I'm very much in favor of legalizing Cannabis, and decriminalizing drug use in general, but I think it's vital to get taxation right, and quickly.

Colorado's labeling scheme still seems in the to-be-determined phase.

http://www.hightimes.com/read/colorado-contemplates-pot-potency-regulations

Testing standards for safety (contaminants), psychoactive potency (THC) and therapeutic potency (CBD) still need to be worked through.

I agree a mature marijuana market will be highly fragmented. Some of it will resemble beer/cigarettes, other parts liquor, fine wine/cheese, over-the-counter remedies, pharmaceuticals and fibers. There will be market niches based upon oral and respiratory ingestion.

Actually, I think in CO the labeling law they put into place dictates they have to have the strain tested, and put the THC content on the label. So the system's already in place, really.

The marketplace right now is in a transition state. Right now, the only weed being sold in CO are plants that started life as legal medicinal marijuana. The licenses to grow recreational pot only started on 1/1. So in another month or so the market is going to shift a bit (and prices can be expected to come down somewhat) when the first legal recreational harvest comes in.

However, to your branding point, what the growers are worried about is eventually having farmers growing weed by the hundred-acre plot. Many growers bemoan this (by saying something like "nobody wants to get WalMart weed," or "McDonald's weed" or "the Starbucks of weed") but this is mostly because they are terrified of the free market and competition.

What will happen over time, if the state loosens up how much can be legally grown (they control the permitting process), is that there will indeed be "McWeed," and it might be sold by RJ Reynolds. It'll be consistent, but not all that potent. It'll be "good enough" for most people, at a very reasonable price (akin to what beer costs). That's all fine and good. But there will always be a higher-end market (if you'll excuse the pun).

After all, you can now buy a six-pack of Schlitz in the liquor store, but you can also drop $100 for a bottle of champagne or some fancy label of Scotch. Eventually, the marijuana market will be exactly the same. High-end "artisinal" grower pot, and then garden-variety "gimme a pack of marijuana" pot. There'll be room enough for everyone in this market, in fact. And the overall price will get a lot more reasonable.

Taxing it accurately may prove more difficult, as you point out, but not impossible.

-CW

I think branding is good news for effective marijuana taxation. Most consumers like predictable experiences, to get consistent product will require a lot of blending, like mass market tobacco or coffee. Concentrate taxation at the brand level and accept some leakage at the home grown "moonshine."

I don't worry much about underage consumption. Kids will smoke more pot? Get real!

I think it's going to be challenging to come up with a beer/wine/liquor taxation equivalent for THC recreational products.

Alcohol is a bulk product, usually diluted in water, and concentration is easy to assay by density. You don't get appreciable alcohol from common agricultural sources, there are intermediate steps of fermentation and distillation. These intermediate steps are a boon to the tax man - bulk production above moonshine levels is fairly easy to track and monitor.

Marijuana is a recreational THC product right out of the field, with rough grades of stems (hemp) leaves and flowers.

http://www.unodc.org/unodc/en/frontpage/2009/June/why-does-cannabis-potency-matter.html

An effective dose of THC is roughly 3 orders of magnitude smaller than that of alcohol. The THC content of different Cannabis strains varies substantially, and THC content from a given strain varies with environmental conditions. Assaying THC is not that hard these days (enzyme-linked immunosorbent assay "ELISA" kits are widely available) but it's more complex and more expensive than just dipping a float into a bucket or measuring refractive index.

All the above will make THC production somewhat harder to track and rationally tax compared to alcohol.

They'll come up with a tax system much like the "beer/wine/liquor" split, I'm sure. Hemp won't even be included in that equation, that's my guess. But then, again, this is an argument for waiting and correcting other states' mistakes...

-CW

Excellent link. One criticism though. I think it better to tax THC than hemp. Taxing by dry weight is taxing hemp, which would favor growing ultra potent strains. That might not be the best way to go.

Here's that link:

http://www.huffingtonpost.com/pat-oglesby/how-not-to-tax-marijuana_b_4739009.html

Sorry it took so long... it's a good read.

-CW

I doubt corporations are going to get on board for a while.

The founder of Men's Wearhouse ("You're gonna like the way you look...") is a big backer of marijuana reform, as is George Soros, though.

One of the reasons the CA situation is unsettled is that there was a multi-millionaire backing one of the propositions, but he died very recently (at the end of last year, I believe). He had been backing the "let's do it in 2014" idea, but his absence meant a big lack in projected fundraising.

-CW

And here's another instance (much like the gun control issue) where the Obama/Democrat/Leftist agenda is impacted by the legalization push..

Cannabis use leads to unhealthy eating habits and obesity... :D

Michale

Not to be silly (well, maybe just a little silly), but where is Frito-Lay? Taco Bell? Dominos Pizza?
Snack and fast food industries reap a fortune from Cannabis, and I strongly suspect their market research has quantified it. These industries can testify to the fact that pot use is mainstream, and makes an important contribution to the US economy.

Seriously, the lack of corporate sponsorship signals that legalization is far from a done deal.

That's an interesting take on it -- undermine the economics of the issue.

One further thing you didn't mention is what the group LEAP (Law Enforcement Against Prohibition) points out -- local police and state police also get direct grants from the feds for fighting drugs. The more arrests they make for low-level drug infractions, the more money they get from Washington.

There are a lot of perverse incentives built in to the system as it stands today. Dismantling the "War On (Some) Drugs" is going to be a long process, that's for sure.

There was a HuffPost article a few days back on the tax issue which seemed to make a lot of sense. I will dig up the link for you, as I think you'd like it. It makes the basic argument that the best way to tax the new industry is the same way alcohol and tobacco are taxed -- excise taxes at the point of manufacture, rather than sales taxes. It's a very well-thought-out piece, by someone who appears to understand such tax issues (taxing issues?). I promise, I'll dig up the link in a bit...

-CW

Cannabis has been a cash cow for police departments for decades by means of asset forfeiture laws. In effect, police departments are turned into privateers, who reap a revenue stream from assets they uncover...cars, homes, electronics, aircraft all auctioned and turned into operational revenue. This is a powerful incentive, and it drives police departments to put a huge amount of effort into anti drug activities. Who wants to cut off their own revenue stream?

The prison industry, especially the private industry prisons also reap a huge amount of money from the huge number of marijuana offenders they incarcerate, at taxpayer expense.

Tax revenues from legal marijuana sales will far exceed forfeiture monies. IMHO, the single most effective strategy to move legal marijuana forward is to give the above entities a piece of the action, in exchange for a change in mission focus. Police get a chunk of the sales tax, but the money is now earmarked to other, more socially productive sorts of policing.

Prisons get a share, but the ratio of inmates to staff is smaller, lowering the the level of prison violence and allowing more attention to rehabilitation and treatment of mental illness. Still lots of corrections jobs but jobs are professionalized and their descriptions are changed.

Get prisons and police on the side of reform, and the the political landscape will change dramatically. Think of it as a buyout.