Sure. There are a number of different ways to tax cannabis, and I want to make it clear nobody knows the best approach. In my testimony I only highlighted three of them. There are many other approaches, but I do want to spend some time talking about the three I discussed.
The one that is most popular here in the United States is an ad valorem tax. That's taxing as a function of the price. As I said in the testimony, the advantage is that it's easy to set up. We're comfortable doing that. We do this for other products. There are two potential drawbacks with a price-based tax. First of all, you have to be smart about bundling. If you're not, someone can just say, I'll sell you this pipe for $30 and give you the cannabis for free. People may do things like that as a way to avoid the tax, so you have to be smart about bundling.
The other issue is that, as the prices go down, the amount of tax revenue you're going to generate is not going to be as high as you thought it was going to be. This is important because now there are a lot of people getting into this, different consultants and people who are trying to make projections about what's happening, what's going to happen with tax revenues by the year 2025 and year 2030. You have to be skeptical of some of these estimates that are coming out because I don't think they're necessarily accounting for the fact that there could be this large price drop.
A second approach is tax as a function of weight. Like I said, Alaska does this. They tax at the wholesale level. It's a $50-an-ounce tax. The advantage is that it's very easy to apply and it's very easy to collect. The potential drawback with that is that it creates incentives for the producers to produce more potent cannabis as a way to avoid the tax. As I said, we know very little about the health consequences associated with some of the high-potency products that are being sold.
To give you some insight in terms of what's happening in Washington state, I've been working with a team that's been analyzing all of their data from their traceability system, their seed-to-sale system. They're tracking the plants all the way through to the final sale and keeping track of prices and potency. Washington is selling about 100 million dollars' worth of cannabis products every month. Of that, probably 70% is cannabis flower, and of the flower that's being sold, more than half of it is reported to be of THC levels of 20% or higher. There might be some inflation there, so maybe it's only 18%. But at the end of the day, some of the flower that may be 10% to 12% THC, you're just not seeing much of that in stores.
Also, the fastest growing segment of the market in Washington isn't edibles, although edibles get a lot of attention. It's actually the concentrate, so these are your waxes, your oils, and also the vape pens or the e-cigarettes, but instead of having a nicotine solution, they'll have a hash oil solution. That's the fastest growing segment, and to be honest, we don't know much about the health consequences of the higher-potency products, either the flower products or the oil products.
I also want to make it very clear that when we talk about health consequences, we need to be talking about both the risks and the benefits.
There's also this issue of titration. It might be the case that whereas before someone used to smoke a whole joint that was 5% THC, maybe if it was 15% they would only smoke one-third. It turns out we don't have much research on this issue of titration. I know of a few studies that have been published in Europe, but none in Canada or the United States. There are some concerns there about a weight-based tax creating incentives for people to use these more potent products, thus leading to a third option—the tax as a function of THC. In fact, that's what many jurisdictions do when they're creating their alcohol taxes; the tax will be a function of the ethanol content. What this does is it gives the jurisdictions the ability to nudge some users toward these lower-potency products.
The advantage of that is you're taxing as a function of intoxication. To the extent that we think that intoxication is associated with the number of public health harms, this could help reduce those harms. On the other hand, the system could be hard to set up. It's all going to depend on how good you feel about the rigour that's in your current testing and labelling regime. If you feel good about the labels that are going on those packages and what's being reported, then taxing as a function of THC is easy. However, if you don't feel good about your testing regime, if you don't feel that it's accurately portraying what's in those packages, you still have other options.
One of the things I talked about in the testimony was that in the short run, if you don't feel your testing regime is providing useful information with respect to the THC or CBD content of the plant material, it's easy to tax the concentrates and oils as a function of THC. But for the flower, you could actually have an alternative minimum tax. The tax could be determined by the stated THC the company puts on the package, or it could be a weight-based tax. The way they would set it up is that whichever tax ends up being higher, that's the tax you would have to pay.
That's a solution you could implement in the interim while you're developing a rigorous testing regime.