In Washington state, where medical pot has been voted legal, the House held a public hearing this week on a bill that would tax medical pot dispensaries 25% on weed sales. The measure is billed as "an effort to undermine any black market," and is one of several pot-related proposals pending in Olympia. [AP]

  • http://insight.pinkonbrown.org/ Dr P Fenderson

    Not trying to question logic or anything, genuinely curious, but how is taxing every step of the cannabis distribution process going to undermine any black market? Wouldn’t it provide incentive to not participate in the taxed system? Am I missing something obvious here?

    • http://www.xeni.net/ Xeni Jardin

      Yup, that’s the argument of pot business owners, and one I’d make as well. It’s almost like they’re trying to tax it out of business.

      • http://mordicai.livejournal.com Mordicai

        To be fair, isn’t “legalize it & tax it to make a mint” one of the big talking points of recreational legalization?

        That said, there already IS an illegal smuggling distribution in place, which would be a major stumbling block.

      • welcomeabored

        The neighbors in SF smelled the stench of pot and got bought off with Starbucks cards (for awhile).  In Olympia, I suspect, that for now the pot smells alot more like pork, and there’s a bunch of ‘neighbors’ with their hands out too. 

      • Steve Reed

        as I understand it, what they are trying to do is encourage legal pot sales by making sure all (legal) sales are taxed the same way. i think it has less to do with getting rid of “black” market sales, and more with combating “grey” market sales, since medicinal weed isn’t taxed at all right now. they aren’t trying to put a larger burden on med. pot, but the people that want to open legal recreational storefronts are in a position where the product they sell would be cheaper at another store, even though its the same exact product, and they would have little to no way to combat that (not to mention that medicinal users are a large base for sales, so essentially writing them off of potential sales to the new stores is huge).

        as supportive as i am for medicinal weed – and i would love nothing more than if everyone that needed it had free access to as much as they needed – unless everyone is playing by the same rules with regards to “legal” weed, then there will still be a greater incentive to work around the system, which benefits no one in the long term.  taxing it the way they are is just an attempt to try and legitimize the entire process, not a way to preemptively weaken it, or wring as much pork as possible from it.

      • http://twitter.com/Steven_Patz Steve

         in 7 years, the whole deal will be called a failure and it will again be illegal.  Well I mean it’s still illegal, if you believe the Federal Gov’t still has power to enforce its laws.

    • dragonfrog

      Washington state having legalized recreational pot, I think this is supposed to prevent a black market of untaxed medical pot being resold for recreational use. Basically if you could get a prescription that’s more than you need, you’d have a source that’s discounted 20% below retail.

      I’m not sure how likely that slim of a margin is to support a black market. That’s a pretty narrow margin to offset the risk of entering a criminal enterprise.

      Where I live, a bottle of mediocre vodka is well over 20 dollars. A moonshiner could probably make an equivalent product for 2 or 3 bucks, and yet I don’t believe there’s any sort of bootlegging problem.

      • http://insight.pinkonbrown.org/ Dr P Fenderson

        I would think that 

        the marijuana taxed 25 percent at each stage

        would count as a “high rate”. Once it goes from grow to processing to dispensary, it’s been taxed 3 times at 25%. So…my math is terrible, but isn’t that a 67.81% tax?

        EDIT: Ok, so you edited your post to include a lot of new information. Makes a bit more sense now, even if I strongly disagree on taxing sick people more for their medicine. Thanks!

        • dragonfrog

          Yeah, sorry about the confusing edit – I initially posted by fat-fingering the post button.

          I had missed the part about the stuff being taxed at 25% at each step from grower -> wholesaler -> retailer -> consumer.  That amounts to 95% tax by the time it reaches the consumer, so the hypothetical medical user with a too-big prescription would actually have a source that’s about half retail.

          Quite aside from the basic problem you point of doubling the cost of sick people’s medicine, I’m still not sure that level of discount would lead to much of a black market problem.

      • http://mordicai.livejournal.com Mordicai

         A criminal enterprise that already exists, though. 

        • dragonfrog

          Moonshining and bootlegging were well-established when prohibition was repealed, and yet even where liquor taxes account for over 50% of the shelf price, it’s mostly gone away.

          • http://mordicai.livejournal.com Mordicai

            Yeah, how did that happen? I’m not trying to be obtuse here, just trying to make this WORK, because legalizing this stuff is sort of a no-brainer.

          • dragonfrog

            It happened because, on the seller’s side, the risks of arrest, incarceration, robbery or assassination by rival dealers/bootleggers, and the inability to turn to the police for protection when your rivals use violence to muscle in on your turf, are all huge.  The markup that has to be applied at every step of the way to make up for that risk is enormous, way more than even a 100% or 200% tax by the time it reaches consumers.

            And that “markup” is imposed in various ways – not just raising the price per quantity, but stretching the available quantity by adulterating the product with often dangerous additives.  I’d gladly pay double for liquor I know won’t blind me – but I don’t have to, because bootlegged liquor would probably cost double or triple what the legal stuff does, to cover the extreme risk of death or arrest throughout the supply chain.

            The same will hopefully soon go for weed I can be certain won’t be the leftovers from making hash oil, sprayed with PCP to make it sellable.

          • http://mordicai.livejournal.com Mordicai

            I don’t know enough about the current model of marijuana distribution & quality to really say how that works– is there really that much unsafe pot floating around?

            Anyhow, the counter argument to me would seem to be that…well, if the markup is so high, shouldn’t legally grown & distributed weed just be…super cheap?

          • http://twitter.com/Steven_Patz Steve

            growing a plant is a lot simpler and easier to hide than running a still.

      • Steve Reed

        well, for one thing, pot that is grown in someone’s basement is probably going to be of a comparable quality to “commercial” weed, so the bathtub vodka analogy doesn’t fit as well. i think if distilling spirits were as easy as growing a plant, and selling a fifth of vodka was as easy as slinging a baggy of weed, then there probably would be a similar problem..

        but also, i think you are looking at a different problem (or from a different angle). the re-selling is probably a (smaller) issue, but i think it has more to do with the handicap that recreational stores would have against medicinal ones.  if someone wanted to buy some pot and they had a choice of store A, or store B with a ~30% markup over store A, why would they go to store B?  if you are trying to start up a new market, and you immediately say “oh, and there will be competition who avoid all taxes that you are legally obliged to pay”, how could you expect that market to thrive?

        • dragonfrog

          @drpfenderson:disqus was just making the opposite argument below – that pot grown without advanced and complicated technology and know-how will be worthless compared to the commercial stuff.

          As for making vodka that’s better than middle-of-the-road commercial stuff – it’s really not hard at all.

          • Steve Reed

             yeah, that is possible, but i don’t think it’s that likely.  are commercially produced tomatoes better than ones grown in a reasonably experienced home garden?  you could argue aeroponics, hydroponics, etc produce the best, but if you are talking average to above avg, i don’t think it could swing that much.

          • Steve Reed

            keep in mind that a large scale aero- or hydro- ponic setup would be an enormous investment above just a “standard” grow operation, so it would be highly unlikely for that to become the norm in legal growers (just look at produce/veggies).  you will get “super bud” from smaller growers who do that, like there is already, and sure that would probably “blow away” other conventionally grown stuff, but it’s top shelf, not your average stuff.  most of the legal medicinal stuff right now is grown conventionally (and still rates high [no pun intended]) for quality.

      • Steve Reed

        … and I could be wrong, but I would bet that immediately after prohibition there probably were plenty of cases where bootleggers undercut legal alcohol, but that eventually subsided because it was legal and easy to get commercial product (and if you study “dry” counties, I think you will probably still find plenty of black- and grey- markets for booze)

    • C W

      “taxing every step of the cannabis distribution process”

      Thankfully marijuana is extremely cheap to cultivate, when legal to do so.

      • http://insight.pinkonbrown.org/ Dr P Fenderson

        I would think that “throw it in a pot, put it in the sun” cannabis growing is cheap. Like if you’re growing it for yourself. But I suspect that industrial growing for dispensaries wouldn’t be quite as cheap. Hydroponic systems, grow lights, electricity costs, heat dispersion, carbon filters, organic pesticides and fertilizers, space requirements (rent or property cost/taxes), processing (equipment and labor), transportation, etc, etc….is it really that inexpensive?

        Standard you can get between 1-3 oz of dry product off of a single plant. Dispensary prices are around $250/oz around here. That’s $80-242/plant (after taxes) per grow cycle (6-9 weeks). No, I guess I see what you’re saying actually. It’s still a good heap of profit.

        I guess my confusion was in the “is it enough to prevent black market from being MORE profitable?” Which is just up to the grower. And most of them have had successful businesses since before the laws came about, so it doesn’t seem like it’s really going to help much at all, while costing the end-user more. But perhaps competition will drive the prices down. We shall see!

        • dragonfrog

          But the reason for hydroponic production in unsuitable facilities is that it’s illegal so you have to hide it in innocuous looking buildings.

          Illegal growers aren’t buying or renting urban properties at urban prices, repurposing houses to ridiculously unsuitable greenhouses, installing hydroponic systems, using 100% chemical fertilizers, blocking out all the sunlight and installing an electric sun, installing carbon filters on the ventilation outlets, and carrying their crop to a mid-size car in black garbage bags in the dead of night, because it’s a remotely efficient way to grow and deliver a crop.  It’s the most efficient way to grow a crop, constrained by the necessity of concealing it from a variety of fairly well-funded adversaries, all of whom will willingly smash in your door and shoot you dead if they discover your farm.

          If cannabis farms were under no more security pressure than tobacco farms, then they could use free sunlight, cheap manure, tractors and all the equipment they can pull, and probably be secured with a barbed-wire fence and a beware of dog sign.

          • http://insight.pinkonbrown.org/ Dr P Fenderson

            Hydroponic systems and indoor lighting are more efficient to grow – you get more yield with more control. The sun does not provide the most efficient cycle…especially if you’re working with various stages of growth at the same time (overlapping grow cycles = more production and yield).  It’s also better to grow indoors if you want to prevent pests or theft (which occurs regardless of legality). I mentioned organic fertilizers. Carbon filters are not just for smell to hide a grow op. I’m not sure what the black bags in the dead of night has to do with transport costs.

            Other than your mention of changing residential buildings into grow facilities, and most pro grow ops I know of use industrial buildings or areas created specifically for growing cannabis, there’s not really a difference between growing it legally vs illegally. The things that do make a difference, I specifically left out; cameras, IR shielding, smell control, etc.This is nothing like growing tobacco, so your comparison doesn’t really work. You’re not worrying about your margins on THC/CBD/CBN production on tobacco. Varying wavelengths of light in specifically controlled cycles produces quite different results when it comes to yield and potency in cannabis. You also grow indoors to control female/male crossover, or accidental pollination… which would ruin your crop. It’s just not the same at all.

            Perhaps you’re thinking of hemp production?

          • dragonfrog

            I think the “iron law of prohibition” enters into it http://en.wikipedia.org/wiki/Iron_law_of_prohibition

            Why do growers care so very much about maximizing the strength of their crop?

            Every time it’s moved around entails a risk of arrest.  So everyone throughout the distribution chain really wants to maximize the dollar value they can move in one trip.  A product with 1/3 the strength of what the competitor grows isn’t worth a thing – no one wants to take the risk of a run, for 1/3 the reward for a trunk-full or backpack-full.  All this to move around a product most of the consumers will probably mix with tobacco because it’s so strong you can’t smoke an unmixed joint and still be fit for coherent conversation.

            If you can pack your bud in 50-lb sacks labeled “cannabis flowers, medium THC level”, palletize the sacks, load the pallets onto a truck with a forklift, sign the shipping manifest, and have it driven to the nearest bulk goods train terminal, a product with 1/3 the strength of the competitor’s product is worth about 1/3 as much, and the consumers will just buy triple the amount.

            F’rinstance, I recall reading that the strength of opioids in street heroin is about the same as in raw opium straight from the poppy – so why the heck put it through the massive industrial purification regime? It’s all to get it to maximum purity for the highest-risk leg of its voyage from the farm to consumers. Once it’s inside the destination country it gets adulterated back down at every exchange.

  • capslock

    Seems like making it cost more than private sales would encourage a black market, not undermine it. Am I missing something?

    • http://profiles.google.com/max.kingsbury Max Kingsbury

      There are already taxes planned for recreational dispensaries. Recreational users that acquire pot legally now in Washington use the medical dispensaries, after having gotten a phony prescription for “night sweats” or whatever. The goal of this legislation is to force recreational users to pay taxes, even if they get phony prescriptions.

    • C W

      I-502 and the coming retail market, generally.

    • Snuffy2

      capslock: I had the same question.

  • http://profiles.google.com/max.kingsbury Max Kingsbury

    This is an effort by the Washington state legislature to prevent recreational marijuana users from using the medical dispensary system instead of the recreational marijuana system we are creating.

    Read more here: http://slog.thestranger.com/slog/archives/2013/02/08/proposal-to-tax-marijuana-poses-political-dilemma-for-state-republicans

  • http://twitter.com/magicpeacelove PeaceLove

    That’s a great idea, to tax the sick and suffering like that. Who cares about those losers?

    I’m always amazed that even “pro-” cannabis folks are so willing to tax a botanical medicine. We don’t tax prescription drugs, we don’t tax botanical herbs — why should cannabis be subject to a special tax? Insurance companies don’t cover cannabis, and patients with serious chronic conditions can require an ounce a week or more. Considering our disastrous medical system, patients with long-term conditions are often living on the edge or worse. How is it in any way compassionate or acceptable to extort money from sick people with an obscene tax?

    Disgusting. The House in Washington should hold their heads in shame that they’re even considering this cruel and inhumane tax.

  • Shinkuhadoken

    So… do the Republicans oppose this because it’s a tax, or do they support it because they hate marijuana? The plot thickens.

    • C W

      I’ve heard this before, but they lose nothing by adopting the former stance.

  • Steve Reed

    I think all the people with the point “Doesn’t *taxing* something make it more expensive?  that would *encourage* a black market,,” are missing something. 

    It is actually the taxation (and legitimization) of weed that should make it *cheaper*. !!!

    Part of what makes pot so expensive now is that it is a black market product.  It costs hardly anything to grow and produce, and the increase from “low quality” to “high quality”, in terms of production cost, is almost nothing.  Nearly *ALL* of it’s cost is mark-up for the “illegal” aspect.  Even costs for medicinal weed is based in large part on these black-market prices (partly because the process up until it’s sold is still largely illegal and so still bears the risk costs). 

    If pot were assessed today as an entirely new commercial product, without the requisite stigma, the cost would almost surely be much, much lower than it is.  The taxing in Washing state was built with this more realistic model in mind, I think, so prices should settle in a place that accounts for its real-world costs, and not the costs associated with trying to make enough profit to make going to jail, or dying, worth-while.