Barriers to Marijuana Tax Revenue in Washington State

Prior to the 2012 election in which Washington voters passed a marijuana legalization initiative, state officials estimated that legalization would generate up to $560 million in new tax revenue in its first year, with the expected state income projected to increase in later years. Subsequent work by Jon Caulkins and the BOTEC analysis group that the state retained for policy advice estimated annual state marijuana consumption at 165 million grams. Will the State of Washington really reap $3.39 in tax revenue for every gram of marijuana consumed?

It’s not likely, for at least four reasons:

1. Ad valorem tax revenue is dependent on the price of marijuana, which will fall under legalization

The initiative created a marijuana industry modeled on the alcohol industry, with a tri-part structure of growers, processors and retailers. A 25% tax was assessed at each transfer point and sales tax (statewide average 8.87%) is also applied at retail. Note that you can’t just add those numbers to get the effective rate at retail because marijuana increases in value as it moves through the production chain. When that is taken into account, tax at retail works out roughly to 45% of purchase price.

That’s a set up for enormous revenue if marijuana prices stay constant, but they will not. Illegality, by design, imposes many costs on the drug business. For example, you have to compensate employees for risk of arrest and enforce contracts privately. That’s why legalization will lower marijuana prices, perhaps by as much as 80% or even more. Unless the price drop leads to a spectacular increases in consumption, ad valorem taxes will bring in substantially less revenue than expected.

Some organizations and individuals advocating marijuana legalization propose excise taxes (e..g, $50/ounce irrespective of market price). This should generate more predictable revenue and also have the public health benefit of putting a floor under effective price.

2. The medical marijuana system is very loosely regulated and tax-free for consumers

California’s legendarily loose medical marijuana system is fascistic compared to that of Washington. With minimal effort, virtually anyone can get marijuana for recreational use through the current system. Critically, there is no tax, meaning that it will likely underprice the legal recreational market. If you are trying to maximize state tax revenue, that hits you right in the pocketbook.

The state has an available solution, which is to close the medical system. Recreational users currently in the medical system would thus have to start paying tax to use their drug (entirely consistent with the initiative’s concept of regulating pot like alcohol). The small proportion of medical marijuana users with AIDS, cancer, terminal illnesses etc. could be issued a license that allowed them to purchase marijuana tax free within the legal recreational market.

3. The black market in Washington is large and resilient

Despite the easy access and lack of tax in the medical marijuana system, most marijuana in Washington is sold in the black market. Even though risk of arrest for marijuana possession is very low (About one arrest for every 10,000-15,000 joints smoked), one would think that that eliminating that risk entirely through a medical market would have tempted more people out of the black market. This challenges the assumption that black markets necessarily fade away when a legal market is available.

The size of Washington’s black market means that even if the medical system were eliminated, the state would miss out on a very large amount of potential tax revenue. This problem could be addressed with a burst of high-profile enforcement against the black market as soon as the legal recreational market is up and running. A few big time illicit suppliers should be brought to trial, with the police and prosecutor generating as much press as possible throughout the case to send the proper signal about how the new marijuana regime works. Any marijuana users caught in the dragnet would be given a warning and a list of legal outlets where they can purchase in the future, thereby enhancing future state tax revenue.

4. The State will allow vertical integration of growers and processors

Even though the initiative envisioned an industry with a tri-part structure, a curious decision was made to allow the same individual to hold both a license to grow and a license to process. To compound this problem, such licensees are exempted from the 25% tax otherwise levied in the grower to processor transfer.

Vertical integration in itself will lower tax revenue by increasing efficiency and thereby lowering price. And in this case the drop in revenue is even greater due to the decision to waive taxes when the grower and processor are the same licensee.

It would be wise for the state legislature to reverse this decision in the future. There are enough barriers to obtaining marijuana tax revenue without compounded the challenges with self-inflicted wounds.

Comments

  1. Mike says

    Aha, the stark difference looms between legalization, what the public wants as public policy, and legalization as new revenue, which the legislative class talks itself into believing is what the public wants.

    I will say from the beginning that I am not one of those anti-tax zealots trying to dress up my schtick and apply it in a rough fit here. I firmly believe that some sort of tax needs to apply to commercial transactions in marijuana just as they do for other products in commerce in our society. On the other hand, seeking to maximize tax revenue results in bad policy, just as seeking to outlaw marijuana leads to a intractable black market.

    Some thoughts in response to the bullet points Keith provides…

    1. If the first goal is to capture profits from illegal transactions and convert them to new tax revenues, then proceed on course. If the goal is to undermine the black market, then it is a necessity that prices fall and that any legalization regime must have that as its goal. On the other hand, the operative belief seems to be that pricing must be kept high in order to discourage consumption. These are clearly conflicting goals. You can choose one or the other, but not both. It is also striking that marijuana consumption usually signals to the user when they’ve had enough, unlike with alcohol, specifically, and most other drugs, generally. Good public policy would rely on that, instead of applying a principle here that is really superfluous and, in this case and future cases, often turns out to be a better excuse to raise revenue than it is public policy.

    Importantly, prohibiting or severely restricting home grow is a recipe for sustaining the current wasteful, bloated, and ineffective law enforcement focus on marijuana. If people have that outlet for personal use and reasonably priced marijuana available in stores, the black market will shrivel away. Substitute the state for everyone’s dealer then try to maximize tax revenue and you’ll never budge the black market. Set up a system that encourages a good relationship with the plant, not one fraught with tinkering with market mechanisms to achieve goals that create more bad public policy regarding marijuana.

    2. Marijuana used medically should be taxed at the same rate as prescription drugs. If they are exempt from sales tax or subject to a reduced sales tax, then it’s appropriate to tax at that level and no higher. That would be good policy and perceived as fair by the public. Presuming that the recreational market functions without federal interference, then it’s OK to end a parallel medical market. On the other hand, large parts of Washington appear as if they will be underserved, which is an even bigger problem when you look at Colorado and find that large areas of a big state will be off limits to recreational reefer sales. This is neither fair nor sustainable for medical users to access.

    3. I’ve already covered the fact you can have as effective policy either high taxes or a concerted effort to push illegal marijuana out of the market, not both. The idea that a “surge” in law enforcement activity would have some salutary effect after decades of drug war is rather laughable — and another indication that the goals of politicians of massive new revenue is in conflict with the goals of effective public policy if you really _believe_ a market-based approach is feasible — underprice the black market and you win without further need of SWAT teams, etc. Match its prices and continue to rely on law enforcement, instead of reasonable tax revenues on reefer priced low enough no one would bother with the black market, and not a whole lot changes from pre-legalization except government eases up on users.

    4. I agree that vertical integration is a bad thing, too, but not because it will impact tax revenues. Instead, the emphasis should be on small, craft type production under a scheme where home grown is not only legal but encouraged if you want to reap the social and legal benefits of legalization, rather than simply maximizing tax revenues.

    That said, even with home grow as good policy, I agree that your earlier suggestion in 1. re an excise tax on weight is much better than a sales tax as a percentage of the transaction. I disagree with the idea it should be as much as $50/ounce, believing instead that it should be set no higher than the equivalent in beer. In my mind, an ounce is roughly the equivalent of a case of beer, but YMMV. Still, a lot less than $50/ounce or you’ll never undermine the black market.

    While I caution against taking the argument too literally that marijuana should be regulated like alcohol, in terms of tax policy and allowance for reasonable volumes of individual production with minimal government involvement, beer makes a good model. Instead, marijuana is again being treated, tax-wise, as if it were some deadly substance, which it clearly is not, scientifically and according to the voters. So think beer here or remain frustrated that one side of the boat of public policy is rowing one way while the other side is rowing the opposite — and we’re just going in circles.

    • Freeman says

      I couldn’t have said it better. Agree 100% with everything you said, and can’t think of anything else that should be added. Well done!

    • Anonymous says

      As a reader, I find the ideas articulated to be fascinating and thought-provoking, and I appreciate that. Keith articulates what I imagine to be a popular position. Mike’s response, however, really illustrates what I’d like to see for the future of legalization, our communities, and state. Keith’s approach is just a little too old-fashioned for me. I support “reasonable” (for lack of a better word) regulation and taxation, public safety efforts, and using the new industry as a backbone for economic development. But this is our state’s path to clear, and I’d rather it be an agreeable, tactful, and sustainable venture for our residents. At the moment, the prospects of getting into the industry as a small business start-up is increasingly difficult, complicated, and, in the end, expensive. I just hope the future holds more opportunities, rather than closed doors. I think Mike’s brilliantly written take on the issues is a vision worth sharing because if we all shared a similar vision, then we all could profit, grow, and thrive: the plants, the kids, the long-struggling communities.

      Well put, Mike.

    • Mike says

      Thanks for the kind comments, folks.

      I do appreciate the efforts of Keith and the others at RBC to maintain an open and thoughtful dialogue, even when I often hack at cross-purposes to some of their favorite ideas. I know there’s disagreement, but I wouldn’t put in the effort myself if I didn’t feel they were as committed as I am to a solution to new cannabis policy that results in a healthy and sustainable relationship between it and society, as well as definitively brings to a close the era when bad cannabis policy has all too often served to placate some of the most atavistic tendencies in our society that still receive far too much official support, such as racially biased law enforcement and mass incarceration.

      I will note that although Keith rarely responds to my incitements, I do see he’s offering some interesting reading in Kilmer on why we need to consider a wide and flexible range of alternatives, including home grow and other options, about which I’ll say more in a moment.
      http://www.samefacts.com/2013/10/drug-policy/420-shades-of-grey-kilmer-on-marijuana-legalization/
      I’ll also add my congratulations to Keith for his appointment to serve on California’s “blue ribbon cannabis commission” or whatever it’s officially called.

      I’ll offer a few more thoughts. I certainly agree with the sentiments that clearly identify one of the goals as controlling the negative impacts of too much influence from profit-making versus productive enterprise. That can be difficult to do in a society that is so culturally inured to the negative effects of profit-making it considers that a small price to pay for cheap goods, even when fostering it to excess will clearly be bad public policy. There is a solution that is obvious, is based on the best interest of small producers to produce a high-quality product, builds local economies, and sets in place a flexible but still clearly conceptualized scheme that limits the ultimate upper size of producing organizations, and diversifies the industry in positive ways. Treat cannabis like many other agricultural commodities by establishing producer co-ops that set production limits. Some of these have run into legal issues with other commodities (which we’ll avoid discussing here), but I think the nature of this example — converting a illegal commodity to legal production, the need to ensure producers are legally identified to identify illegal production, public policy goals of ensuring adequate but not excessive production and ECONOMIC development — make it a politically viable option. Tobacco is the crop raised in this manner that probably most resembles how cannabis might be raised, but I think also not a good end model. There shouldn’t be strict limits like that, but more flexible ones that encourage those who put in the effort to build their enterprise.

      These would allow the states flexibility to implement what they feel is best. But this is an area where the feds could play a positive role by ensuring certain criteria that would apply nationally, such as the maximum size of a production unit, whether co-op, non-profit, family farm, etc. In keeping with my goal of localism, the fed side of things would require that the officers of the unit be local, like they do with some radio stations (low power FM is what I’m thinking of), so that they would have to reside within say, 25 miles of the licensed location. Various other ways to do it.

      The goal? A national cannabis industry that is tied to locality, just as wine has traditionally been and beer increasingly is. California already knows how to do this, I would hope, or at least it seems at a distance. Think of the possibilities, it boggles the mind what this can do for many economically disadvantaged parts of our nation.

      Finally, this all ASSUMES that we are converting the government role in cannabis from a law enforcement issue into one of regulation just like any other industry, with reasonable provisions for the special nature of the product. Unless we do that we tempt the police to do exactly what they’ve been doing with negative results for decades. As with alcohol, the police should never be involved in dealing with a commercial product unless it’s been misused (DUID), provided unlawfully to minors, etc, taxes evaded, lack of licensing, and contact is _initiated_ by the dept. of revenue, etc. If there’s not a clean break like this that sends a message to law enforcement, it tempts them to continue. Yes, they’ll stay busy — and we should make sure it’s doing something else than counting plants in your garden…Many of them would probably agree they’d like a clear signal one when to stand down on this so they can put their efforts into other priorities.

      What we’ve been talking about is all commercial enterprise in some fashion, even if intentionally non-profit. What these sort of organizations do is build economic development by paying their workers and reinvesting in the community, because that’s what their charter requires, not paying out to shareholders. Again, that important tie to locale comes into play. These organization generally don’t send the economic benefits out of their communities, unlike massive for profit institutions of every kind. In a time when Americans need jobs, let’s put people to work. I mention this because it’s important, not because I’ve got the details, but if you think about it, this could be the great American jobs program that brings us out of the Great Recession. The politicians sure haven’t done much good. And it’s that economic development that is at the core of what government will gain in revenue, versus simply looking at it from taxes directly paid.

      Which brings me to what I consider key to this. You should have a right to produce reasonable amounts for personal use. The basic idea would be that you’d buy a license for personal production. Something reasonable, like $100/year, all you can grow, so long as no more than 100 plants at a time, so long as you don’t sell it. You can, however, trade it for other cannabis, so long as no money changes hands. This would permit someone to specialize in starting clones to be paid from production at whatever exchange rate the parties involved would work out, for example.

      Want to sell your weed? Gotta buy a stamp. There’s your taxes. Or declare on your tax form, but I like the stamp idea for easy verification that something was paid. Obviously people will jump up and complain about the holes that could be exploited, etc. But we already have a system like that called income taxes. I’d argue if you make it easy and reasonable in terms of rates, people in this country have a historically high rate of paying their taxes.

      Ultimately, that is what good regulation and policy does. Takes account of how most people act when they act responsibility. If you try to keep that illegal, you’ll have endless trouble and, well, prohibition-lite. Fail.

      Because it’s just not worth pursuing the recalcitrant 10% who cheat by still treating it criminally for everyone. When they get caught, like with taxes, they’ll pay up. They rest of us will pay our taxes, do our thing and improve our communities, like many are already doing, discretely.

      Every step past the point where most are agreeable and find it easy to comply is both harder to make happen and harder to justify in our society. That’s how we got here in the first place with cannabis, an artificial imposition that was clearly out of step with a significant part of the population, no matter how strong official disapproval became.

      This also assumes a much looser scheme than some of these seed-to-store 24/7 video regimes. I don’t need that in my home and frankly neither should small producers. There’s no need to treat it like it’s radioactive; childproof? that’s OK.
      Trust the market, trust your citizens.
      Be practical — it’s easier to create than beer, although it’s more work. It’s a plant — no other model will work, you will simply not keep people from growing, so you might as well harness that ambition, although I concede the need for licensing to differentiate between tax evaders and legit personal grows.

      There’s no way that people will put up with the current style of enforcement we have under the current “war” mentality under legalization. Please see my previous comments and consider the jury pools.

      If we have the safety valve of home grow and the positive effects it has in terms of giving those who want to that option, I’d still bet it’d be about 10% max. People will just prefer to buy a pack than they will to grow it. But if you don’t legalize home grow, you will spend 90% of your resources chasing 10% of the “violators” — all you’ll likely detect.

      Finally, high taxes? Impositions on personal freedom?
      Who’s planning on explaining that to the Tea Party?
      But seriously, make it reasonable and easy, and I’ll bet you’ll melt the heart of many of even those sons and daughters of liberty and get them to say a few nice things about government. In other words, this really is a non-partisan issue, the more we treat it that way, the quicker we’ll get over this in good order and a surprising amount of unanimity.

      • Freeman says

        Another outstanding post, Mike. Would that you were a front-pager here. California’s new commission has some impressive membership which I congratulate them on assembling, but any state’s “blue ribbon cannabis commission” could benefit from your thoughtful insights as well. Here’s hoping your recommendations will “trickle-up” to those deciding the policies that get implemented.

  2. says

    Keith,

    Thanks for this. When it comes to taxes, the question of “how much” gets the most attention, but the question of “how” – the tax base – needs looking at.

    Another advantage of weight-based taxes over ad valorem-based (percentage of price-based) taxes is that they require no examination of what the price really is. Take the case of a hotel that offers free marijuana for paying guests. It will be hard to separate out the price of the marijuana that’s part of the deal, and therefore the tax due as a percentage of price. Audits, anyone? The difficulty of figuring out the real price of transferred property has brought the international tax system to its knees, and explains the low worldwide tax rates paid by Apple, Google, GE, and many more multinationals.

    The Free Joint Giveaways in Colorado point out a similar problem (or opportunity) with an ad valorem base: If a marketing promotion or campaign gives stuff away, a percentage has nothing to apply to: With a zero price, any percentage of zero is still zero.

    Taxing marijuana by weight would solve some problems, but powerful ounces would be taxed the same as weak ounces. Still, the choice for dried marijuana plant material is either price or weight: Taxes based on potency of dried material — amount of psychoactive THC — won’t work. Test results are not replicable because dried plant material is not fungible enough – not consistent in THC content among little samples. http://canorml.org/news/ringtest.html. Liquids are fungible, though, so potency could be the tax base for oils — marijuana concentrates.

    If we look for analogies, Federal taxes on liquor and wine depend on alcohol content; beer taxes depend on volume. None depends on price.

    Percentage-based taxes have one virtue. They don’t require indexing for inflation. We have seen unindexed Federal alcohol taxes shrink in real terms since the last increase, in 1991.

    To return to “how much”: Whatever the tax base, the rate needs to be flexible, to keep after-tax prices low enough to defeat organized bootlegging. Taxes could prove too high at first, as start-up costs push pre-tax prices up. Then economies of scale will kick in.

    • Keith Humphreys says

      Pat: Of your many good points, the one that strikes me most is the inflation indexing issue. Once an industry is in place, they can use their political might to prevent legislated tax increases as has happened with alcohol in many states. A good system would avoid this through indexing.

  3. Rob in CT says

    Tax revenue isn’t really the point. It’s secondary.

    The primary savings should come from less $$ spent on enforcement. Those savings, plus tax revenue, should be plenty to address more need for treatment for those with problems.

    • Keith Humphreys says

      @Rob in CT: Actually, according to voters tax revenue IS the central point — the number one consideration regarding legalization according to the most recent opinion polling.

      You don’t really save on policing — police always have more things to do, so it’s not as if police are going to be laid off if marijuana is legal.

      • Rob in CT says

        Why shouldn’t we reduce police resources if crime is down (which it is, across the board) and we legalize something that we currently expend significant resources to combat? That doesn’t make any sense.

        I looked up trends in the CT budget from 1960 to present recently. Can you guess which category of expense exploded – far beyond the mere 6x increase in healthcare expenditure – over that period? I know you can: “security” spending. Per capita and adjusted for inflation spending on “security” went up something like 46 times. The 1960-1990 increase in crime warranted increased spending on police and prisons. I totally understand that. The trouble is that since 1990, spending in that category is basically flat, despite crime (particularly violent crime) plummetting.

        So no, I don’t accept that the right policy choice is to accept the present-day level of police expenditure as normal.

        And yes, voters want tax revenue from legal pot. That includes me. But maximizing that revenue isn’t something I think should be the key issue.

  4. H. Beaver says

    While illegality may increase some costs of doing business as mentioned, there is a price to legality as well, which may offset some if not all of the savings. Those coming from the black market into the legal market now have to pay for compliance with government regulations at various levels, rent, standard wages and benefits, etc.. It will be very interesting to see if those 80% pretax retail price drops actually happen. I find it hard to believe that an ounce of $250 weed (pretax retail per weedmaps), will drop to $50 (maybe the current price reflects some of that 80% drop already?). Add in the roughly estimated 45% retail tax, and that is $73 to the end user. Wow. Seems too low to sustain a legal business. Unless the weed will be sold at a business which can offset it’s costs with other high markup items.

    • snoey says

      Connecticut valley shade tobacco is used for cigar wrappers and takes at least as much hand labor as Humboldt manicured buds. Its offered online for about $55 a pound.

  5. Mitch Guthman says

    It’s a 100% cash business and it will very likely remain so unless the Congress creates some kind of safe harbor. It’s practically impossible to tax an all cash business. What’s more, the large banking institutions which (we now know for sure) accept drug money are only interested in servicing the large scale traffickers and charge very high prices.

  6. Mark Kleiman says

    Revenue is nice, and matters to the voters.

    But the goal of taxation, along with the rest of policy toward legal cannabis, should be to minimize drug abuse while allowing easy access for responsible use. That’s not an easy needle to thread, but in general higher price (anything up to the current illicit-market level) is to be preferred to lower price. Whether that’s done by taxation, by auctioning production quotas, or via state monopoly is a secondary question. But since the production cost under legality will be effectively zero (a joint is like a tea bag, and even a very fancy tea bag costs a dime) most of the distance between zero and $10/gm. will have to be made up of taxation or its equivalent.

    • Mitch Guthman says

      Mark,

      I mostly agree with what you say but I think you’re still excessively discounting the problems that the lack of a statutory federal safe harbor will cause.

      My guess is that marijuana prices might drop slightly while tax revenue will be minimal. Sorry to keep beating the same dead horse, but, again, without the federal safe harbor for all activities related to licensed activity there’s going to be a blending of the legal with the existing activity—with exiting illegal growers and middlemen moving in to the legal markets only as adjuncts to existing illegal activity or as a means for defeating law enforcement through the blending of legal and illegal activities in an organization that we’ve all tacitly agreed not to examine all that closely. That means the illegal market will provide price competition for the new legal market.

      I don’t see these people (existing independents and the cartels) foregoing the huge, largely tax free profits of illegal trafficking. I think it’s more likely, for example, that a large illegal grower might acquire one or more legal fields as a front for moving his much higher volumes of much more profitable illegally grown marijuana. Similarly, a cartel might start or take over a licensed distributor but only as a way of shielding its illegal activities from law enforcement.

      There probably will be some revenue to the state but the difficulties in distinguishing between which activities law enforcement “should” ignore and which they shouldn’t means that there can’t really be a decrease in law enforcement activity and there’s very probably going to be a huge increase in cartel money and activities flowing into Washington, with the concomitant increase in violence and corruption.

      • Interested observer says

        I believe the lack of federal safe harbor is a major factor in why the illegal black market continues to thrive. In California, the Feds just subpoenaed records from Mendocino County’s now-discontinued “legal” growers program. I suspect many consumers/growers would rather risk the illegal market than create a documented trail that relies on forbearance of federal enforcement.

    • James Wimberley@gmail.com says

      It’s possible to spend a lot more than that for connoisseur teas. The top Darjeelings and Chinese oolongs sell for $1,500 a pound, or $95 per oz. Wikipedia cites an unobtanium tea called Da Hong Pao that “can sell for $35,436 per ounce.” A legal marijuana market will surely develop such niches.

      • Mitch Guthman says

        I think that’s true but, as I argue below, if you don’t have strict inventory control, strict record keeping and forbid doing business in cash, I don’t see the state collecting a lot of taxes from these niches. Not from the growers who will sell a lot of their production for cash (and if you don’t have inspections of the fields, invoices and bills of lading to compare against production and bank deposits and and from the retailers who will have one cash register for the state and two or three for themselves. HM revenue & customs knows all that expensive, high-end teas that Berry Bros buys and sells because all the money gets run through the bank account, otherwise, I doubt seriously if Her Majesty would collect so much as a farthing on all the tea sold in England.

        Bottom line, if Washington can’t force licensed marijuana businesses to run all their transactions through a bank account (which seems possible if there aren’t any banks willing to take that kind of risk), I don’t see how they plan on collecting all this tax they’re talking about.

  7. James Wimberley@gmail.com says

    Excise duties are much cheaper to enforce and difficult to evade. You have to go full illegal; cooking the books doesn’t hack it. The point is reinforced by the fact that current market participants are used to illegality.

    • Mitch Guthman says

      I’m not sure that it’s true that excise taxes are generally as cheap to enforce and difficult to evade as you think. But to the extent that it is the case, the reason is that the government essentially controls the process from top to bottom. To use the example that I’m familiar with, bars and restaurants are always evading sales taxes on booze. You’re right that they mostly get caught but that because the Office of Alcohol and Tobacco Control regulates the entire system for selling booze in such a way that there are very clear audit trails quite literally for every glass of beer or shot of whisky that sold in the state. Retailers have to buy from licensed wholesalers, who have to buy from licensed distributors and everybody has to keep records that are accurate enough to trace a glass of beer from the bar’s z-tapes all the way to the brewery. Which also means that, for example, the bar or restaurant is forced to keep adequate records, can’t pick up a few bottles of scotch at the Schwegmann’s and has to deposit the receipts in a bank account and pay for everything by check.

      Without a federal safe harbor, everybody will have difficulty keeping those records especially if, as I assume, it will be difficult and dangerous to open a bank account. Basically, if you are a trafficker or a banker or a legit businessman and you comply with the law , you are basically putting your head in a noose and praying that nobody decides to whip the horse for the next ten or fifteen years. Consequently, I think it’s going to be very hard for the state to require people to have bank accounts, keep records and have their premises open for inspections. Indeed, I think the knowledge that a change in federal policy or, more precisely a shift in the prevailing political winds, could put a lot of regular, totally squared up people in federal prison for the rest of their lives is quite possibly going to force the people drafting the rules for the state to be inclined to let people to more business in cash and keep fewer records. But if you can’t trace all the marijuana in a given shop to a wholesaler and then a grower (and document everything each step of the way) I don’t think you’re going to be able to collect more than a token amount of tax from anybody.

      It is is still permitted to hold a lot of cash and, especially, to make undocumented cash purchases or sales of marijuana, then it’s going to be unbelievably easy to cook the books.

      • James Wimberley says

        I once visited the Glenlivet malt whiskey distillery in a field in Scotland miles from anywhere. The warehouses are barred fortresses. The distillery has a resident exciseman. They have a complicated Victorian remote-control gadget behind glass for testing the strength of the distillate as it emerges from the still. If there’s a problem, this can be opened, or more accurately unlocked, as it is protected by two padlocks. The firm has the key to one, the exciseman the other.

        • Mitch Guthman says

          Sounds like my kind of holiday destination (assuming, of course, that anyone sufficiently intrepid enough to brave the Scottish countryside would be rewarded with free samples).

          • James Wimberley@gmail.com says

            From a sample of two, you do get (small) free samples in Scottish whiskey distilleries.