Taxes and Social Policy with Todd Arkley, CPA

Video by Steve Hyde


by Dominic Corva, Executive Director

On Monday, February 16, I sat down with Todd Arkley, CPA, to discuss the state and trajectory of I 502 tax policy as it relates to the big picture; and to do a little ethnographic interview in order to situate Todd’s knowledge in the development of cannabis policy as social policy in Washington State. The interview’s first half addresses the former, and the second half the latter.

The content of this particular interview is extremely timely. In the ecology of social issues that shape state cannabis policy, tax policy is currently dominating how the state makes cannabis policy.

This creates a problem for the optimization of cannabis policy in Washington State. Arguably, I 502 was passed primarily to address the state’s crime policy, informed heretofore mostly by the punitive war on drugs.

Once it was passed, however, it became subject to competing social problems: how do we make good policy for cannabis patients? how do we make good policy for parents with children? how do we make good policy for creating a new market? how do we make good policy for banking? And so forth.

Right now, the only social problem that legislators are interested in is maximizing revenue for our cash-strapped state. They seem to see this in a very simplistic fashion: what is preventing the maximization of tax revenues?

To that end, they have found a well-funded constituency that has purports to have an answer for them. It goes something like this: shut down any potential competition to the I 502 market.

That answer is appealing because it is simple; and because it converges with a singular private interest: vested I 502 business owners, particularly those associated with Martin Tobias’s Washington CannaBusiness Association.

Unfortunately, those business owners do not understand how this way to address the social problem — tax revenues; and the private problem — dysfunctional legal cannabis markets; is unlikely to help either because medical cannabis markets are not the reason the system is dysfunctional.

The system is dysfunctional because the Washington State Liquor Control Board, presumably at the direction of the Governor’s Office, insisted on creating a very tightly regulated market aimed at capturing a very small percentage of Washington State cannabis consumption. There is nothing inherently wrong with that, but this design cannot possibly maximize public and private revenues.

The system is dysfunctional because the slow pace of approval has given reactionary forces time to organize against I 502 proximity in their localities.

The system is dysfunctional because the Association of Washington Cities has organized to block I 502 implementation in order to gain shares of I 502 revenue.

And yes, the system is dysfunctional because the tax structure cripples profit margins in a nascent industry.

Medical cannabis markets will be in competition with I 502 markets when the latter are able to provide geographic accessibility aligned with the reality of Washington State cannabis consumption (and certainly not 25% of it); when the production/processing/retail chain smooths out from the feast or famine pattern of the last eight months; and when that system starts producing the range of goods available in black and gray markets.

Legislators and private Big Money Cannabis groups have apparently not heard that all attempts to eliminate the black market for cannabis for the last 40 years have only served to make it stronger. Prohibition makes profit margins possible, and the retreat from prohibition has already driven down black and gray market margins within range of basic cost of production, at least on the West Coast.

The public needs to know, and policymakers need to understand that their current alignment of tax revenue maximization with I 502 Big Money interests can only be suboptimal policy for everyone, including the legislators and lobbyists who are pushing it.