A federal tax on cannabis will change everything for this industry – and for you…
Cannabis is an industry unlike any we’ve ever seen before.
It’s predicated on an incredibly powerful plant that’s been around for thousands of years. And that deep history has built a $400 billion market – meaning people around the world spend nearly as much on cannabis as they do on smartphones.
At the same time, it remains federally illegal in the United States – something that has so far kept institutional investors out.
These factors combined have created a massive opportunity for you to get in early on the single biggest market to emerge in decades, but they won’t last forever.
Big changes are on the horizon for the cannabis market; exciting changes that have significant implications for you as an early investor in this space.
So, too, will new taxes.
What a Federal Cannabis Tax Could Look Like
Now, the taxes I’m referring to are excise taxes. Excise taxes apply to products like alcohol and tobacco but, unlike sales taxes, which you can see on most of your receipts, excise taxes are only seen by the company that produces the product.
I’ll explain why this tax matters to you in just a moment.
But first, to get an idea of what this tax might look like, let’s look at the two most relevant examples: alcohol and tobacco.
Alcohol excise taxes depend on whether you’re drinking hard liquor, beer, or wine:
- For liquor, your average 750-milliliter bottle has a federal excise tax of $2.67. That makes up a little more than 10% of the price of a bottle of Absolut vodka.
- For wine, taxes vary between $0.22 to $0.66 per bottle (typically 7% or less of the overall cost).
- And beer has a tax of around $0.19 on each 12-ounce can (20% of the overall cost).
In the tobacco industry, federal excise taxes total $1.01. In states where you can find a cheap pack of cigarettes like Alabama, that’s 18% of the total cost per pack. In states with expensive smokes like Connecticut, it’s more like 10%.
The good news is that we can expect the Feds to tax cannabis around 10% to 20% rather than something crazy like 50%, but no one really knows how this tax will get structured.
If the Feds follow what they did with the wine industry, we could see:
- higher tax rates for high-THC products like concentrates and extracts (approaching 20% or more)
- middle of the road tax rates for potent flower (roughly 15%)
- and lower rates for low potency products (like edibles or low-THC flower).
Or maybe they won’t.
One bill introduced in the House of Representatives, the Marijuana Revenue and Regulation Act, would increase excise taxes over time:
- In the first two years, the excise rate would equal 10% of the sales price.
- By the fifth year, that tax would jump to 25%.
- And after the sixth year, cannabis “would be subject to a per-ounce rate equal to 25 percent of the prevailing price for marijuana in the U.S. during the preceding year. In the case of any marijuana product containing a marijuana derivative, an equivalent rate would apply based on tetrahydrocannabinol (THC) content.”
Other bills proposed in both the Senate and House would let regulators establish tax rates.
So, the reality is that we know federal taxes will come with federal legalization. We just don’t know quite how high they’ll be.
But if you combine these federal taxes with existing state taxes, we could easily see taxes make up half of the purchase price of your average pre-rolled joint or quarter of flower.
The question is, does this raise prices out the door?
Remarkably, probably not…
Cannabis Taxes Mean Only Good Things for You
You see, the average cannabis business can’t write off typical business expenses because we’re dealing with a Schedule I drug. What that means is that the income tax rate on your average dispensary or grower is double – or more – what it would be for a non-cannabis business.
With legalization comes rescheduling, which would allow cannabis businesses to take full advantage of the U.S. tax code and drastically reduce what’s paid to the Internal Revenue Service (IRS). That gives the average dispensary the ability to take on a new federal excise tax without having to raise prices by too much.
And if rescheduling happens before federal legalization, prices will actually drop as business owners see their tax rate cut in half.
The fact is that no matter how the details shake out, taxes are a small price to pay for the normalization of an entire industry. Once the Feds open the door to cannabis, new investments will flood the market.
Just think about this…
Right now, your average cannabis company can’t borrow money to expand or buy real estate. Once everything is normalized, businesses will have a much easier time getting those loans.
That’s going to lead to bidding wars for marijuana stores and assets, which is a wonderful thing when you’re invested in cannabis. Market caps will have nowhere to go but up.
Yes, we’re going to see major changes. But at the end of the day, these changes will make way for the industry to rapidly grow.
And that will mean bigger, better, and even more opportunities for you to make money.
Remember: today, you have a major head start before federal legalization could come. Learn how you can take full advantage of it right here.
This was part three of my “The Future of Cannabis” series, so make sure you check out part one where we dive into why legalization could very well be right around the corner and part two where we explore how new federal rules will impact the industry.
Now that you’ve had a glimpse into the future of this incredible industry, I hope you’re as excited as I am about the opportunities that lie ahead.
4 responses to “A Federal Tax on Cannabis Is Inevitable. Here’s Why You Can Look Forward to It.”
August 24 2020