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GROUP FUNDED BY ALCOHOL AND TOBACCO COMPANIES PUSHES FEDS TO ISSUE MARIJUANA TAX
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POLITICS
GROUP FUNDED BY ALCOHOL AND TOBACCO COMPANIES PUSHES FEDS TO ISSUE MARIJUANA TAX
STAMPS TO COMBAT ILLICIT MARKET
Published
7 days ago
on
September 21, 2023
By
Ben Adlin
A new report from the Coalition for Cannabis Policy, Education, and Regulation
(CPEAR) looking at the nation’s illicit cannabis market makes a number of policy
suggestions aimed at reining in unlicensed marijuana sales. Among them, the
group calls for a centralized, nationwide track-and-trace system as well as
marijuana tax stamps to help “distinguish regulated cannabis products from
illicit products.”
“Eliminating the illicit market requires a multifaceted approach, one that
leverages technology and data and relies on collaboration between law
enforcement agencies, policymakers, and the regulated cannabis industry,” says a
press release from the advocacy group, whose membership includes tobacco and
alcohol giants such as Altria Client Services, Reynolds American, Molson Coors
Beverage Company and Constellation Brands
The 35-page CPEAR report, published Tuesday, estimates that more than 10 billion
grams of cannabis (about 353 million ounces, or 22 million pounds) will be
obtained by U.S. consumers in 2023 alone. States where marijuana remains illegal
are expected to account for about half of that number, while the 23 states with
adult-use cannabis will contribute about a quarter of the estimated total. On
average, the illicit market is about 50 percent “as a function of total cannabis
demand,” the report says, citing Cannabis Public Policy Consulting research.
CPEAR’s executive director, Andrew Freedman, said in a statement that it’s time
for the U.S. government to get involved.
“Despite maintaining a stance of non-interference in state-level cannabis
policies, the federal government has remained unwavering in its long-standing
criminalization of cannabis,” Freedman said. “This inaction has incurred a
substantial cost, giving rise to a widespread, thriving underground cannabis
market.”
Among the changes CPEAR is encouraging is the establishment of a federal
marijuana tax stamp—an echo of programs employed in the first half of the 1900s,
as the government began a broad crackdown on cannabis commerce. Under the
proposal, the federal government would issue tax stamps that licensed marijuana
businesses would affix to their products to indicate that tax was paid on the
product.
In today’s regulatory environment, CPEAR said, a marijuana tax stamp “can be
used as proof of payment of a cannabis-specific tax and can help reduce tax
evasion and supply chain diversion and inversion.”
Diversion occurs when legally produced products are rerouted to the illicit
market. Inversion is the opposite—when illicit products show up on shelves of
legal retailers.
A centralized track-and-trace program would further help avoid interplay between
legal and illegal markets, CPEAR’s report says, insisting that such a system “or
a similar national inventory control mechanism must be adopted.”
“A standardized national inventory control system will help law enforcement and
other stakeholders identify supply chain inversion and diversion,” it says, “and
prevent cannabis from being sold in states that have prohibited cannabis sales.”
Drawing from data sources and certain forms of surveillance could also aid the
fight against illegal sales, CPEAR says, for example by monitoring water and
electricity usage, aerial imagery and soil composition for illicit cannabis
activity. The report identifies two monitoring systems as examples: the
Detection and Interdiction of Marijuana to Aid Enforcement and Conservation
(DIMEC), which is a “computer algorithm capable of learning to detect patterns
in aerial and satellite imagery,” and so-called environmental DNA (eDNA), which
CPEAR describes as “a highly sensitive method of detecting low concentrations of
substances from a sample of local water sources.”
Beyond track-and-trace programs, surveillance and tax stamps, CPEAR also
recommends the federal government begin setting guidelines “to address
inconsistent state regulations.” Specifically, the group wants to see minimum
standards for lab testing, packaging and labeling, manufacturing and
advertising.
The group also wants clear communication from federal authorities when it comes
to enforcement priorities, calling for “frequent and up-to-date guidance to
local and state law enforcement agencies regarding the enforcement priorities of
the illicit cannabis market and related illegal activities.”
To pay for the new approach, the CPEAR report says that “the adoption of any
federal cannabis taxes must ensure that a portion of all revenue is allocated
toward comprehensive illicit market enforcement efforts.”
The report stops short of urging the federal government to actually legalize
marijuana, though it does assert that “a new paradigm in cannabis reform is
inevitable” and that “policy changes at the federal level will mark a new era in
cannabis legality.”
Not everyone in the regulated cannabis community is impressed by CPEAR’s new
report.
Kaliko Castille, president of the Minority Cannabis Business Association, told
Marijuana Moment that the paper seems to be less about how to transition into
the legal market and more about ramping up enforcement against unlicensed
actors.
“It’s clear that big cannabis and big tobacco are coming together,” he said,
“and based on all the talk about enforcement against illicit cannabis in this
paper, it’s clear that their priority is cannabis prohibition 2.0. Based on
documented history, we know who that disproportionately affects—Black and brown
people.”
After an initial review of the report, Castille said he found “not a single
mention” of how to make it easier for illicit operators to transition into the
regulated marketplace. In a section about the California’s licensed marijuana
businesses struggling to compete against the illicit market, for example, the
paper omits the fact that “half of the state still doesn’t allow for legal
distribution of adult use cannabis,” he said.
“The answer is to make it easier for folks to get into the industry,” Castille
continued, by keeping regulations reasonable and tax levels relatively low, in
order to better compete with the illicit market. “If prohibition worked, we
wouldn’t currently have more than half the states in defiance of federal law.”
Another advocate, Shaleen Title, a former Massachusetts marijuana regulator who
now directs the Parabola Center for Law and Policy, suggested that given the
track record of the tobacco industry and its representation in CPEAR, the group
shouldn’t be looked to as a leader on reform.
“If you go to a drugstore this year, you’ll see signs explaining that Philip
Morris and Reynolds America intentionally designed cigarettes to be
addictive—court-mandated signage specifically shaming them for their behavior,”
Title told Marijuana Moment. “The tax stamps idea is ridiculous, but the idea
that anyone should engage these companies or their front groups as serious
policy stakeholders is even more ridiculous.”
On social media, Title also mocked CPEAR’s tax stamp idea, spelling “marihuana”
archaically to reference the 1937 Marihuana Tax Act, which introduced the tax
stamps as a way to discourage cannabis use.
Asked for comment on the pushback from advocates, CPEAR sent Marijuana Moment a
statement attributed to Shanita Penny, a senior advisor to the group.
“In meetings with federal lawmakers, public safety officials, small businesses
struggling to gain traction in states like New York, and broadly across the
public, the illicit market is a major concern—potentially one of the biggest
reasons deterring many from fully supporting cannabis policy reform,” Penny
said. “Policymakers are looking for answers to the illicit market, and those
serious about seeing the movement progress should be promoting ideas that bring
transparency, accountability, and fairness to the system.”
A CPEAR representative also noted that the group on Wednesday hosted a cannabis
panel at the Congressional Black Caucus Foundation’s annual legislative
conference in Washington, D.C., one of apparently three cannabis-focused panels
at the event.
The persistence of illicit marijuana cultivation, processing and sales in legal
states has become an inconvenient truth for those who saw legalization as a way
to quickly eliminate unregulated cannabis activity. Much of that activity exists
to supply consumers in other states where cannabis remains prohibited, or to
undercut licensed operators within legal markets where taxes and regulations
have kept prices relatively high. Increasingly in legal states, enforcement has
shifted, albeit typically at a slower pace, to combatting unlicensed facilities
and distribution.
For governments, unregulated activity shrinks cannabis revenues and, in some
cases, helps fund further criminal activity. Meanwhile legal businesses, which
often have to pay expensive licensing fees and comply with onerous regulations,
are outpriced by unlicensed operators. Even consumers who benefit from those
lower prices may be put at risk. A recent report out of Canada found that 9 in
10 samples of illicit marijuana seized by law enforcement contained numerous
pesticides, compared to only 6 percent of products from licensed sources.
In California, the state’s attorney general called last month for a bifurcated
approach to the problem. “The barriers to entry are too high,” Rob Bonta (D)
said. “The costs to stay in operation are too high. And we should be lowering
taxes at least temporarily.” The state is also paying out millions of dollars in
grants to localities to license more businesses in areas where access to legal
marijuana is scarce. Localities that have opted out of allowing marijuana
retailers, with no plans to license them in the future, don’t qualify for the
grants.
In further efforts to address the illicit market, last year the state adopted a
law eliminating the state’s cannabis cultivation tax.
In New York, meanwhile, the governor in March proposed a bill increasing
enforcement against unlicensed operators as the state grappled with delays
opening stores widely across the state—obstacles that are ongoing. In an effort
to address the bottleneck, the state is allowing direct grower-to-consumer sales
through farmers market-style events. Lawmakers have also passed a bill that
would permit farmers to sell to tribal retailers in the state.
As for marijuana tax stamps, at least one state still requires them—for illicit
activity. In Louisiana, lawmakers in April voted down a bill that would have
repealed an existing state law mandating illegal cannabis sellers buy stamps to
affix to every parcel of marijuana sold. The stamps are $3.50 apiece, and the
law requires one stamp on each gram of marijuana sold, or about $100 tax on each
ounce.
According to local reports, the state Department of Revenue is still using its
first printing of the marijuana tax stamps, from the program’s start in 1990.
“Louisiana received about $1,900 in revenue [last year] and the market is
actually stamp collectors,” said Rep. Joe Marino (I), who sponsored the bill. “I
don’t know that they’ve even recouped the price of printing all the stamps yet.”
> Schumer Commits To Bring Newly Revised Marijuana Banking Bill To The Floor
> With Cannabis Expungements And Gun Rights Amendments
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Ben Adlin
Ben Adlin, a senior editor at Marijuana Moment, has been covering cannabis and
other drug policy issues since 2011. He was previously a senior news editor at
Leafly, an associate editor at the Los Angeles Daily Journal and a Coro Fellow
in Public Affairs. He lives in Seattle.
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