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November 07, 2012
Article Co-Authored by Brattle Economist Outlining Tax and Regulatory Policies for State Regulated Marijuana Published in The Economists’ Voice
An article co-authored by Brattle Senior Associate Evan Cohen outlining a potential regulatory and tax framework for a legalized marijuana market has been published in The Economists’ Voice. In the article, Mr. Cohen and co-author Richard McGowan propose a framework based on the goals of transitioning legalized marijuana from a prohibition to a regulated market. The framework utilizes the lessons learned from the taxation and regulation of other “sin” industries, such as alcohol, tobacco, and gambling. According to the authors, taxation and regulatory policies for sin industries should have three societal goals: control consumption, eliminate or greatly reduce the size of the black market, and generate government revenues. The authors outline three main proposals for states and regulators to consider for legalized marijuana, taking into account the unique nature of the market. First, the marijuana tax should be ad valorem (i.e., based on quantity), rather than a fixed price per unit. Second, the tax rate should be relatively high, with lower quality marijuana taxed at a lower rate than a high-end product. The authors propose a tax rate of 50% for the first $100 per ounce, and 100% beyond that. Finally, the authors recommend that the state should be the sole distributor and retailer of legal marijuana, following the model set forth by alcoholic beverage control states that hold a monopoly over the wholesaling of liquor. Mr. Cohen and Professor McGowan’s article, “Grass is Always Greener When it’s Legal: Policies for State Regulated Marijuana,” can be viewed on The Economists’ Voice website.