The Right Way to Tax Cannabis
Updated: Mar 29, 2021
Opinion submitted by William Dunstan
Canadian were deeply engaged in the debate over whether cannabis should be legalized, but have been significantly less engaged in equally important debates over how legal cannabis should be regulated. Case in point: the federal government made an important update to Canada’s cannabis laws in the 2019 budget, and you probably didn’t notice. Effective May 1, 2019, cannabis oils would cease to be taxed according to weight and would instead be taxed according to THC content; cannabis edibles and topicals, legalized later in the year, would also be taxed according to THC content (1). This was the right call; the way that governments tax cannabis has a big impact on the success of pot legalization – and taxing THC content is the approach that best promotes public health.
The motivation for placing taxes on cannabis products in addition to regular sales taxes is to discourage people from using cannabis products that can harm them. When governments put this sort of “sin tax” on cannabis, they can either tax the total quantity of a given product (i.e the weight of an edible) or they can specifically tax the potentially harmful element of this product (i.e. the amount of a particular substance within an edible).The main harmful element within cannabis is THC. THC (tetrahydrocannabinol) is the main psychoactive compound found in cannabis; in other words, THC is the thing that gets you high. THC also seems to be the source of most of the health problems linked to cannabis use. Cannabis addiction, along with higher rates of mental health problems and psychotic disorders, is more strongly linked to the consumption of THC-heavy products than it is to cannabis use more generally (2)(3)(4).
Governments that want fewer people to harm themselves through cannabis use, then, should aim to cut THC consumption, not necessarily cannabis consumption in general. If governments tax cannabis according to THC content as opposed to weight, people should shift towards consuming cannabis products with less THC in them; for example, people should become more likely to instead use products that are heavy in CBD, a relaxant that has far fewer negative health effects.
Weight-based taxes are flawed in that they treat all cannabis products equally when, in terms of health effects, they most certainly aren’t. They can also push people who want to experience a certain “high” to consume more concentrated doses of THC. Under a weight-based tax, it can be cheaper to buy a single product with a high concentration of THC than it is to buy several products with lower concentrations. The risk here is that people can then misjudge the amount of THC that they are consuming or can have unpredictable reactions to more concentrated doses of THC, resulting in experiences that, while not terribly dangerous, are usually not very fun.
THC-based taxation makes even better sense when you consider the statistics regarding cannabis use. Although the majority of cannabis is consumed by a small number of users who tend to prefer THC-heavy products, most cannabis users are “casuals” who tend to consume products that contain little THC. In Canada, for example, it is estimated that fewer than 10% of cannabis users are responsible for two-thirds of consumption (5). Casual cannabis users also seem to be quite price-sensitive; if THC-heavy products cost more, causal users will consume far less of them (6).
This means that governments can push casual users away from THC-heavy products that could lead to bad reactions or encourage a future dependency without giving up too much in tax revenue. When it comes to regular cannabis users, higher taxes on the THC-heavy products they use should hopefully reduce THC consumption somewhat. Even if they don’t, these higher taxes can fund government services to help people suffering from cannabis addiction or other THC-related health problems. Weight-based taxes, on the other hand, put a greater tax burden on relatively benign casual use, and create incentives for people to switch to more dangerous products.
Legalizing cannabis was good policy. Prohibiting and stigmatizing cannabis use caused far more problems than it solved, and cannabis can be used safely and responsibly. However, we need tax policies that promote, or at least do not discourage, safe and responsible enjoyment – that means taxation according to THC content.
(1) Canada, “Cannabis Duty – Calculate the Excise Duty on Cannabis”, last modified June 13, 2019, https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/excise-duties-levies/collectingcannabis.html
(2) Joseph M. Pierre, “Risks of Increasingly Potent Cannabis: The Joint Effects of Potency and Frequency”, Current Psychiatry, 16, no. 12 (February 2017): 14-20, https://www.questia.com/library/journal/1G1- 486712020/risks-of-increasingly-potent-cannabis-the-joint-effects.
(3) Lindsey A. Hines et al., “Association of High-Potency Cannabis Use with Mental Health and Substance Use in Adolescence”, JAMA Psychiatry, 77, no. 10 (2020): 1044-1051, https://doi:10.1001/jamapsychiatry.2020.1035.
(4) T.P. Freeman and A.R. Winstock, “Examining the Profile of High-Potency Cannabis and its Association with Severity of Cannabis Dependence”, Psychological Medicine, 45, no. 15 (November 2015): 3181– 3189, https://doi.org/10.1017/S0033291715001178.
(5) Russell C. Callaghan et al., “Who Consumes Most of the Cannabis in Canada? Profiles of Cannabis Consumption by Quantity”, Drug and Alcohol Dependence, 205, (December 2019), https://doi.org/10.1016/j.drugalcdep.2019.107587.
(6) Russell Lundberg and Rosalie Licardo Pacula, “Why Changes in Price Matter When Thinking About Marijuana Policy: A Review of the Literature on the Elasticity of Demand?”, Public Health Reviews, 35, no. 2 (2013): 1-18, https://doi.org/10.1007/BF03391701.