A Taxing Question

To tax or not to tax cannabis—Washington lawmakers have a tricky task before them

Recently the U.S. Court of Appeals denied a petition made by Americans for Safe Access and the Coalition for Rescheduling Cannabis to take cannabis out of the most restrictive category and place it into a category acknowledging the plant’s healing properties. The Schedule I category contains substances considered to have no accepted medicinal value, to be unsafe to use even under medical supervision and to have the highest potential for abuse.

A favorable ruling in this case had the potential to end the current federal/state conflict currently keeping qualified patients from enjoying safe access to cannabis medicines. Ironically, the reason for denial was based on the lack of clinical research made available to the DEA, a condition created by the DEA’s severe controls over the substance because of its placement on the Schedule.

Examining this campaign offers Washington patients a new perspective as state legislators consider cannabis taxation for both recreational and medicinal uses.

Regardless of where a substance is categorized outside of Schedule I, if it has current medicinal value the end user is exempted from paying a sales tax. Patients purchasing pharmaceutical medications, medical devices and items related to first aid are not taxed. When Washington state legislators introduced HB 1789 in an effort to impose a 25 percent excise tax on medical cannabis sold through access points, dispensaries and collective gardens, their efforts were met with stark criticism from proponents of medical cannabis. The State Finance Committee heard from a large number of citizens arguing medical marijuana regulations should remain completely separate from any taxable recreational marijuana based on the intended end use of the product.

In addition, the bill imposed the 25 percent tax on all three separate levels of transactions: producer to processor, processor to retail establishment and retail establishment to consumer. Even if the bill dies in committee, it paves the way for the conversation needed to alleviate the pains of two converging markets involving the same end product. Supporters of medical marijuana understand the need to streamline the two industries, but are pushing legislators to recognize the unique needs of patients using cannabis as medicine. Patients are pushing for separate regulatory conditions to assure the purity of the product they use, keep prices for qualified medical cannabis recipients well below recreational and black-market prices and clarify taxation.

The national debate regarding the rescheduling of cannabis ties directly into dialogue between state legislators navigating the complicated waters of tax regulation. Were cannabis rescheduled into a less restrictive category by the DEA, the plant would no longer be able to be taxed for medicinal purposes and the State of Washington just established the need to remove medical cannabis from the taxation conversation altogether. The positive effects of placing cannabis into a different category would not impact markets immediately. Once rescheduled, the plant would need to go through the process of gaining FDA approval—which requires an extensive amount of clinical trial studies—before being made available at local pharmacies.

Each outcome systematically ends the ability for the federal government to continue with ineffective prohibition laws restricting the use of cannabis and shapes the future of a world where citizens enjoy access to a plant for both medical and recreational use.

Behind Schedule

Currently cannabis sits on the DEA’s Schedule I alongside heroin, LSD, peyote and Ecstasy to name a few. A petition filed by Americans for Safe Access requested cannabis to be placed in Schedule III, IV or V, loosening controls on the plant to further clinical research and open the way for cannabis to be treated as any other prescription drug and made available to patients nationwide. The request was ultimately rejected.