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Additional Statement of Clinton M. Hester

Taxation of Marihuana
Wednesday, April 28, 1937

House of Representatives
Comittee on Ways and Means
Washington, DC

Additional Statement of Clinton M. Hester, Assistant General Counsel, Office of General Counsel for the Department of the Treasury.

MR. HESTER: Mr. Chairman, I prepared last evening a brief summary of the effect of the marihuana bill upon legitimate industry which I thought would be of interest to the committee.

MR. CULLEN: If there is no objection, the statement referred to will be inserted in the record.

MR. HESTER: The statement I have referred to is as follows

All legitimate users of marihuana are exempted from the provisions of this bill which imposes taxes upon transfers of marihuana and require such transfers to be made on order forms obtained from the collector of internal revenue, except purchasers of marihuana seeds for use in the making of bird seed, or marihuana seeds as bird see, and purchasers of the flowering tops and leaves of marihuana for use in the making of the refined drug product.

These legitimate users of marihuana who are exempted from these transfer taces and order form requirements, are purchasers of the mature stalk of marihuana for use in the making of fiber products such as twine, purchasers of marihuana seed for the further planting of marihuana and the manufacture of oil, and purchasers of such oil for use in the manufacture of paints and varnishes.

Although all of the above manufacturers or dealers who use marihuana are exempted from the transfer tax and order form provisions of the bill (with exceptions noted), they are, nevertheless, required to pay occupational taxes and register with the collector of internal revenue, with two exception: Dealers in paintt and varnish which contains marihuana; and manufacturers of and dealers in fiber products manufacturedd from the mature stock of marihuana. Likewise, all producers of marihuna, whether they grow marihuana for hemp fiber, for seeds, orr for the drug, must register as producers and pay the occuptational tax.

I. Hemp. Since the definition of marihuana in the bill excludes the mature stalk of the plant and any product or manufacgture of such stalk such as twine, all hemp, fiber, or cordage manufacturers and dealers would not be subject to any provision of the bill. It is possible too safely exclude all such persons from the purview of the bill because the mature stalk does not contain any of the harmful drug ingredient. However, any person who gros marihuana, even if for the sole purpose of slae to a hemp manufacturer, would have to pay an occupations tac as a producer. the reason for this is that such production cannot be limited to the mature stalks of such plant since the stalk cannot be grown without also producing the flowering tops and leaves. Unles the legitimate producer transfers the tops and leaves to a drug manufacgturere, his product will not be subject to a transfer tax for the flowering tops and leaves are removed from the mature stalk and left on the field.

II. Marihuana seed for planting purposes. - All persons whho produce marihuana for seeds must pay the occupational tax as producers, but all transfers of marihuana seeds to persons registered as producers for use by such persons for the further production of marihuana are exempted from the transfer tax and order form provisions of the bill.

III. Marihuana as used in the pain and varnish industry.

It appears that there is some use of marihuana seeds for the production of oil which is sold to paintt and varnish manufacturers, to be used as a constituent of their products. The bill requires manufacturers and importers of oil, paint, and varnish dealers in oil, to pay occupational taxes but exempts from occupational taxes dealers in paints or varnishes.

The reason why manufacturers and importers must pay the occupational tax and register is that they will have raw marihuana in their possession and the reason why their products are exempt is because the drug cannot be extracted from the products. However, paiint and varnish and the oil to be used in paint and varnish would be exempted from the transfer tax. Thus, a transfer of seed from a marihuana producer to a registered oil manufacturer would be exempted as would a transfer of the manufactured oil to a registered paint manufacturer and a transfer off the completed paint or varnish to a dealer or by a dealer to the consumer.

IV. Marijuana for medicinal use. All persons who produce, manufacture, import, or deal in marihuana, or its byproducts for medical use, as well as practitioners, would be compelled by the bill to pay occupational taxes. All transfers to manufacturing chemists, druggists, and practitioners, woudl be sujbect to the transfer tax and order form requirement but, such persons all being entitled to reigstry, the transfer tax would amount to only one dollar per ounce. the final dispensation by a practitioner to a patient in the course off his professional practice or by druggists to the patients of such practitioners in pursuance of a written prescription would, howevver, be exempted from the transfer tax and order form provisions. Incidentally, it appears that the marihuana drug is not indispensable to the medical profession.

V. Bird seed. Since marihuana bird seed contains the drug and is capable of being used by human beings for smoking purposes, and since, if negligently disposed of, itt propagates new marihuana very rapidly, all occupaitional and transfer taxses imposed by the bill are applicable with respect to bird seed containing marihuana. Since the ultimate purchaser of th bird seed could not register under the bill, a transfer to him would be subject to the prohibitive $100 tax. thus the effect of the bill is tto prevent the use of marihuana seed in bird seed.

MR. CULLEN: Who is your next witness, Mr. Hester?

MR. HESTER: Mr. Chairman, I would like the committee now to hear Dr. Munch, a pharmacologist, from Temple University, Philadelphia.

MR. CULLEN: Will you give the reporter your full name and the position you occupy?

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