Hemp Prior to "Marijuana Discovery"

Up until the 1930s no one considered hemp to be a dangerous plant. In fact, most individuals considered hemp to be an extremely efficient crop, but with difficult workability due to its hardy fiber. Among everything, the plant was viewed as a taxable revenue opportunity.

Historically, mankind used hemp for its fibrous stalk for ropes, twine, cloth and hats and oily seed for applications like drying agents in paints. In addition, the leaves of the plant were removed and accepted by Pharmacopeia as a therapeutic drug for cough medicines, asthma and corns.

Hemp was not considered dangerous until 1928 when German Professor Walther Straub,

“found it possible to not only breed Indian hemp, a source of hashish, but to obtain a product of such apparently high quality that it can be used to replace the foreign drug for medicinal purposes. The alcohol-extractive content of the drug could be brought up to 18-20 percent.”

Prior to this finding, countries like Mexico were growing it and consuming it, but the quality of the drug was very low and therefore not considered dangerous. The discovery of a high quality breed replacing the “foreign drug” (i.e. opium) sparked controversy across the world for decades to come.

First Regulation Attempts

This more potent cannabis hemp, coined as marihuana (or marijuana) because of its popularity in Mexico, flooded streets across the world. Meanwhile, the highly bred and high quality plant confused federal agents which spurred regulation of the entire cannabis plant species. The United Kingdom initiated legislation banning cannabis through the League of Nations, but failed.

In 1932 the U.S. enacted the Uniform Narcotics Act to create homogeneous narcotic regulations across states. This Act had an optional clause that banned cannabis. Several states questioned the purpose of banning an industrial crop and refused to adopt the clause.

The Bureau of Narcotics assured those wondering that if they wanted marijuana controlled, they should vote to adopt the optional clause. Some states opted out of regulation, aware that it would regulate a useful cash crop, but yellow journalism, religious organizations and temperance groups created campaigns to prompt successful adoption of the “cannabis clause” across several states.

Marijuana Tax Act: A breakdown

In 1937 the Marijuana Tax Act was introduced in the Ways and Means Committee regulating all Cannabis sativa L. as defined as:

“all parts of the plant Cannabis sativa L., whether growing or not; the seeds thereof; the resin extracted from any part of such plant; and every compound, manufacture, salt, derivative, mixture, or preparation of such plant, its seeds, or resin- but shall not include the mature stalks of such plant, fiber produced from such stalks, oil or cake made from the seeds of such plant, any other compound, manufacture, salt, derivative, mixture, or preparation of such mature stalks (except the resin extracted therefrom), fiber, oil, or cake, or the sterilized seed of such plant which is incapable of germination.”

The Act’s tax policy did not make cannabis illegal. Technically, the Act regulated only the seeds and extracted resin of the plant. So while possessing Cannabis sativa L. industrial hemp fiber, oil or cake was legal, possessing any seeds to produce those materials or the extract thereof was subject licensing and transfer fees under the Marihuana Tax Act.

The fees were not necessarily unaffordable; however, keeping in mind the downturn in the U.S. economy at the time, particularly in the agricultural sector, most farmers were unwilling to take the risk.

Licensing and Transfer Fees Under Marijuana Tax Act

Anyone producing, importing, manufacturing, prescribing or selling the seeds or extracts was subject to the tax with the fees varying based on the practice. In addition to the fee, possession required a lengthy permitting process.

Producer Type License Fee 2016-equivalent Producer $1/year $16.50/year Researchers and Instructors $1/year $16.50/year Physician, Dentist, Veterinary Surgeon, and Other Practitioner $1/year $16.50/year Any Person Who Deals, Dispenses or Gives Away Cannabis $3/year $50/year Importer, Manufacturer or Compounder $24/year $397/year

In addition to the license fees, there were taxes associated with any transfer made.

Taxes Under Marijuana Tax Act

Producer Type Tax 2016-equivalent 2016 Colorado Comparison Those Who Sold With A License $1/oz $19/oz 5%-10% value of Colorado ounce Those Who Sold Without A License $100/oz $1,654/oz 5 to 8 times more than value of Colorado ounce

Violation Fees of Marijuana Tax Act

To top it off the Act also mentions the punishment for violating any provisions as:

“fined not more than $2,000 ($33,075 : 2016-Equivalent) or imprisoned not more than five years, or both, in the discretion of the court.”

Simultaneously, the entire U.S. economy was still escaping the Great Depression. And oversupply of agricultural crops from WWI had plummeted prices. Foreclosure rates were at all-time highs. It was the largest decline in agricultural history.