Note: “The Enigma” is also Part 2 of Cannabis Commerce in the USA, found in its entirety here.

Jeff Miron, the go-to guy for pot tax quotes.

A libertarian, he recoils at the thought of working for the government. An indefatigable crusader, he believes all Schedule One drugs including heroin, cocaine and oxycontin should be legalized — like yesterday. He’s appalled at the colossal sums the government spends pursuing, prosecuting, and incarcerating marijuana “offenders.” He wants in on a Marijuana March on Washington. Should marijuana be listed on the International Commodities Exchange? Absolutely.

We’re talking about a radical, right? Nope. We’re talking about Professor Jeffrey Miron, PhD, Director of Undergraduate Studies at the Harvard University Department of Economics, arguably the world’s most cautious pot tax prognosticator.

Radical, cautious, or both, Miron maintains that the figure, representing all the revenue that could generated from taxing marijuana annually in the USA, is $6.2 billion. Miron became the first economist to receive extensive press coverage for estimating marijuana taxes in a legal, regulated landscape.

A lifelong activist, Miron is held in high esteem by academia, the media, and legalization advocates. Curiously, the most-quoted man in marijuana remains completely detached from his subject.

 

The Miron Report

The $6.2 billion figure, indelibly branded on the collective unconscious, is most often pinpointed in Miron’s 2005 white paper, The Budgetary Implications of Marijuana Prohibition, funded by The Marijuana Policy Project, a non-profit dedicated to pursuing sensible marijuana policies [read legalization]. This document is commonly referred to as The Miron Report. When someone performs a Google search for “marijuana tax revenue” or similar, The Miron Report is inevitably splattered all over the search engine report page.

For observers who believe the more potential cannatax, the sooner legalization occurs, that’s not a desired result. They feel actual cannatax figures will eventually prove to be considerably more robust. Compounding the frustration, prominent media sources, including the pulp old guard like The San Francisco Chronicle, The New York Times, and The Chicago Tribune, still regularly referenced Miron’s 2005 report in the summer of 2009, often in conjunction with the ongoing story that the California Board of Equalization has estimated — at its Republican governator’s request — that the virtually bankrupt state stands to gain $1.4 billion annually by taxing its #1 cash crop.

Is that all there is?

When a lot of people, other economists included, see Miron’s figure, the first word that pops in their heads is low. Yet $6.2 billion, first introduced in 2005, has staying power. It’s still going strong in 2010. This despite the fact plenty of reasonably well-heeled “stoners” — often disguised as you and me — have been displaying signs of, shall we say, enthusiasm, in the dawn of the dispensary era.

Ironically, $6.2 billion could be a figure blocking the alchemization of buds to bullion. It doesn’t have the look of a “magic number” persuasive enough to convert moderates into activists.

Let’s put that number into perspective. Most people don’t have any idea how much the IRS collected in individual and business taxes in 2008. That would be $2.7 trillion. Contrast $2.7 trillion with $6.2 billion.

Even politicians with pro-pot leanings are unlikely to prioritize legalization for their state’s share of $6.2 billion. Let’s face it: spread out over 50 states, $6.2 billion just isn’t motivating. South Dakota’s share could barely finance a community dog run. It’s certainly not nearly enough to overcome the “gateway drug” theory, or the last echoes of Nancy Reagan’s “Just Say No” campaign.

But is $6.2 billion really all that could be generated from taxing tantalizing strains like Mass Skunk, The Forbidden Fruit, and Light of Jah? We’re getting to that. First, let’s examine Miron’s findings and methodology.

Miron’s methodology

The Miron Report tells us that all the “users” in the U.S. spend a total of $10.5 billion annually on marijuana. He anticipates that figure would experience a “plausible decline” to $7.9 billion in a legal economy. Miron then calculates approximately how much in government receipts (local and state sales taxes, state and federal income taxes, FICA, Medicare) individuals and businesses would pay for the product category “marijuana.”

It’s commonly accepted that federal and state income taxes wind up being around 30% of expenditures on that product [in economic terms, 30% of GDP, Gross Domestic Product]. So, Miron took 30% of $7.9 billion, which works out to $2.4 billion.

Miron next calculated a sin tax at the rate of 50%. 50% of $7.9 billion is around $3.9 billion. That $3.9 billion in sin taxes, plus the $2.4 billion in government receipts, adds up to around $6.2 billion. It’s actually closer to $6.3 billion, but why quibble over $100 million?

Confirmation for Miron’s methodology exists in literature. His figures closely match numbers reached by the research team of Caulkins & Pacula from Carnegie-Mellon Institute and The RAND Corporation respectively.

80% sin taxes?

Miron sees no reason why sin tax rates in a legal, regulated market shouldn’t be directly comparable with rates currently levied on alcohol and tobacco. “It seems to be possible to have 50, 60, 80% sin tax rates without driving the market underground,” Miron told Cannabis Commerce in March of 2010.

That’s an assumption, drawn from comparisons to tobacco taxes in Europe. Presently, no state exacts sin taxes on marijuana. In Colorado, dispensaries pay local and state sales taxes, but no sin tax is charged to “patients” However, it’s whispered on the wind the nation’s first marijuana sin tax debate will take place in the Colorado legislature sooner than later.

No published survey has queried buyers and sellers on the tolerability of 50% or higher sin rates. Miron’s $6.2 billion projection won’t pan out if sin taxes around 50% can’t be sold to the public.

The famous ONDCP table

Miron first extrapolated the now-familiar statistics of about $10.5 billion spent annually, which could generate $6.2 billion in taxes, in his 2002 The Budgetary Implications of Marijuana Legalization in Massachusetts, from a single table on drug “offenders” included in What American Users Spend on Illegal Drugs, a report put out by the Office Of National Drug Control Policy (ONDCP) in 2001. The table displays data taken from a survey by Abt Associates (headquartered in Cambridge, Massachusetts, same as Harvard, eerily enough) that queried drug offenders.

He repeated his rationale virtually word for word in 2005’s The Miron Report.

“ONDCP (2001a, Table 1, p.3) estimates that in 2000 US residents spent $10.5 billion on marijuana.”

Miron suggests that the ONDCP, the same organization that lost the war on drugs, has won the war on statistics. Others disagree.

That same ONDCP study suffers from a number of fatal flaws, according to a later report from December, 2002, by the Drug Availability Steering Committee of the DEA. The later report points out that the original report estimates a total of 927 metric tons of marijuana are consumed by Americans annually — although virtually every other reputable source places the figure at least 9,000 metric tons higher.

The shelf life of a government table

Miron readily admits the ONDCP table has been his lone source for a decade. Relying on only one data source produces an extremely “cautious” forecast.

He defends the cautious approach:

I’ve stayed with the main estimate of the size of the market that I took from a report,  commissioned by the White House’s drug czar’s office (ONDCP), back in the late 1990s, published in 2001, and I’ve just taken that number and I’ve updated it for inflation. I wanted to use their number for three reasons:

First I read the study, and it seemed like it made reasonable assumptions.

Second, it’s an order of magnitude that seems plausible to me in the sense of how big a market they’re talking about compared to alcohol and tobacco. There are estimates around of the marijuana market that imply that it’s way bigger than the legalized alcohol and tobacco markets, and that doesn’t strike me as plausible.

Third, I also wanted to use a number that is basically beyond criticism, in particular beyond criticism from the White House drug czar’s office and the DEA, or other advocates of marijuana prohibition. That’s why I’ve used their number, because I don’t want them to be able to say, “You deliberately inflated the size to make a tax revenue estimate look bigger than it’s actually going to be.”

So I think given that if anything I erred on the low side, I’m immune to that criticism.

That’s immune to criticism by government entities. That doesn’t mean he doesn’t get any from his fellows, including plenty of protests that his figures are too high.

In his 2008 The Budgetary Implications of Drug Prohibition, Miron bumped his estimate a half-billion to $6.7, accounting for “inflation.” Taking up the mantle this time for The Criminal Justice Policy Foundation, he was still relying solely on the same ONDCP table circa 2000.

Is there an expiration date for that table?

“Until there is something better, I will continue to use that, though I continue to read other people’s estimates, and think about whether I should change my view, and they maybe nudge me that maybe I’m 20 or 50% too low, but they certainly don’t convince me that I’m off by a factor of ten, which is how different some of the estimates are from the numbers.”

A walk on the demand-side

Other economists have attacked The Miron Report for its reliance on demand-side data (in a word: consumption, how much pot is smoked, eaten, absorbed or otherwise imbibed).

One of those critics, we’ll be meeting next section, describes why:

Demand-side estimates are almost always derived from nationally representative survey data, and specifically the NSDUH (National Survey on Drugs and Health). The NSDUH asks respondents whether or not they have used marijuana ever, in the past year, and in the past month, as well as a limited number of other questions. Additionally, the survey used to ask respondents further questions, exploring the frequency, quantity and other important characteristics of marijuana use.

Given this data, it is hypothetically possible to estimate the quantity that would have to be available on the market to support the self-reported consumption of respondents. This method, however, will consistently and systematically underreport the quantity in the market. A brief exploration of existing consumption (demand-side) estimates illustrates this detrimental flaw. –JG

Miron expresses his own suspicions about the veracity of supply-side data [extrapolated from seizure and eradication statistics]. But do those suspicions justify excluding such data from his reports altogether?

Renunciating the effects of advertising and publicity

Miron’s 2010 report actually downgrades his forecast to $6.4 billion — despite an avalanche of free advertising and publicity which boosts pot’s profile in every conceivable form of communication.

Some cannatax observors are disappointed that Miron’s 2010 report, which borrows much of the same verbiage and draws basically the same conclusions as his previous reports, ignores paradigm-shifting movement like:

  • The ceaseless broadcast of medical medical marijuana stories by electronic and print media.
  • The relentless portrayal of all things weedy by Hollywood.
  • The retail explosion taking place wherever dispensaries are allowed to conduct cannabis commerce like Denver, LA, and Oakland.
  • Cannabis conventions being held all over the country.

That’s quite a lot to overlook!

Empirical evidence, from areas dispensaries have been allowed to flourish, suggests that Miron’s statement “there will be no increase in consumption under legalization” — this exact wording appears in each of his reports — might not accurately reflect the public’s pent-up demand for exotic buds.

Finding more Cannatax is not Miron’s primary motivation

In fairness, Miron devotes most of the pages in his white papers to calculating the savings from a cessation of pursuing, prosecuting, and incarcerating marijuana “offenders” from readily available statistics. He expends considerable energy toward this purpose. There is no reason to challenge his ability to count actual numbers that exist in the public domain.

However, when it comes to finding more cannatax,  Miron is considerably less energetic if not lethargic. He’s simply not motivated. Tax revenue is “sixth, seventh, or eighth” on Miron’s list of reasons to legalize marijuana.

Atop that list is individual liberty:

I don’t want what I think are the compelling arguments — the liberty arguments — to end up being undercut by inflated, excessive, and possibly contaminated estimates of the economic benefits. I think that makes the movement seem somewhat disingenuous. I don’t want people to think they’re getting some goose-that-laid-the-golden-egg benefit out of this; the benefit is letting people consume marijuana in peace.

Miron agrees with President Obama that if marijuana is legalized, it should not be for the sole purpose of raising revenue. With all due respect, there’s ample evidence that one of the main reasons prohibition was lifted in 1931 was to raise taxes in a great depression — the exact scenario we face now.

What about that “magic number” theory?

Personal opinions are fine, but when a nation turns its lonely eyes to you for all things marijuana, the revenue issue inevitably comes up. Many people feel revenue is one of the most important and compelling rationales for legalization, if not the most important argument.

At some point in the hopefully not too distant future, legalization is going to have to be sold to prohibition proponents. One of the basic tenets of sales is that everybody has a hot button. Some folks want a more powerful engine. Some folks want the safest car on the road. Some folks buy the SUV because it has a built-in Kleenex dispenser. Hot buttons are different for everybody. Neglect any potential hot button, risk losing the sale.

Some politicians may advocate legalization because they, like Miron, buy into the individual liberty arguments. That said, it’s just as possible another politician’s hot button could indeed be the revenue issues. What not reach out to them?

There clearly are people in the middle, there are politicians in districts that have more of a mix, and I certainly talk to a lot of politicians who say, “Look, I need cover. I agree with you philosophically or morally, but I need an excuse to tell my constituents that I’m going to vote for this.” And so yes, for some politicians a big number maybe is helpful. But I don’t think that’s a reason to make the number bigger than my objection analysis of the economics suggests.

Fair enough.

Another boring agricultural thing

Unswayed by optimistic voices trumpeting the potential of marijuana taxation as balm for economic ills, Miron relishes his role as “buzz-killer.” Here’s his answer to the question “Do you think legalizing marijuana would make farming sexy again?” Those of you seeking sensational cannatax amounts might want to avert your eyes:

“Not for very long. I think it’ll just become a boring agricultural thing, just like everything else. It shouldn’t be any sexier than anything else. I mean after all, it’s basically a weed, so it’s not that sexy to grow a weed.”

Then why isn’t anybody opening avocado dispensaries?

Clearly, Miron’s path home doesn’t wind past the thriving cultivation stores taking root in Denver and LA. It’s quite possible he might not have brushed up on his Ralph Waldo Emerson recently, or he’d know the poet/naturalist/philospher said:

What is a weed? A plant whose virtues have not been discovered.

There’s more:

“We’re being, from a tax revenue perspective, a bit hopeful that somehow this is a miracle commodity that’s going to going to overtake everything else. For example, you hear this statement all the time, that marijuana is the largest cash crop in California. I challenge anybody to discover the source of that statement. I’ve been hearing that statement for decades, and I bet whoever made that statement had zero data to back it up.”

The asexuality of weed might be news to the Department of Agriculture, which rated it as California’s largest crop, “larger than grapes, vegetables, and hay combined,” in Agricultural Statistics 2005 (National Agricultural Statistics Service>Statistics by Subject>Crops and Plants.) NASS isn’t really known for fabricating herb lore. Dr. Miron, you can pay the bet in Red Sox tix.

I return the challenge: for Rockies tix, I challenge anyone to walk a mile in my shoes — Denver’s South Broadway, from Arizona to Yale, specifically — and retain a bearish attitude about marijuana futures.

Hold the futurists, please

For months, I was convinced Miron was unable to see into the future. I could barely get his assent that there are any new and different potential revenues streams than those he’s repeated in his reports for the better part of a decade. However, after painstakingly transcribing his CC interview, I realized that Miron does peer into the future; he just doesn’t happen to see much cannabis commerce going on there. The 25 dispensaries that have sprung up within a mile radius of South Broadway and Evans in less than a year are apparently meaningless:

“I am taking account of all those factors. And I still think that they don’t add up to huge numbers, because it’s one product. If we look at the tax revenue we get from any product, no matter how popular, it’s maybe, maybe, tens of billions. But it’s not hundreds of billions.”

The dichotomous nature of man

  • One can project how advantageous it might be for the cause of legalization if the leading pot tax authority placed greater emphasis on assessing the value of certain forseeable taxation streams, which will seem obvious when they’re addressed later in this report. Some “want to” on Miron’s part would be nice, but it’s probably not going to happen.
  • Miron tends to trivialize cannabis commerce’s contribution to job creation, labeling it sight-unseen as “job shifting.” He might draw a different conclusion if he spent quality time in medical marijuana hotbeds ripe with dispensaries and a succession of spin-off businesses.
  • While some legalization advocacy groups focus on “patients’ rights,” as if medical marijuana is all that matters and recreational use is an afterthought, Miron’s more egalitarian viewpoint embraces legalization for everyone.
  • Miron says it’s plausible that the size of the marijuana market is about the same as the tobacco and liquor markets. However, according to the US Department of Labor statistics, the liquor industry registered $54.9 billion in sales in 2007, while the tobacco industry chipped in with $33.8 billion. Compare this with Miron’s insistence marijuana sales have hovered around $10.5 billion since 2002.
  • Miron says he assumes that the popularity of marijuana will be on a par with alcohol and tobacco; however, in 2008 the California Board Of Equalization collected $300 million in liquor taxes, but predicted in 2009 that it could raise 1.4 billion in pot taxes. The BOE also used demand-side data exclusively to calculate its figure, according to Miron himself. Why, then, is the BOE estimate over four times higher for marijuana than alcohol, if they are in fact equally popular? If it’s because even though they’re equally popular, marijuana costs more than most alcohol products, then why wouldn’t it bring in over four times as much tax revenue if the BOE’s demand-side prediction proves accurate?
  • Miron’s as generous with his time for marijuana causes as he is stingy with his data sources.
  • Miron admits to some omissions in his reports which could have been included, like licensing fees for individuals and dispensaries which are measurable. “No, that’s not in the report. I agree.” But he won’t concede demand has increased measurably since 1999.

Conclusion

Enigmatic or not, Jeff Miron is an influential and highly-respected figure in legalization circles. Discussing cannatax without highlighting Miron would be like writing about great drama without including Hamlet. He’s a genius at extemporaneously translating economist-speak into plain English for pubic consumption. Even maintaining a posture of unshakeable caution, Miron still aids the cause of legalization, because his reports receive considerable media attention, and he’s the go-to guy for quotes. He also has an avuncular quality that makes him impossible to dislike, even when consistently disagreeing with him.

Is Jeff Miron the beginning of all things cannatax or the end? Hard to say. But anyone following in his footsteps better really bring it if they want to make a go of the cannatax forecasting business.

CC’s interview with Jeff Miron.

Next section preview

The medical marijuana phenomenon was impossible to anticipate in 2005. However, even without the benefit of hindsight, much more data was available for predicting potential tax revenue back then. And someone with time on his hands and a high capacity for researching semi-obscure statistics was tapping deeply into it.

What is a weed? A plant whose virtues have not yet been discovered.

— Ralph Waldo Emerson