North Carolina is weighing how to tax a future state-regulated cannabis market. Officials from states that already have one brought a warning to its advisers October 30: legal sales do not guarantee dependable revenue, and a tax system can make it harder for licensed businesses to compete with sellers outside it.

The Revenue and Legal Subcommittee of the North Carolina Advisory Council on Cannabis heard from Colorado, California, New York and Connecticut, then debated whether taxes should follow a product's price, its weight or its THC content. The choice would affect what consumers pay, which businesses can survive and how much money government could realistically collect.

The subcommittee adopted no tax model, rate, licensing system or state-control framework. Staff tentatively expected to begin circulating draft recommendations today, November 2, with tax language still unfinished. No released draft was located on the council’s public page before publication.

Members agreed to move their next meeting from November 20 to Friday, November 13, from 1 to 3 p.m. Killjoy Media’s publisher attended and recorded the public meeting and confirms that agreement. Staff were asked to update the calendars and public notice; the council’s public page had not yet listed the new Revenue and Legal date when checked for this report.

Colorado: Don't spend a boom before the money arrives

Colorado's presentation laid out a system with taxes at different stages of the supply chain, different treatment for medical cannabis and valuation problems when products move between businesses under common ownership.

Amber Egbert, of the Colorado Department of Revenue, described the cultivation-transfer and retail taxes, inventory controls and the difficulty of assigning a taxable value when a company transfers its own product internally.

Bryce Cook, of Colorado's Office of State Planning and Budget, emphasized volatile receipts and falling prices. His warning was about budgeting: early growth should not be assumed to continue, and programs should not be committed to revenue officials merely expect to collect that same year.

Asked whether taxes were too high, Cook gave a qualified response rather than identifying a universally correct rate. North Carolina did not receive a simple percentage it could copy and expect the same result.

California: Legal businesses need customers, not just tax obligations

Clint Kellum, director of California's Department of Cannabis Control, described his state's retreat from a cultivation tax and its shift toward collecting excise taxes at retail, where businesses receive payment from consumers.

California's own legislative summary confirms that its 2022 changes suspended the cultivation tax and moved excise-tax collection and remittance to retailers beginning in 2023.

Kellum told the subcommittee that sales dollars had fallen even as the number of units sold increased. That matters to a government collecting a percentage of the price: more products moving across a counter do not necessarily produce more tax revenue when prices fall.

He also described overly optimistic initial forecasts and barriers to participation in the licensed market, including local retail bans, confusing storefronts and competing supply channels.

The warning for North Carolina was broader than lowering a rate. A licensed market needs accessible places to buy and rules consumers can understand. Tax forecasts depend on people actually using that market.

New York abandoned a potency tax. Experts still defended the idea.

New York supplied the meeting's clearest disagreement over how to calculate a cannabis tax.

Patrick McKeage, of its Office of Cannabis Management, described replacing the state's THC-based levy with a price-based distributor tax. New York's tax department confirms that the potency taxes were replaced with a 9% distributor tax effective June 1, 2024. That distributor levy is one part of the tax system, not the entire tax burden at retail.

McKeage pointed to rollout problems, variability in flower testing and administrative complexity. The New York presentation also described producers seeking lower THC test results to reduce their tax obligations.

But two tax-policy specialists argued that taxing intoxicating content still deserved consideration.

Adam Hoffer, the Tax Foundation's director of excise tax policy, favored THC-based taxes for processed products. For cannabis flower, he favored THC content if testing and reporting were already required, or weight if they were not.

Carl Davis, research director at the Institute on Taxation and Economic Policy, also supported taxing intoxicating content. He argued that imperfect measurement did not automatically make the approach unworkable.

A member challenged whether New York's experience demonstrated a problem with potency taxation itself or an excessive rate imposed during a difficult rollout. New York acknowledged that a sufficiently low potency rate might reduce the risk of pushing buyers away, while maintaining that administrative problems would remain.

Those are different questions. A rate can be too high even if the tax basis makes sense. A lower rate does not, by itself, eliminate testing disputes or paperwork.

The collection point and the licensing rules matter too

Hoffer and Davis generally favored collecting earlier in the supply chain from fewer businesses, reducing the number of returns, audits and opportunities for revenue to escape collection. California's experience emphasized collection closer to retail cash flow.

Neither approach removes every problem. Upstream collection raises valuation questions when one business controls several stages of production and sales. Retail collection reaches the point where customers pay, but involves more businesses.

Hoffer warned that layered state and local taxes could leave licensed operators unable to compete. Davis supported lower initial rates and possible phase-ins while also emphasizing public-health safeguards, deterrence and funding for local needs. For a price-based tax, he suggested scheduled or price-triggered increases as prices fall.

Neither offered a rate guaranteed to work everywhere.

Members also compared open licensing, capped licenses and state-controlled sales. Government markups and operating profits would change the calculation under state control. An open market could improve entry and access while intensifying competition and pushing prices down. No model was selected.

Enforcement costs money. A judgment isn't a bank deposit.

Connecticut's attorney general's representative described civil consumer-protection cases, licensing actions, court-ordered closures and liability for landlords knowingly renting to unlawful sellers.

She described a dedicated enforcement fund supported by tax receipts and penalties actually collected, while emphasizing the distinction between large judgments and money the state has received. An enforcement program still needs staff and litigation resources before an announced penalty becomes usable revenue.

The presentation also described lawful channels for some hemp products, including specially authorized beverage sales. It did not establish that hemp origin makes every product unlawful, or that North Carolina has adopted Connecticut's enforcement system.

New York's John Kagia warned about gaps between legalization, licensed-store openings and enforcement authority. He also urged North Carolina not to make revenue promises the principal argument for legalization.

Kagia described separating suppliers from retailers, with exceptions, and limiting ownership to spread opportunities among smaller businesses. New York's revenue allocation, after administrative costs, directs 40% to community reinvestment, 40% to education and 20% to its Drug Treatment and Public Education Fund. Those are New York's choices, not allocations North Carolina approved at this meeting.

Draft recommendations are the next test

The council's assignment is to recommend a statewide approach to cannabis that addresses adult access, youth protection, public health and safety. Executive Order 16 requires final recommendations to the governor by December 31, 2026. Its recommendations do not themselves enact a tax or create a licensing program.

North Carolina has already considered policy proposals. The council website includes a licensing document explicitly marked for discussion only. A published proposal is not a final state framework. The October 30 subcommittee left its tax and licensing choices unresolved.

Staff suggested presenting more than one tax option to the full council, with advantages and disadvantages explained. Members supported that drafting approach and acknowledged that unanimous agreement might not be possible. That was a direction for preparing recommendations, not approval of particular alternatives.

For consumers and existing hemp businesses, the unresolved issues are practical: the combined state and local tax burden, who can obtain a license, whether communities can refuse retail sales and how existing operators would fit into a future system.

Killjoy has previously examined the gap between public support for marijuana reform and changes in North Carolina law. This meeting exposed another set of decisions behind any future law: who gets access to the market, who pays for regulation and how much revenue officials can honestly promise.

The next draft should show where advisers agree, where they disagree and what assumptions sit behind the numbers. A promised tax dollar cannot pay a bill.

Reporting sources: consolidated notes from the October 30 public meeting supplied by an attendee who recorded it, the official meeting agenda, and the linked state records. Speaker remarks are paraphrased.

Photo: Jmturner / Wikimedia Commons, public domain. North Carolina Legislative Building in Raleigh, March 21, 2008; cropped and resized. Archival building photograph, not the virtual October 30 meeting.

Sources & records