North Carolina HB 413: The 30% Tax That Guarantees Black Market Dominance

How the Democratic legalization bill would capture only 35-45% market share—and what fixing the tax structure could achieve

The Silent Majority 420 | November 2025

The Bill at a Glance

Executive Summary

North Carolina HB 413 represents the most comprehensive adult-use cannabis legalization proposal in state history—featuring automatic expungement, robust equity programs, home cultivation rights, and dedicated community reinvestment. The bill's social justice framework is exemplary. Its tax structure is catastrophic.

CBDT Assessment: HB 413's 30% excise tax would produce only 35–45% legal market share within 36 months—a policy failure comparable to California (50% share) and Illinois (55–60% share). At this tax rate, legal cannabis would cost $277–319 per ounce versus $200–250 illicit, creating a 25–60% price premium that ensures black market dominance despite legalization.

The revenue paradox: HB 413 sponsors likely chose 30% tax to maximize funding for equity programs. Framework analysis shows a 12% excise tax would generate MORE total revenue ($384–735M) than the 30% rate ($450–570M) by enabling the legal market to capture 75–85% of consumption instead of 35–45%.

Bottom line: Tax policy determines cannabis market outcomes. With a simple amendment reducing excise tax from 30% to 12–15%, HB 413 transforms from guaranteed failure to national model. The equity provisions are excellent—they just need a functional market to fund them.

What HB 413 Does

Legalization Framework

Possession (Adults 21+): 2 oz flower, 15g concentrate, 2,000mg THC products

Home Cultivation: 6 plants per person, must be out of public view

Retail Infrastructure: Licensed dispensaries, statewide delivery, cannabis lounges, cultivation/manufacturing/testing facilities

Product Safety: Mandatory testing (potency, contaminants, microbials), child-resistant packaging, warning labels

The 30% Tax Problem

Tax Structure:

• State excise: 30% of sales price
• Local option: Up to 2% additional
• Sales tax: 4.75%
• Total burden: Up to 36.75%

Revenue Allocation:

• 40% Community Reinvestment Fund (reentry, violence prevention, youth programs)
• 10% Cannabis Enterprise Opportunity Fund (equity business loans/grants)
• 50% General Fund

Exemplary Social Justice Provisions

Automatic Expungement (January 1, 2026):

• All cannabis offenses made legal under HB 413 automatically expunged
• No individual petition required
• Administrative Office of Courts handles processing

Equity Qualifications:

• Prior cannabis conviction (individual or parent/guardian)
• Residence in high-enforcement census tracts (poverty ≥20%, arrests in top 25%, unemployment ≥10%)

Anti-Fragmentation: Municipalities cannot prohibit delivery (prevents California-style retail deserts)

What North Carolina Already Has: The Policy Contradiction

HB 413 exists in a bizarre policy landscape that makes NC's prohibition increasingly untenable.

The Cherokee Proof-of-Concept

Great Smoky Cannabis Company (Cherokee, NC):

• Legal adult-use sales since September 7, 2024
• Tribal sovereignty on Qualla Boundary
• 4,000+ customers first weekend
• All products tested for safety
• Strict 21+ age verification
• Zero public health disasters

What Cherokee proves:

• Regulation works in conservative North Carolina
• Consumers will pay modest premium for safety/convenience
• Revenue funds tribal government, not drug cartels
• Product testing protects public health
• Age limits prevent youth access

The irony: Cherokee has exactly what HB 413 proposes (legal sales, testing, age verification, taxation) while rest of NC maintains prohibition. Tribal model demonstrates HB 413 provisions are viable—if tax policy doesn't sabotage them.

The Unregulated Hemp "Wild West"

Legal status: THCA/Delta-8 legal if <0.3% Delta-9 THC

• Functionally identical to marijuana when consumed
• Zero age restrictions (anyone can purchase)
• Zero testing requirements (contamination unknown)
• Zero labeling standards (potency unverified)
• Products packaged like candy

Governor Stein Executive Order (June 2025): "Today all across North Carolina, there are unregulated intoxicating THC products available for purchase: just walk into any vape shop. There is no legal minimum age to purchase these products!"

ER visits among children: Increasing dramatically

The contradiction: NC prohibits regulated, tested cannabis (zero sales) while allowing unregulated hemp cannabinoids (zero oversight). Worst-of-both-worlds: maximum harm, zero revenue, no age protection.

Current NC Cannabis Landscape

Policy incoherence: NC allows the most dangerous option (unregulated hemp) while prohibiting the safest option (tested cannabis with age limits). HB 413 would fix this—if tax policy doesn't sabotage adoption.

The CBDT Framework Analysis

The Consumer-Driven Black Market Displacement Framework quantifies how HB 413's design translates into market outcomes. The critical finding: tax policy determines everything.

Price Competitiveness: The Fatal Flaw (Weight: 4×)

HB 413 Legal Pricing:

• Wholesale: $100/oz
• 30% excise: $30
• 2% local: $2.60
• 4.75% sales: $6.17
• Retail margin: $138.77
• Total: $277/oz
• With 280E burden: $319/oz

Illicit Pricing: $200–250/oz

Price Gap: Legal costs 25–60% more

Consumer Math: Typical user (1 oz/month) pays $924–2,628 MORE annually for legal

CBDT Prediction: Only 35–40% of consumers willing to pay this premium

Failed State Comparison:

• Illinois (30–40% effective tax): 55–60% legal share
• California (30–45% effective tax): 50% legal share
• Pattern: High taxes = failed markets

Optimized Alternative: 12% excise tax

• Wholesale: $100/oz
• 12% excise: $12
• 2% local: $2.24
• 4.75% sales: $5.43
• Retail margin: $119.67
• Total: $239/oz
• With 280E: $275/oz

Price Gap: Legal costs 10–38% more (COMPETITIVE)

Consumer Math: Only $468–900 more annually (manageable)

CBDT Prediction: 70–80% willing to pay modest premium for safety/convenience

Successful State Comparison:

• Colorado (17.9% total tax): 84% legal share, $2.7B cumulative revenue
• Michigan (16% total tax): 85% legal share, $1.3B in 5 years
• Massachusetts (17% total tax): 82% legal share, revenue exceeds projections
• Pattern: Low taxes (12–18%) = successful markets (75–85% share)

Other CBDT Variables

Market Share Predictions

HB 413 As Written (30% tax):

• Legal market share: 35–45%
• Legal market size: $1.5–1.9B annually
• Tax revenue: $450–570M
• Illicit market: $2.3–4.3B (DOMINANT 55–65%)
• Jobs: 15,000–22,000 (45% of potential)
• Verdict: POLICY FAILURE

Optimized HB 413 (12% tax):

• Legal market share: 75–85%
• Legal market size: $3.2–4.9B annually
• Tax revenue: $384–735M (MORE than 30% rate!)
• Illicit market: $630M–2.6B (residual 15–25%)
• Jobs: 38,000–48,000 (near full potential)
• Verdict: POLICY SUCCESS

The Revenue Paradox: Why Lower Taxes Generate More Money

HB 413 sponsors likely chose 30% tax to maximize equity program funding. Framework analysis proves this backwards.

Best case comparison:

• 30% tax maximum: $570M (if achieving optimistic 45% share)
• 12% tax maximum: $735M (if achieving realistic 85% share)
• Revenue advantage: $165M MORE annually with lower tax

Why this works: Larger market base × lower rate > smaller market base × higher rate

The trap: High taxes suppress legal market, which suppresses revenue, which underfunds equity programs the tax was meant to support.

What Needs Fixing: Three Critical Amendments

Amendment 1: Tax Structure

• Current: 30% excise
• Proposed: 12% excise
• Impact: +40 percentage points legal market share, +$165M annual revenue
• Political framing: "Fund more programs by succeeding, not by overtaxing a failing market"

Amendment 2: Enforcement Funding

• Current: No appropriation
• Proposed: $15–25M annually
• Impact: +8–12 percentage points via illicit market suppression
• Model: Connecticut HB 7181 municipal enforcement incentives

Amendment 3: Federal Reform Timing

• Current: Fixed January 1, 2028
• Proposed: Delay if Schedule III eliminates 280E before launch
• Impact: +5–8 percentage points if 280E removed
• Rationale: Maximize price competitiveness at launch

Winners and Losers

Winners (if passed with 12% tax):

Losers:

Neutral (depends on tax rate):

Political Context: Why This Analysis Matters Despite Zero Passage Probability

HB 413 has <5% passage chance in 2025–2026. Republican House will not advance. So why analyze it?

Reason 1: Future Reform Template

When NC eventually legalizes (medical ~2027, adult-use ~2030+), HB 413 will be referenced. This analysis provides evidence:

• Keep: Automatic expungement, equity framework, delivery mandate
• Fix: 30% tax (catastrophic) → 12% tax (optimal)
• Add: Enforcement funding

Reason 2: Governor's Advisory Council

State Advisory Council on Cannabis recommendations due December 2026. Framework shows:

• 30% tax = Illinois/California failure
• 12–15% tax = Colorado/Michigan success
• Evidence-based policy design determines outcomes

Reason 3: Republican Negotiation

When Republicans eventually negotiate, they'll see "Democrats proposed 30% tax." Framework evidence:

• 12–15% optimal for revenue AND market success
• Lower taxes align with Republican fiscal philosophy
• Competitive pricing defeats black market (law enforcement goal)

The Advisory Council: NC's Best Hope for Evidence-Based Reform

Executive Order No. 16 (June 4, 2025):

• 24-member council studying cannabis policy
• Preliminary findings: March 2026
• Final recommendations: December 2026

Council composition:

• Medical professionals (state health director, physicians)
• Law enforcement (police chief, district attorney)
• Legislators (Reps. Bell/Hawkins, Sen. Rabon)
• Cannabis policy experts
• Qualla Enterprises CEO (Cherokee cannabis program)

Mission: Develop regulatory system that protects youth, allows adult sales, ensures public safety, supports NC agriculture, expunges convictions, invests revenues

Why this matters: First comprehensive executive-level cannabis study in NC history. Unlike legislative gridlock, the council operates independently and reports directly to Governor.

Framework opportunity: If council receives CBDT analysis, they can see:

• Evidence that 30% tax guarantees failure
• Evidence that 12–15% tax enables success
• Real-world validation (24 state markets)
• NC-specific market projections

Political dynamics:

• Council includes both reform advocates AND skeptics
• Qualla Enterprises CEO can present Cherokee success story
• Medical professionals can address public health data
• Law enforcement can see evidence that regulation > prohibition
• Legislators on council can champion recommendations

Probable outcomes:

• Medical cannabis (70% probability): Council recommends, Senate passes, House negotiates
• Decriminalization (50% probability): Possession <1 oz reduced to civil penalty
• Hemp regulation (90% probability): Age limits, testing requirements (bipartisan urgency)
• Adult-use framework (30% probability): Council outlines pathway but doesn't recommend immediate implementation

Timeline impact: Advisory Council recommendations become baseline for 2027–2028 legislative session. Medical cannabis likely passes 2027 if council recommends. Adult-use delayed to 2029–2032 absent federal reform catalyst.

The Federal Reform Wildcard

Schedule III rescheduling (70% probability 2026–2027):

• Eliminates 280E tax burden
• Reduces legal cannabis prices 12–18%
• Changes political calculus (reduces stigma)
• Impact on HB 413: If 280E eliminated, even 30% excise might achieve 50–55% legal share (still failure, but less catastrophic)

SAFE Banking (40% probability):

• Enables card payments
• Reduces security concerns
• Minimal market share impact
• Impact on HB 413: Slight convenience improvement

Federal legalization/descheduling (20% probability before 2030):

• Forces state action (neighboring states legalize)
• Interstate commerce threatens state markets
• NC would need to legalize to capture in-state production
• Impact on HB 413: Accelerates timeline, increases pressure

Reform Pathway Scenarios

Scenario 1: Medical-First (Most Likely - 60%)

• 2027: Medical cannabis passes (advisory council recommendation)
• 2027–2030: Medical program operates, demonstrates safety/revenue
• 2031–2033: Adult-use legalization (medical proves concept)
• Tax rate: Likely 15–20% (compromise between 30% HB 413 and 12% optimal)
• Outcome: 60–70% legal market share (suboptimal but functional)

Scenario 2: Direct to Adult-Use via Federal Catalyst (30%)

• 2026–2027: Federal Schedule III rescheduling
• 2027–2028: Virginia launches retail, South Carolina passes medical
• 2028–2029: NC faces regional isolation, revenue hemorrhaging
• 2029: Comprehensive legalization passes (bipartisan pressure)
• Tax rate: Optimistic 12–15% if policymakers learn from evidence
• Outcome: 75–85% legal market share

Scenario 3: Hemp Chaos Forces Action (10%)

• 2025–2026: Children's ER visits continue rising
• 2026: Media coverage of unregulated hemp harms
• 2027: Comprehensive cannabis regulation (hemp + adult-use)
• Rationale: "If we're regulating anyway, capture tax revenue"
• Tax rate: Unknown (could be 12% optimal or 25%+ compromise)
• Outcome: 45–85% depending on tax structure

Most realistic: Scenario 1 (medical 2027, adult-use 2030+) with Scenario 2 federal catalysts accelerating timeline.

CBDT Verdict

Should NC pass HB 413 as written? No. Better to delay legalization than implement flawed policy that entrenches black markets.

Should NC pass HB 413 with 12% tax amendment? Yes. Achieves 75–85% legal market share, generates MORE revenue, becomes national model.

Advisory Council recommendation:

1. Adopt HB 413 equity framework (automatic expungement, reinvestment, enterprise fund) ✓
2. Adopt anti-fragmentation (delivery mandate, no local bans) ✓
3. REJECT 30% excise tax ✗
4. IMPLEMENT 12–15% excise (Colorado/Michigan model) ✓
5. Add enforcement funding ($15–25M annually) ✓

The lesson: Good intentions ≠ good outcomes. HB 413 has excellent equity provisions undermined by catastrophic tax policy. Tax policy determines cannabis market outcomes—not social justice provisions, not regulatory structure. Just taxes.

Fix the tax rate from 30% to 12%, keep everything else, and HB 413 becomes transformative policy instead of guaranteed failure.

Framework Citation

This analysis applies the Consumer-Driven Black Market Displacement (CBDT) Framework, validated across 24 U.S. cannabis markets with 5% mean absolute error and r=0.968 rank-order correlation.

Framework Publication: The Silent Majority 420, "Consumer-Driven Black Market Displacement (CBDT) Framework: A Behavioral-Utility Heuristic for Illicit-to-Legal Market Transition," Zenodo, 2025. DOI: 10.5281/zenodo.17593077

Validation Data: Harvard Dataverse, DOI: 10.7910/DVN/MDVDTQ

Framework Methodology: The Black Market Death Equation

Sources

• Cannabis Legislation Tracker

Analysis by The Silent Majority 420 | November 2025

Analysis licensed CC BY 4.0 (free use with attribution)