is crucial to retaining the competitive edge of the legal cannabis market over its illicit counterpart.
Conclusion:
In conclusion, the proposed STATES 2.0 Act represents a significant stride towards establishing a safer, well-regulated, and tax-paying marijuana market. With a seamless, low-rate tax system in place, the legal cannabis sector holds the potential to generate substantial revenue and diminish harm from cannabis usage by transitioning consumers to a lawful market. Legalizing marijuana can pave the way for eradicating adverse consequences of entrusting monopoly power on illicit operators, thereby fostering a more secure and thriving marketplace for cannabis enthusiasts and producers alike.
