A cannabis tax policy expert is making the case for taxing marijuana based on THC content rather than retail price, arguing the approach would generate more stable revenue while addressing public health concerns about rising potency.
Pat Oglesby, director of the Center for New Revenue, contends that THC-based taxes target the primary intoxicating compound in cannabis and remain effective even as pre-tax prices fall. "THC taxes, aiming squarely at cannabis's main intoxicating molecule, are stable; they keep nudging against intoxication and rising potency, even as pre-tax prices fall," Oglesby wrote.
The proposal comes as states with established legal cannabis markets face declining wholesale prices and, in some cases, shrinking tax revenues. In Colorado, wholesale cannabis prices have dropped more than 40% since 2020, while Washington state has seen similar declines. Price-based ad valorem taxes, which calculate levies as a percentage of retail price, generate less revenue as prices fall.
The Potency Problem
Oglesby argues that society's primary concern with marijuana legalization centers on Delta-9-tetrahydrocannabinol (THC), the compound responsible for cannabis's psychoactive effects. As commercial cultivation has driven THC concentrations higher—from roughly 4% in the 1990s to 20% or more in today's flower products and upwards of 90% in concentrates—price-based taxes fail to account for increased potency.
A THC-based levy would charge per milligram of THC content, making high-potency products proportionally more expensive. This creates a financial incentive for consumers to choose lower-potency options, potentially addressing public health concerns about heavy use and cannabis hyperemesis syndrome.
Several states have explored potency-based taxation. Illinois implemented a tiered system that taxes cannabis flower at 10% but concentrates at 25%. Connecticut's adult-use law includes provisions for eventual THC-based taxation once the market matures.
Industry Pushback
Cannabis industry groups have generally opposed potency-based taxes, arguing they're complex to administer and could push consumers toward untested black market products. The National Cannabis Industry Association has advocated for lower overall tax rates rather than potency-based schemes.
But Oglesby's argument focuses on revenue stability for state budgets. Price-based taxes create a feast-or-famine cycle, with high revenues in early years that decline as markets mature and prices drop. THC taxes would remain consistent regardless of price fluctuations, making state budget forecasting more reliable.
The debate over cannabis taxation structures is likely to intensify as more states consider legalization and existing markets confront revenue shortfalls. California, which relies heavily on price-based taxes, has seen cannabis tax revenue fall short of projections by hundreds of millions of dollars.
What's Next
No state has yet implemented a pure THC-based tax system, though the conversation is gaining traction among policy experts. Any shift would require legislative action and new testing and labeling requirements to verify THC content at point of sale.
The Center for New Revenue, a nonprofit focused on cannabis tax policy, has been advising state legislators on tax structure options as legalization spreads. Oglesby's proposal represents a growing recognition that early cannabis tax models may need revision as markets evolve.
For now, most states continue using price-based taxes or weight-based levies, despite their limitations. But as wholesale prices continue falling and potency keeps climbing, pressure for alternative approaches is mounting.
This article is based on original reporting by www.marijuanamoment.net.
