Last week, Senators Schumer, Booker, and Wyden introduced “The Cannabis Administration and Opportunity Act,” (CAOA) aiming to legalize cannabis on the federal level. Legal cannabis is one of the few issues most American agree on (68 percent support legal marijuana), but politicians, cannabis industry experts, legacy market veterans, advocates, and regular cannabis consumers can’t agree on the best way to address complications like social equity, taxes, and medical access. While it’s ultimately a good thing to see some of our most powerful politicians try to tackle cannabis legalization, for many reasons, this bill is likely doomed to fail.
To start, the suggested tax structure is obscene. A 10 percent federal excise tax, with hopes to push that amount up to 25 percent by year five of the implementation of this program is highly unlikely to attract votes from the other side of the aisle but will also set the legal industry up for failure. Take a look at California’s market. With a pay-to-play structure where anyone can get licensed, and no limit on licenses to account for demand, outdoor cannabis has dropped to $300 a pound due to overproduction. As if that isn’t straining legacy farmers badly enough, the state tax structure is so rigidly established that some licensed farms are destroying crops rather than paying the taxes or the labor to get it processed and ready for sale.
A rigid federal flat tax of 10 percent on cannabis would be crushing. The price of an 8th of an ounce of quality cannabis could exceed $75-100 once the local municipal and state taxes have been collected, and the margins for business owners could be incredibly small. This tax structure might work for tobacco with an average price of $8 a pack, making the tax on 1,000 cigarettes about 12 percent, but there’s a chance this would make cannabis unaffordable to consumers. How is this an economic opportunity?
The bill also includes provisions to provide funds for fighting illegal cultivation, which is great in theory. Everyone agrees that large-scale outdoor operations in our National Parks and Forests exploit our natural resources and is a major problem. Yet looking to California again, the state had to suspend the taxes just so that cultivators could compete with the illicit market. And any attempts to fight illegal cultivation can be at odds with safe access to cannabis, so there must be a measured response that allows those in need to cultivate without being prosecuted for not seeking commercial licensing.
This bill is unlikely to pass, but the more this type of legislation is introduced the more familiar it becomes and the more likely a future iteration may succeed. It’s distressing to see how much of a money grab this is at the federal level. If the taxation and monetary incentives were downplayed there could be real opportunities for entrepreneurs and for a new market to emerge which could become a very strong source of jobs and American-made products. Instead, we have an attempt to line federal coffers with little consideration of what would be a realistic structure.
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