Friday, May 23, 2025
5/23/2025
The impact of excise tax structures for retail marijuana on marijuana consumption - Project Summary Fifteen states and the District of Columbia have legalized marijuana products for non-medical use, making them accessible to one-third of the US population. Despite having therapeutic effects, marijuana use leads to a wide range of adverse physical and mental effects. Based on approaches to regulate alcohol and cigarettes, imposing excise taxes on retail marijuana is among the most effective policies to mitigate related harmful public health consequences. However, the retail marijuana market is still in its infancy, and state and local authorities have knowledge gaps on how to best design excise tax structures (i.e., rates and bases) to reduce harms. Unlike cigarette and alcohol markets where standard products dominate, marijuana products come in different forms and various tetrahydrocannabinol (THC) levels, which consequently pose different levels of harm. Therefore, there are multiple factors to consider when setting tax structures for retail marijuana. Taxes could be based on weight, price, or potency. A weight basis has the advantage of raising prices equally to prevent switching to lower-priced products but may fail to reduce THC consumption by not targeting potency. Conversely, because more potent THC products are priced higher, price and potency bases may have the advantage of imposing higher taxes on products with higher THC levels but may fail to put effective price barriers on less potent, lower- priced products that would deter initiation. Further, marijuana prices decrease over time after legalization, calling for frequent increases in tax rates to sufficiently raise prices. It is unclear whether existing tax rates are set properly in response to this decreasing price trend. As such, which tax rates are applied to which bases will significantly alter prices and relative prices by product form and potency level, thereby influencing marijuana use and health outcomes. The tax structure design for retail marijuana is further challenged by the illegal market, which is often used as an argument against raising marijuana excise taxes. We lack empirical evidence indicating the extent to which excise tax structures drive consumers to the illegal market and how this may undermine the effectiveness of tax policies in reducing marijuana use and harms. Project goal: To evaluate how excise tax structures impact marijuana consumption and product choices among different marijuana forms and between legal and illegal products. This project will innovatively integrate state-of-the-art choice experiments and natural experiments to identify the impacts of tax structures on THC consumption and product choices. Aim 1: Examine the impact of excise tax rates for retail marijuana on marijuana use and product choices. Aim 2: Examine the impact of tax bases (weight, price, potency) on marijuana initiation and consumption. Aim 3: Evaluate the overall THC consumption and market share shifts from legal to illegal markets under different excise tax structures for retail marijuana using calibration. Results will have critical policy implications that inform how to set tax structure to mitigate harms for states contemplating excise taxation policies as they legalize, and states and localities with legal sales contemplating reforms to their current tax structures.
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