Drop the 25% cannabis tax, Senator Schumer!

This article originally appeared on Cannabis.net and has been republished with permission.

The vast majority of Americans want legal cannabis at the federal level, and there are numerous polls that support this notion. The problem, however, lies in “how” to do it.

In recent years, Senator Chuck Schumer has been the most vocal advocate of legalizing cannabis at the federal level, trying to push ahead with his Cannabis Legalization Act, which aims to eliminate cannabis from the Controlled Substances Act while also providing provisions for minority business owners to create easier access to cannabis licensing.

Photo by Chip Somodevilla/Getty Images

One might think that this wouldn’t generate too much opposition, but so far the bill hasn’t garnered much support. One of the main reasons is due to taxes. While the senator may be well-intentioned in his approach, his proposal for high taxation has drawn much criticism from cannabis reformists.

According to an article on Roll Call:

It (federal legalization) would land at 25 percent of a federal price charged per ounce of product sold in flower form, or per milligram of THC — a psychoactive compound known to give marijuana users a high — for edibles, vapes, and other alternatives.

Tax credits would halve tax rates on the first $20 million in annual sales, creating an effective tax rate for small businesses of just 12.5 percent.

However, these taxes would only be levied on recreational cannabis. Any FDA-approved treatment would not pay those taxes. This could mean a significant boost for medical marijuana, but many advocates in legal states claim this tax system will only further strengthen the black market. In fact, since Canada legalized cannabis, the majority of sales have remained a black market preference.

RELATED: Will Congress Pass Us a Canna Tax Hit?

This is due to THC caps and inflated prices – and the same goes for California. California has a problem where it produces too much weed to sell recreationally and cannot export it to other states due to federal prohibition. As a result, much of the weed continues to be sold on the black market, and taxes are one of the main reasons people prefer to buy from their dealer rather than a licensed store.

According to Senate Democrats:

“As more states legalize cannabis for both adult and medical use, the federal government has an important role to play. Hundreds of millions of Americans live in states that have legalized cannabis in some form while remaining illegal at the federal level. This discrepancy creates confusion and uncertainty, raising significant questions about criminal justice reform, economic development and small business growth, and public health and safety, all of which we believe require some sort of federal response.”

As mentioned, they may have good intentions, but unless they can see how high taxes would defeat their intentions, this bill is pretty much dead in the water.

Will Congress give us a Photo by Jose S/Getty Images

GOP to the rescue?

Who would have thought that a GOP-sponsored cannabis law would be the most comprehensive and clear path to legalization. While the Democrat-sponsored bill would increase taxes on cannabis up to 25%, the GOP bill would put a 3% tax on cannabis, maintaining low competitive prices that give minority business owners a fair chance enable participation.

Whenever a Democratic bill seeks to “ensure social justice,” it almost always requires the creation of a new agency to handle those types of requests. As a result, it requires more taxpayers’ money to fund these types of operations, and in turn increases the price to the consumer. The consumer says: “Why buy legally when I can buy cheaper from my dealer”. After all, the majority of criminal sanctions have been reduced to a misdemeanor, meaning that even if people buy an ounce off the street, they no longer fear lengthy imprisonment.

RELATED: Chuck Schumer urges senators to help finalize his marijuana legalization bill

While I’m not advocating longer prison sentences, I do caution that when you increase cannabis taxes and reduce penalties, you remove all incentives to participate in the justice system. I have long argued that the best approach is to have two tiers of cannabis licensing: a small business tier and a large business tier.

Both would have their own tax regimes, requirements, operating costs, etc. However, I would still argue that we should aim to keep taxes as low as possible. With inflation hitting record highs and the US economy suffering from lockdowns, we will only see a greater influx of black hat buying if the government overtaxes commodities like cannabis.

Now that the UN accepts marijuana, what excuse does Congress have to uphold the ban?Photo by SOPHIE CARON/Getty Images

Think about it rationally. If you could save $20-$30 an ounce by buying off the street, pretty much similar quality to pharmacy weed, and in many cases being able to order your weed home, wouldn’t you buy the weed instead decide black market?

I know that any person who thinks that adding an additional $20-$30 a week or month to their bottom line would go for this option.

Keep it low, let it grow!

Democrats love to tax everything. In that case, it’s better to be a Republican. Sure, both stink, but when it comes to business you want a system that rewards entrepreneurs, creates a lower barrier to entry, and maintains a low-competition tax policy to ensure the market keeps growing until it can handle higher taxes. For now, the market has yet to migrate from illegal to legal, and excessive taxation will only stifle growth.

This article originally appeared on Cannabis.net and has been republished with permission.

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