🔒Editorial: Lower the Mass. cannabis tax rates

Operating a business in the Mass. cannabis industry is getting more difficult, and that’s not good for operators or the state. Generally, the more competitive a sector is, the greater the positives: Poor operators are weeded out, and competition lowers prices for consumers and leads to efficiency and innovation. Unfortunately, the marijuana industry started off with one foot stuck in the mud, due to onerous state regulations, which will continue to hamper the market as more out-of-state competition comes online.

The legal Massachusetts adult-use marijuana industry got off to a rough start in late 2016 and early 2017. This was due in no small part to the fact that key leaders – then Gov. Charlie Baker and Attorney General Maura Healey, now our governor – were strongly opposed to the ballot initiative, yet were in large part left in charge of its rollout, appointing members to the industry’s oversight body, the Cannabis Control Commission, which launched the industry in a heavily regulated manner. The result was a costly and time-consuming business licensing process, which ended up being friendlier to deep-pocketed applicants and not benefiting those adversely impacted by previous decades of the War on Drugs, which was the intent of the 2016 ballot initiative legalizing adult-use cannabis in the Bay State. In 2022, Baker signed a cannabis reform act to attempt to fix some of these problems.

Today the industry is facing additional hurdles, as WBJ Staff Writer Kevin Koczwara reports in his story "New challenges await the Massachusetts cannabis industry" from Jan. 23. Cannabis prices are nearing historic lows while the number of marijuana businesses continues to grow. Both of these are signs of a healthy market good for consumers, but they mean the industry will be less lucrative for individual operators who already have significant capital tied up through the costly permitting process. Interstate competition will soon heat up, now that Connecticut, New York, Maine, Vermont, and Rhode Island all have legalized recreational marijuana.

Threatening the state’s competitive position is the 20% tax on retail sales, which is comprised of a 10.75% state excise tax, a 6.25% state sales tax, and a 3% local excise tax. This is an insane rate almost no other industry would tolerate. Most other Northeast states are following Massachusetts' example and using their own convoluted formulas to arrive at a 20% tax rate. Maine, however, limits its marijuana sales tax to 10% and has the lowest per capita cannabis tax collections of any state and almost half of what Mass. collects, according to the Washington, D.C. think tank Urban Institute.

Back in 2016, the ballot initiative passed by voters called for a 12% tax on marijuana retail sales, which included a 3.75% state excise tax, the 6.25% state sales tax, and a 2% local excise tax. Let's aim toward that formula, as a starting point. Sin taxes, whether on alcohol, gambling, or cannabis, may rise above the normal rate of taxation but not so much we kill the golden goose.

The heavy regulation and high taxation in the initial phases of legal Massachusetts cannabis were driven largely by fears of a significant increase in the cost of public safety and other general societal threats, none of which have come to fruition. The state and its policymakers need to evolve their tax code to treat cannabis a little more like other legal industries. Prudent adjustments in the cannabis tax, over time, will help keep Massachusetts a step ahead of the competition and give operators a better chance to survive in a growingly competitive marketplace.