Draft response on cannabis taxation and prices.

Dear Dr. Park:

Congratulations to you and your colleagues on your thought-provoking and detailed article on cannabis taxation and prices. I appreciate your work in this evolving field.

I write as a tax policy lawyer who has worked on cannabis tax policy since 2011. I’m a member of the North Carolina Advisory Council on Cannabis, and a Council colleague sent me your article. To reveal my bias, your article states what I’ve long thought: that cannabis taxation can help in “[p]reventing and reducing adverse cannabis use such as cannabis use disorders, and generating tax revenue.” But, as you point out, “while increasing cannabis excise taxes reduces legal demand significantly, it is likely that consumers may purchase illegal products instead.”

So my advocacy for marijuana taxation was taken aback. when I read the conclusion, “a $1 increase in cannabis taxes leads to a $3.91–$6.32 increase in cannabis prices.” Such a price increase could send many consumers to illegal products.

So I have wondered about that conclusion. There’s a lot I don’t understand that you do understand, and I hope to approach this matter with humility and curiosity.

$1 increase in cannabis taxes leads to a $4–$6 increase in cannabis prices? No.

Draft to the authors of “The impact of taxes on prices and the demand for legally sold recreational Cannabis in the U.S.—An economic evaluation” (link below)

Dear Authors,

Thanks for your paper in Sciencedirect on cannabis taxes, a focus of the Center for New Revenue.

I’m missing something here:

“A $1 increase in cannabis taxes leads to a $4–$6 increase in cannabis prices.”

How can that be?

Most U.S. state taxes are simple add-on ad valorem at retail – where a $1 increase in taxes will increase prices less than $1, as the seller will bear some of the burden.

How much less? Hansen et al say “we find that consumers bear about 44 percent of the retail tax burden.” https://www.nber.org/system/files/working_papers/w23632/revisions/w23632.rev0.pdf

A handful of states, like Canada, tax upstream of retail.

Now I can make up a case where a $1 tax far upstream adds an extra $3 to the consumer’s price, but I know of no real cases even approximating the facts in that made-up case. Compound levels beyond three and you can get to $4, but only in Theoryland.

III

Justin Leiby, a professor friend in Illinois, tweets,” Not believable. At 1st glance, it looks like there’s a mechanical relation. The tax variable for ad valorem states = statutory rate × retail price. If a state has a 15% tax, it equals 0.15P. Then, they regress P on that tax variable, so they regress P on 0.15P plus noise.”

I don’t understand the regression part.

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I’m learning something all the time.

What happens to cannabis sellers when possession is “decriminalized”?

As a practical matter, what happens to cannabis sellers when possession is “decriminalized” – when a consumer:

1. Faces zero consequences? (There’s zero incentive for possessors to turn on sellers and turn them in.)

2. Faces minor consequences?

Does law enforcement lose heart and tolerate illegal sales?

Claude A.I., WHICH IS NOT TO BE TRUSTED, replies:

These are sharp practical questions, and the real-world evidence from various decriminalization regimes gives some fairly clear answers.

When consumers face zero consequences

You’ve identified the core enforcement mechanism correctly: informants. Most low-level drug prosecutions historically depended on threatening buyers with possession charges to flip them against sellers. Remove that threat entirely and you lose that tool almost completely. In practice, what happens:

Street-level and mid-level sellers become nearly prosecution-proof without other investigative methods (surveillance, undercover buys, financial investigations).
Law enforcement shifts toward those other methods, but they’re far more resource-intensive. A “buy-bust” using an undercover officer is expensive compared to arresting a buyer and flipping them.
Illegal markets don’t disappear — they often stabilize or even expand in the short term, because the downside risk for buyers evaporates and demand rises.
Portugal’s full decriminalization (2001) is the most-cited case. Illegal sellers still exist and still get prosecuted — but enforcement shifted almost entirely to supply-side methods rather than buyer-cooperation.

Marijuana reading list

Marijuana reading list in the public domain

Analysis

The most thorough technical analysis I know of still, for the State of Vermont in 2015, is at https://www.rand.org/pubs/research_reports/RR864.html. 200+ pages. Chapter 4, Supply Architecture, deals with Market Structure somewhat.

A 2025 320-page report for the Mayor of London recommends decriminalization but not commercial sales. https://www.london.gov.uk/sites/default/files/2025-05/FINAL%20LDC%20REPORT%20-%20The%20Cannabis%20Conundrum%2028-5-25.pdf

Anti-cannabis

For an ideological prohibitionist view, the group Smart Approaches to Marijuana provides online material and offers a book for sale. https://learnaboutsam.org/resources/

Pro-cannabis

An anti-prohibition view is thought through in a free 2022 online book by the U.K. Transform Drugs Foundation: https://transformdrugs.org/publications/how-to-regulate-cannabis-a-practical-guide

Retrospective 280 relief?

What’s the precedent for retrospective tax relief like that proposed today for 280E by the federal government? (Finding standing to challenge such relief would be hard.)

Gemini A.I. replies:

The proposal announced today (April 23, 2026) by the Department of Justice to offer retrospective 280E tax relief for medical cannabis businesses is a massive shift in federal tax policy. By encouraging the Treasury to consider relief for past years, the administration is effectively suggesting that businesses can “claw back” taxes paid under a rule that was essentially tied to the drug’s Schedule I status.

While the tax code is generally prospective, there are several historical and legal precedents for this kind of retrospective “corrective” relief.

Licenses to grow hemp in GA, TN, WV, and AL

I asked Gemini A.I.: What does it take to get a license to grow hemp in GA, TN, WV, and AL — Republican states that had wide-open THC sales like NC has now? Like personal qualifications and fees? Answer for both nonintoxicating industrial hemp and regulated intoxicating hemp.

Gemini’s answer, which might contain hallucinations, for all I know:

In 2026, the landscape for hemp cultivation in these four states is significantly more regulated than the “wild-open” era of the early 2020s. While you can still grow hemp, the distinction between Industrial Hemp (fiber/grain) and Consumable/Intoxicating Hemp (cannabinoids like CBD, Delta-8) now dictates which licenses you need and how much you will pay.

No seed to sale for THC in AL, GA, TN, WV

How do GA, AL, TN, and WV prevent hemp in the field or nursery (grow house) from bypassing regulation and taxation, being sold and intoxicating people? From Gemini A.I.:

1. Mandatory GPS Mapping & Site Registration

State monopoly retailing of intoxicating hemp THC in North Carolina?

Pros and cons from Gemini A.I. — but first: Gemini left out at least one “pro”: It’s easy to switch from government sales to private sales; to switch from private sales to government sales is hard, because it requires demolishing an entrenched industry. And it left out at least one “con”: Old-time marijuana fans think government lied to them about marijuana, so they hate government involvement. They’re meaningful market segment, and they would tend to boycott government stores and to buy from bootleggers.

And a better detailed general analysis is in the RAND report for Vermont, https://www.rand.org/pubs/research_reports/RR864.html, on pages 60-64.

Here’s Gemini:

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In North Carolina, the conversation around a “state monopoly” on intoxicating hemp—similar to the ABC (Alcoholic Beverage Control) system for liquor—is a growing legislative debate in 2026. This follows recent federal moves to close the “hemp loophole” and a push by state lawmakers to move the “Wild West” market into a more controlled environment.

State cannabis retailing monopoly — backup plan if found illegal.

If a state cannabis monopoly starts doing business and then runs into trouble because of federal illegality, states have considered having a backup commercial system spring into being. I asked Gemini A.I. to remind me of their ideas. Here’s the answer:

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In both Pennsylvania and New Hampshire, the debate over a state-run “monopoly” led to the development of a specific “safety valve” or “trigger” mechanism. This plan was designed to automatically switch the state to a private commercial system if the state-run model was struck down in court or deemed a violation of federal law.

The state most associated with this “Plan B” is New Hampshire.

Hemp THC licensing in Republican states

What does it take to get a license to sell regulated intoxicating hemp in GA, TN, WV, and AL — states that had wide-open THC sales like NC now: Personal qualifications and fees.

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From Gemini A.I.

Getting a license to sell “intoxicating” hemp products (like Delta-8 or Delta-10 [and Delta-9 — PO) has become more regulated in the South recently. As of 2026, most of these states have shifted oversight to their Alcohol and Beverage Control (ABC) boards or Department of Agriculture, requiring specific licenses and background checks.

Below is the breakdown for the four states you requested.

1. Georgia

Georgia regulates “consumable hemp” through the Department of Agriculture (GDA).

License Type: Retail Consumable Hemp Establishment License.
Fees: $250 annually per retail location.
Personal Qualifications:
- Background Check: Required for all “key participants.” Applicants must not have a felony conviction related to a controlled substance in the last 10 years.
- Age: Must be 21+ to purchase, but the state allows individuals under 21 to be employees (though they cannot be the license holder).
Notable Rules: Your store cannot be within 500 feet of a K-12 school. You must also display a specific warning sign in letters at least 0.5 inches high.

Seed to sale tracking of intoxicating hemp products

North Carolina is struggling with wide-open intoxicating hemp THC, which other states that started there have restricted and regulated — not banned. Like North Carolina, Tennessee, Georgia, Alabama, and West Virginia have Republican Legislatures.

Here’s what they do about seed to sale tracking, according to Gemini A.I. (nothing).

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Allow flipping of THC licenses in NC?

What are the pros and cons of allowing cannabis licenses to be transferred for consideration? Does it matter how they were issued (lottery, on the merits, by auction)? As we look at THC licensing in North Carolina, what should we think?

From Gemini A.I.:

Allowing the transfer of cannabis licenses for “consideration” (money or value) is a debated policy point in every state that legalizes. While it encourages investment and market fluidity, it also risks turning public licenses into speculative commodities.

Guest post: Licensing THC businesses in North Carolina

Virginia’s weak weed tax plan

The flat eight percent tax in Virginia’s cannabis legalization proposal is primitive and weak. The cannabis industry must be delighted.

Problem: Under the Virginia proposal, when the price is $200 an ounce, the state gets $16; when the price is $100 an ounce, the state gets $8. But taxes need to go up over time. Think tanks left (ITEP) and right (Tax Foundation) agree. Pre-tax prices will be high at first, then they’ll crash. (In every state, the market matures, and industry gets more efficient.)

Let taxes go up: The after-tax price is what matters in battling the black market.

Weak solution: New Mexico ratchets up its 12 percent price tax to 18 percent by 2030, and the leading Congressional legalization bill ratchet ups from 5 percent to 8 percent.

Strong solution: Tax by grams of THC, the intoxicating molecule. That’s state of the art, and what Canada and Connecticut do. Then when prices collapse, the tax doesn’t collapse, too.

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Taxes are the caboose on the train of legalization, and they don’t get much attention.

Canada’s cannabis taxes

For the record: https://www.canada.ca/en/revenue-agency/services/tax/technical-information/excise-duty/excise-duty-memoranda/edm6-3-imposition-and-payment-of-duty-on-cannabis-products.html (a lesser ad valorem tax has seen its day come and go).

Licensing and Revenue: For the Market Structure Subcommittee of North Carolina Cannabis Advisory Council

Question #3 of our seven “Policy Questions” is about “how the state issues licenses (e.g., through a lottery or competitive application process).”

Reasonable minds can differ. Here’s some speculation.

There are trade-offs. One factor among very many is how licensing affects timing and amount of revenue needed to regulate the market. (Maybe revenue is the caboose on the train of regulation, and cash flow is the taillight on the caboose, but you have to start somewhere.)

Cannabis can bring in government revenue to pay for the regulation that legalization entails– but unluckily, not at first. So the market starts off chaotically if appropriators and agencies don’t pre-fund cannabis regulation adequately somehow. Bad for folks in the market. Bad for the public.

No answers, but here are some sticks to throw on the fire – options for licensing – ranked according to earliness of cash flow. But see three undesirable Downsides to this approach at the end.

Options

1. Application fees for limited licenses

North Carolina Cannabis Advisory Council questions

MARKET STRUCTURE SUBCOMITTEE

Policy Questions

Do you recommend a vertically integrated model (i.e., a single company controlling the process from seed to sale)? If so, do you have recommendations on what size or level?

Do you recommend the state includes existing CBD and hemp retail entities in this new regulation model?

Do you have any recommendations on how the state issue licenses (i.e., through a lottery or competitive application process)?

Do you recommend the state limits the number of licenses available?

Should there be a residency requirement for licensees?

Should there be a capital requirement for licensees?

Do you recommend any social equity provisions, such as license prioritization, fee waivers, or business support programs?