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The Marihuana Tax Act of 1937

Statement of Clinton M. Hester,

Assistant General Counsel, Treasury Department

MR. HESTER: The purpose, Mr. Chairman, of H.R. 6906 s to employ the Federal taxing power to raise revenue by imposing occupational and transfer taxes upon dealings in marihuana and to discourage the widespread use of the drug by smokers and drug addicts.

The flowering tops, leaves, and seeds of the hemp plant contain a dangerous drug, known as marihuana. The drug is used only to a negligible extent by the medical profession. In fact, last year only 4 out of every 10,000 prescriptions contained marihuana. The drug is prescribed as a sedative, but is used very rarely by the medical profession because the effect of the drug is so variable that a physician cannot tell how his patient will react to the drug and because there are so many better substitutes.

The plant also has many industrial uses. From the mature stalk fiber is produced which in turn is manufactured into twine, and other fiber products. From the seeds, oil is extracted which is used in the manufacture of such products as paint, varnish, linoleum, and soap. From hemseed cake, the residue of the seed after the oil has been extracted, cattle feed and fertilizer are manufactured. In addition, the seed is used as special feed for pigeons.

Marihuana is often used illicitly by smoking it in crudely prepared cigarettes which are readily procurable in almost all parts of the country at prices ranging from 10 to 25 cents each. Under the influence of this drug the will is destroyed and all power of directing and controlling thought is lost.

SENATOR DAVIS: Do you mean that the cigarettes cost 25 cents each?
MR. HESTER: They are manufactured illicitly and that is the price that the peddlers actually get for them.

SENATOR DAVIS: That is per cigarette and not per package?

MR. HESTER: That is per cigarette.

SENATOR DAVIS: For one cigarette?

MR. HESTER: That is right.

Inhibitions are released. As a result of these effects, many violent crimes have been and are being committed by persons under the influence of this drug. Not only is marihuana used by hardened criminals to steel them to commit violent crimes, but is also being placed in the hands of high-school children in the form of marihuana cigarettes by unscrupulous peddlers. Its continued use results many times in impotency and insanity.

Two objectives have dictated the form of H.R. 6906, first, the development of a plan of taxation which will raise revenue and at the same time render extremely difficult the acquisition of marihuana by persons who desire it for illicit uses, and second, the development of an adequate means off publicizing dealings in marihuana in order to tax and control the traffic effectively.

This bill is modeled upon both the Harrison Narcotics Act and the National Firearms Act, which were designed to accomplish these same general objectives with respect to opium and coca leaves, and firearms, respectively.

Under the provisions of this bill all legitimate handlers of marihuana, are required to pay occupational taxes as follows: Manufacturers, compounders, and importers, $24 per year; producers, $5 per year; dealers, $3 per year; practitioners (doctors, dentists, veterinarians, and other of like character), and persons who use marihuana for experimental purposes, $1 per year. These persons, in addition to paying the occupational tax, must register with the collector of Internal Revenue and file information returns as to their dealings in marihuana.

However, as an additional means of bringing the traffic in marihuana into the open, the bill requires all transfers of marihuana to be made in pursuance of the official order forms issued by the Secretary of the Treasury, upon which the details of the transaction are set forth. In order to raise additional revenue and to prevent transfers to persons who would use marihuana for undesirable purposes, a transfer tax is imposed upon each transfer of marihuana. Upon transfer to registered persons, this tax is $1 per ounce, while, upon transfers to non-registered persons, who under ordinary circumstances will be the illicit users of marihuana, a heavy tax off $100 is imposed. Heavy criminal penalties are provided for the manufacturing, producing, or dealing in marihuana without registering and paying the special taxes, for transferring marihuana not in pursuance of an order form, and for acquiring marihuana without payment of the transfer tax.

Thus, the bill is designed, through the occupational tax and the order form procedure, to publicize legitimate dealings in marihuana and through the $100 transfer tax to prevent the drug from coming into the hands of those who will put it to illicit uses.

The production and sale of hemp and its products for industrial purposes will not be adversely affected by this bill. In general, the term "marihuana" is defined in the bill as to include only the flowering tops, leaves, and seeds of the hemp plant, and to exclude the mature stalk, oil, and meal obtained from the seeds of the plant, and sterilized seed, incapable of germination.

Under this definition of "marihuana" the hemp producer will pay a small occupational tax but his fiber products will be entirely exempt from the provisions of the bill, including the order form and transfer tax provisions.

SENATOR BROWN: This means the farmer will pay $5?

MR. HESTER: That is right.

SENATOR BROWN: That is all he will have to pay?

MR. HESTER: That is all he will have to pay.

SENATOR BROWN: And it makes no difference how extensive his acreage is?

MR. HESTER: No, $5 is the limit.

SENATOR BROWN: It is $5 whether he cultivates an acre or 10 acres?

MR. HESTER: That is right.

The same is true of seed produced by the hemp grower for sale for the further production of the plant, for the manufacture of oil or for birdseed, except that such transfers will be made subject to regulations designed to prevent diversion of the seed for illegal purposes.

Similarly, the manufacturers of oil and the byproducts of seed, such as hemp seed cake and meal, will pay an occupational tax, but their purchases of seed and sales of such oil, cake, and meal will be entirely exempt from the provisions of the bill except that the purchasers of such seed will be subject to regulation designed to prevent diversion.

Manufacturers of birdseed will also pay an occupational tax, but their purchases of seed will be exempt from the transfer tax and order form provisions of the bill, if carried out in accordance with regulations. Further, under the definition of marihuana, the bill will not apply to their sales of birdseed, if the hemp seed contained therein is sterilized so as to be incapable of germination.

I might say at this point that this provision with respect to the birdseed was worked out with the birdseed people, and those who appeared before the Ways and Means Committee approved that provision.

Now, this is an important provision, this particular provision right here that we are discussing.

Notwithstanding, as already shown, that under the bill the producers of hemp will only pay a small occupational tax and make their purchases and sales of seed subject to regulations, some suggestion has been made that the producers be entirely eliminated from the bill. Such an exemption, however, is believed to be impossible.

The imposition of an occupational tax enables the Government constitutionally to make it illegal to engage in the occupation without payment of the tax. Thus, unless the Congress in this bill imposes an occupational tax on the producer of the hemp, Congress cannot make the production of hemp for illicit purposes illegal. Hence, if the occupational tax is not imposed upon producers, marihuana may be legally produced for illicit purposes. Furthermore, the imposition of an occupational tax enables the Government to require the taxpayer to furnish information in connection with the business taxed. This would permit the Government to ascertain where the legitimate production of hemp is being carried on, and having this information, it can stamp out the illicit production more effectively. Obviously, therefore, the legitimate producers of hemp cannot be further exempted from the provisions of the bill. Otherwise, the bill cannot be enforced.

Aside from the reasons stated as to why it is believed to be impossible to further exempt the producers of hemp from the provisions of the bill, attention is invited to the fact that the primary purpose of this legislation is to raise revenue.

That completes my statement, and we have witnesses present.

SENATOR DAVIS: Do I understand you to say that the primary purpose of the bill is to raise revenue?

MR. HESTER: The primary purpose of this legislation must be to raise revenue, because we are resorting to the taxing clause of the Constitution and the rule is that if on the face of the fill it appears to be a revenue bill, the courts will not inquire into any other motives that the Congress may have had in enacting this legislation.

This bill is modeled on the Harrison Narcotics Act and the National Firearms Act. The Harrison Narcotics Act has been sustained by the Supreme Court, the first time by a 5-to-4 decision, and a second time by a 6-to-3 decision. The Supreme Court in March of this year sustained the constitutionality of the National Firearms Act, insofar as it related to the occupational tax.

SENATOR DAVIS: The Harrison Narcotics Act you say was before the Supreme Court twice. Was there a change in the judges between the time of the first decision and the time of the second decision?

MR. HESTER: I do not know whether there was a new judge placed upon the bench at that time or not, but the vote was 6-to-3 the second time. That was some years later.

SENATOR DAVIS: What was the date of the 6-to-3 decision?

MR. HESTER: 1927

SENATOR DAVIS: Justice Stone went on the Supreme Court at that time?

MR. HESTER: He went on the Court in the Coolidge administration.

SENATOR DAVIS: That is right.

MR. HESTER: Yes, he was on.

SENATOR DAVIS: When was the first decision?

MR. HESTER: The first decision was about 1918. I think it was about that time.

SENATOR BROWN: Mr. Hester, will you give us a summary of the history of the state legislation respecting marihuana?

MR. HESTER: Every state in the Union has legislation regulating the traffic in marihuana.

SENATOR BROWN: Is there fairly uniform law on the subject among the states?

MR. HESTER: Yes, it is fairly uniform. In some states they prohibit entirely all production of marihuana. I think there are six states that prohibit the production of marihuana, and it probably could be constitutionally done by the Congress.

SENATOR BROWN: That is, there could be a prohibition?

MR. HESTER: That is right. But you would have to prohibit it entirely and of course you would put all of these legitimate industries out of business. The Supreme Court has held that where on the face of the act it appears to be a taxing measure, the fact that it happens to be prohibitive in character will not affect the constitutionality of it. But we have tried throughout this measure not to interfere materially with the production of marihuana, but to permit it, and to do it in a manner which will enable the Government to stamp out this illicit traffic in the sale of it.

SENATOR BROWN: Say you are in this situation: You have a plant that produces several articles that are valuable commercially.

MR. HESTER: That is right.

SENATOR BROWN: At the same time, as a byproduct the leaves and the seeds can be used for marihuana?

MR. HESTER: That is right.

SENATOR BROWN: That is the deleterious part of it.

MR. HESTER: That is correct.

SENATOR BROWN: As Senator Davis suggests, I think it would be valuable if you would summarize the state legislation, first informing us as to what the fairly uniform general legislation is upon the subject, and then giving us the names of the states that have prohibited the use of marihuana.

MR. HESTER: May we present a memorandum for inclusion in the record on that because we really do not have that at the moment?


(included table)

MR. HESTER: We have with us this morning Commissioner Anslinger, of the Bureau of Narcotics, who is in charge of the enforcement of the Harrison Narcotics Act, and who will have charge of the enforcement of this act if this legislation be enacted into law. He is prepared to testify on the necessity of the legislation and the practical situations.

SENATOR BROWN: All right. Thank you, Mr. Hester. We will hear from Mr. Anslinger.


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