Where is the Marijuana Tax Revenue Going?
As coronavirus spread throughout the nation in 2020, so did the need for cannabis. Imagine that. In fact, this natural stress-reliever was in such high demand, marijuana sales skyrocketed in multiple states where weed is fully legal.
What’s the current legal status of cannabis in the states?
As of December 2021, states reported a whopping combined cannabis tax revenue of $10.4 billion. Yes, billion with a B! The added pot income, far exceeding alcohol tax revenue, helped bolster the budgets of fully legal states where pandemic relief was running out.
Bud brings in more bucks than alcohol!
In 2021, New York, New Jersey, Connecticut, New Mexico, and Virginia legalized recreational pot, bringing the total number of fully legal states to 18.
Only 32 more to go.
Legalizing adult-use cannabis has proved a wise investment indeed, delivering a much-needed stream of revenue to fund important public programs and services.
So, while legislation is still underway, what can these newbie-to-the-list states learn from some of the pot-pioneers?
How are other fully legal states taxing weed and spending their marijuana money?
Colorado Has Made Over $2 Billion in Cannabis Tax Revenue
Colorado, a pioneer of legalized pot, has made over $12 billion in marijuana sales since its legalization in 2014, collecting more than $2 billion in cannabis taxes.
That’s a lot of pot!
In 2021, Colorado brought in a record-high $423 million in cannabis tax revenue. How?
Colorado collects taxes from:
- 15% retail marijuana sales tax
- 15% retail excise tax when cannabis transfers from grower to seller
- 9% state sales tax on all medical and recreational marijuana sold in stores.
Amendment 64 ensures the first $40 million or 90% (whichever is greater) goes to capital construction grant programs, so schools and other education providers can apply for funds for new construction or renovation of existing buildings.
To date, nearly $500 million in cannabis tax revenue has supported Colorado’s public school system. Well done, Colorado.
Washington State Collected $480.9 Million in Marijuana Tax Revenue in 2021
Fellow pot-pioneer, Washington state, is also rolling in the cannabis tax revenue dough. In the first nine months of 2021, Washington state collected around $480.9 million in marijuana revenue, not counting additional millions from retail sales of recreational pot in cities and towns.
Washington state collects cannabis tax revenue from:
- 37% excise tax on retail transactions
- 5% sales tax on medical and recreational marijuana sold in stores
For every $1 billion collected from cannabis sales tax, approximately $600 million is put toward public health initiatives, including funding for health insurance for low-income families. Money well spent, Washington.
California Has Brought in $2.8 Billion in Cannabis Tax Revenue
In 2018, California launched the first adult-use cannabis sales, and in return, the industry boosted the state’s budget with $2.8 billion of tax revenue—$1.4 billion in cannabis excise tax, $1 billion in state sales tax, and $347.4 million in cultivation tax.
Although taxes vary from city to city, here’s the basic breakdown...
California collects cannabis tax revenue from:
- Taxing cannabis at a flat rate of $161 per pound
- 15% excise tax on purchases from distributors
- 10% local business tax
- 5% local and state sales tax
- Cultivation, manufacturing, distribution taxes
Taxes, taxes, and more taxes! Is legal weed worth the expense?
In 2020-2021 fiscal year, state officials estimated the state collected approximately $817 million in cannabis tax revenue.
California awarded $100 million to support the development of local marijuana businesses. Plus, $29 million went toward grants to qualifying nonprofits with programs offering mental health treatment, job placement, substance abuse treatment, and legal services for communities disproportionately impacted by punitive drug laws. Great! But...
Despite making billions in marijuana money, California’s weed industry continues to struggle.
How Are Strict Taxes and Regulations Impacting California’s Weed Industry?
In 2016, California legalized the sale of recreational marijuana, however, licensed cannabis locations within the state continue to struggle. Why? Exorbitant taxes, strict regulation, and government opposition have stifled California’s legal weed industry.
Plus, unlicensed dispensaries, businesses, and underground dealers, attempting to avoid significant CA regulation and taxation, continue to control the marijuana market.
Estimates suggest legal cannabis sales in CA only accounts for 20-20% of total sales.
California’s excessive taxation and regulation is sabotaging the many benefits of legalized cannabis such as safer products and increased tax revenue. When legal cannabis is significantly restricted by government, the results are no different than prohibition.
Greedy taxation is jeopardizing California’s legal marijuana market, which generates substantial tax revenue needed to keep life-changing nonprofit programs in place. C’mon, California.
Enough about the West, let’s head to the East Coast...
Massachusetts Collected $72 Million in Cannabis Excise Taxes
Massachusetts got in the lucrative cannabis game in 2016, becoming the first East Coast state to fully legalize weed.
In 2021, for the first time ever, excise taxes for adult-use, recreational marijuana in Massachusetts exceeded alcohol excise taxes. Cannabis sales soared to a record-high of $1 billion in 2021 alone, contributing to the impressive $2.54 billion in gross total sales.
The state collected $72 million in cannabis excise tax, eclipsing the $51.3 million in alcohol excise taxes.
Bay Staters aren’t drinking less, they’re smoking more!
Massachusetts collects cannabis tax revenue from:
- 75% excise tax on recreational marijuana
- 25% state sales tax
- 3% local tax
So, where does the marijuana money go?
Sales tax, along with regular tax revenue, goes into the state’s General Fund and School Building fund.
Excise tax, combined with cannabis fees and fines, goes into the Marijuana Regulation Fund.
Massachusetts Legislature appropriates funds to support initiatives such as economic equity for people living in communities disproportionately affected by the war on drugs OR to support the Cannabis Control Commission. Legislature also awards money to public safety, police training, and behavioral health.
MA local taxes aren’t as strictly tracked. Individual municipalities determine how the cannabis revenue is spent, for instance, on schools, road improvements, and sidewalks, etc. Communities have greatly benefited from pot-funded projects. Wicked smaht, Massachusetts.
Hey, newbies—New York, New Jersey, Connecticut, New Mexico, and Virginia—are you taking notice of these state’s rights and wrongs? You’re next!
Cannabis tax revenue isn’t a cure-all for state and local governments. However, the money made from taxing all things marijuana has helped support many important public initiatives and programs.
Before the legalization of recreational marijuana, illegal sales took place through the underground market, which hurt communities and endangered lives. Legalizing weed leads to substantial cannabis tax revenue that helps support schools, public programs, and health care.
In general, kinks and all, residents from fully legal states view cannabis legalization as a success.