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Why Grover Norquist Has Been Talking About Pot Lately

The president of Americans for Tax Reform, the nation’s most powerful anti-tax organization, has been talking about pot a lot lately. Why? It’s just the latest battle in the war against taxation.

Grover Norquist speaking at CPAC 2011 in Washington, D.C. Photo by Gage Skidmore/Wikimedia Commons

Worth editor in chief Richard Bradley talks tax law, cannabis and more with Grover Norquist, president of Americans for Tax Reform. Today, Norquist speaks at SALT 2019 about navigating the new frontier of cannabis investing.

Grover, you’ve been in Washington long enough for people to forget how Americans for Tax Reform started. What’s the story behind your organization?

Americans for Tax Reform was actually created by the Reagan administration, and they asked me to run it. Our job was to help pass what became the Tax Reform Act of 1986. It became clear that one of the dangers was that tax reform would be a tax increase. So I created the Taxpayer Protection Pledge—we got 100 congressmen and 20 senators, Republicans all, to sign a pledge to their state voters that “I will not vote for any tax hike.” The pledge allowed candidates to credibly tell voters, “I will not raise taxes and I mean it.” 

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That pledge became incredibly powerful, right?

When George [H.W.] Bush lost reelection in ’92—after promising not to raise taxes so he could win the primary against Bob Dole, he then raised taxes and threw away an otherwise perfectly good presidency—then we had 95 percent of all Republicans signing the pledge. So the Republican Party has branded itself as the party that will not raise your taxes, and since the Republican Party did that it has run the House and the Senate more often than not—after decades of not doing so at all.

In the past few years, you’ve been outspoken about the tax issues surrounding cannabis. What got you involved with the issue? 

In working around the country, we noticed that tax laws were interfering with federalism, specifically in the cannabis space—this was about 15 years ago, when you started to get legalized cannabis for medical purposes. In Colorado and 20 other states, you had medical marijuana being sold. However, under tax law, you couldn’t deduct necessary and ordinary business deductibles. People brought that to my attention, and I thought that tax policy ought not to interfere with federalism.  

There’s something about marijuana, like alcohol and cigarettes, that seems to invite taxation. It’s easier to raise money off products that have a stigma about them. 

You want to demonize it enough to tax it but not enough to ban it. And when you’re bringing something from the black market into the legal market, a lot of people in the business are willing to basically pay off the government. 

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Because they’re just so happy to get it legalized? 

The biggest challenge for people wanting to invest in cannabis is that they have conceded much too much. This move toward decriminalization is inexorable. Any excuse to compromise is unnecessary.

So what’s the right approach for people in the industry to take?

The answer should be, I don’t care what you think about what I eat, drink whatever. It’s none of your business, and you shouldn’t be discriminating based on taxes. If you have a sales tax in the state, don’t have targeted excise taxes where you pick winners and losers. Don’t have politicians say, “You have a nice business there, it’d be a shame if something bad were to happen to it—but if you wanted to make a contribution to my favorite charity, which is my campaign fund….”

Cannabis needs to stay away from that level of corruption because the politicians will announce the industry is corrupt. And that’s the corruption.

Do you invest in cannabis-related businesses?

I don’t. Because I do so much political work, I’m in mutual funds that are spread across the market, so no one can say I have a conflict of interest. 

What advice would you have for people who do invest in cannabis, or who are considering it?

The biggest determinant on this is going to be the regulatory regimes the different states enter into. If you invest now, it is a more heavily regulated regime. When you first passed decriminalization, the industry and the consumers were willing to pay a very large price to the politicians to be left alone. But the 20th state that comes in… 

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…will have far fewer regulations. What impact does that have on the overall market?

At some point, I do see a collapse of the too-high taxes and the too-restrictive regulations. It’s tough to move moonshine across state lines, cannabis less so. That, I believe, will put pressure on states to decrease taxes and their regulatory burdens.

So who wins this race toward the regulatory and tax bottom? 

If somebody brands [their cannabis product] and brands go national or international, that makes it easier for people to say, “I know this product and I know what’s in it and I like it and I want it.”

Sounds like you’re talking about a pretty significant investment opportunity.

Everyone is looking for the new Uber, the new Lyft, the new Airbnb—disruptive technologies. But ending prohibition is a form of disruptive legal change. Investors find cannabis interesting because if you think that this is the continued ending of prohibition—if you agree that competition across 50 states will force both the excise taxes and the regulatory costs down to compete across state lines, and you have branding and more quality control—this could be the new Uber or Lyft.

For more information on Americans for Tax Reform, visit atr.org.

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