Just how to tax cannabis is a big question. The exact size and structure of marijuana taxes is important not just because it generates revenue. In addition, we know the design of these taxes plays a significant role in public health issues, such as the extent of marijuana use and the size of the black market. The higher taxes are, the more likely it is that individuals will try to stay outside the regulated system and thus support a black market. But high taxes can also reduce use, a tactic used with cigarettes. Lawmakers must navigate this delicate balance.
The Oregon case study indicates how differing approaches to the marijuana tax question can also play a powerful political function. If states give localities that allow cannabis businesses a share in marijuana tax revenue, it seems likely that marijuana businesses will be permitted in more communities. And if they don’t, we could see even communities that support legalization prohibit marijuana businesses. You could have a situation where marijuana is legal in a state, but recreational stores are confined to just a few areas, leaving much of a state without any access.