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Governor Phil Murphy Thinks SP+GTM.


Governor Phil Murphy and state legislative leaders have reached a deal in principle on how to tax and regulate marijuana in New Jersey, paving the way to bringing legal weed to the Garden State. The agreement would tax marijuana by the ounce, rather than by the sales tax method.

New Jersey's approach echos what SP+GTM algorithm envisioned as "the best design for states revenue expectations and consumers ' preference for a "fair deal." A tax on weight protects against falling prices by keeping the tax the same regardless of price. If the tax is $42 per ounce — which is reportedly the tax rate that’s on the table — it will stay the same whether the ounce cost $300 or $150 or even $50. Under the excise tax, consumers would pay a percentage of the sale in tax. At Sweeney’s proposed 12 percent, consumers would pay $36 in tax on a $300 ounce of cannabis. But if prices fall to $150 an ounce, the state’s only getting $18 in tax.

The final bill would also address clearing marijuana convictions from criminal records — expungements. That’s a key component to the effort to legalize marijuana. Legislators have been crafting a new expungement bill. Another major sticking point was how the state’s new cannabis industry would be regulated. The tentative deal would put an independent commission in charge of most aspects. In recent weeks, Sweeney has publicly said Murphy, a fellow Democrat, has been reluctant to support this idea, so lawmakers agreed the governor could appoint three of the five members of the proposed Cannabis Regulatory Commission. (Both houses of the Democrat-controlled state Legislature — the Senate and Assembly — have to pass the bill before Murphy could sign it into law.) Just a few weeks ago, the legal weed debate was locked in a stalemate, partly because of taxes. Sweeney had said he wouldn’t consider anything above a 12 percent sales tax, but Murphy was looking for a more significant number. This tax agreement helps on two fronts. First, since it’s a tax on weight, neither the governor nor the senate president had to cave on the sales tax rate. Second, the tax on weight hedges against drops in marijuana prices, which has happened in other states that have legalized. Murphy and legislative leaders were considering a tax on weight and that it could reignite marijuana talks in Trenton. Now it appears that making a deal on taxes was a priority for state leaders.

Here’s how it would work: A tax on weight protects against falling prices by keeping the tax the same regardless of cost. If the tax is $42 per ounce — which is reportedly the tax rate that’s on the table — it will stay the same whether the ounce cost $300 or $150 or even $50.

Under the excise tax method, consumers would pay a percentage of the sale in tax. At Sweeney’s proposed 12 percent, consumers would pay $36 in tax on a $300 ounce of cannabis. But if prices fall to $150 an ounce, the state’s only getting $18 in tax. With a sales tax, a drop in price, similar to what’s been seen in states like Colorado and Oregon, would significantly hurt the state’s tax revenue. The Colorado Department of Revenue reported last year that marijuana prices had fallen by about 70 percent since recreational sales began in 2014. That price drop hasn’t yet been reflected in the state’s revenue, but experts expect Colorado to start feeling the squeeze soon. Ounces of marijuana in Oregon is now selling for $50, way down from when the market became legal. As our SP+GTM algorithm predicted in late 2017 and many times last year, that falling cannabis prices likely will put many players out of business, and cause significant damage to the states' revenue projects because the excise tax method is outmoded.

New Jersey's approach echos what SP+GTM algorithm envisioned as "the best design for states revenue expectations and consumers ' preference for a "fair deal." A tax on weight protects against falling prices by keeping the tax the same regardless of price. If the tax is $42 per ounce — which is reportedly the tax rate that’s on the table — it will stay the same whether the ounce cost $300 or $150 or even $50. Under the excise tax, consumers would pay a percentage of the sale in tax. At Sweeney’s proposed 12 percent, consumers would pay $36 in tax on a $300 ounce of cannabis. But if prices fall to $150 an ounce, the state’s only getting $18 in tax.


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