A large battle associated with the legalization of marijuana, in any market, is determining an appropriate tax rate. Appropriate taxation requires a delicate balance. The tax must be great enough to viably contribute to the many initiatives’ legislatures often set forward when legalizing cannabis. On the other hand, the tax must be low enough to incentivize buyers to enter the legal market, and, thereby, abolish the black market.
Minnesota Proposed Legislation
The proposed bill in Minnesota for adult-use cannabis was led by Majority Leader Ryan Winkler. Within his proposed bill Winkler sets out a 10 percent tax on all retail and on-site sales of cannabis products, which is among the lowest tax rates in the country, following only Maine and Michigan. Specifically, this is a retail excise tax. This is similar to the additional taxation placed on goods such as wine, beer, spirits and tobacco. For reference, the excise tax for alcohol in Minnesota ranges between 9-21 percent depending on the type of beverage. These are some of the highest rates in the country, with wine excise tax ranking the ninth highest in the country.
Unlike most states where cannabis taxation is deposited into a special revenue fund, Minnesota cannabis excise tax would be deposited into the state general fund. This raises questions such as: where the tax will go and how the Minnesota cannabis market and regulation costs would be financed. Winkler has taken the stance that making money for the state is not a driving factor for legalization; rather, that money would be used to fund the regulation of the market and help communities harmed by the War on Drugs. In an article with the Minnesota Post, Winkler stated, “We are not interested in this as a major source of revenue for the state of Minnesota to deal with education or road construction, things like that. We know that there is a harm to cannabis. But the amount of harm that cannabis creates is far exceeded by the harm we are creating with our current approach to it. But that doesn’t mean that there isn’t a harm.”
While the proposed legal cannabis market has a variety of initiatives that are hoped to be funded through the taxation of cannabis, this will not be accomplished if buyers are not attracted to the legal market. The black market of cannabis is not a secret, for most people will admit that they or someone they know can acquire cannabis through the black market. The benefit to the black market is the price bargaining ability of the customer with the supplier, as well as a lack of taxation added onto the overall cost of cannabis. But this does not come without dangers. When using cannabis from the black market, the supplier, contents and quality of the products are completely unknown. In comparison, in markets where marijuana has been legalized, consumers are able to use cannabis with much more ease and confidence that the substance is as advertised. This allows quality control to ensure that the products are not laced with toxic substances such as those that caused vaping-related deaths in 2019.