Medical marijuana is now legal in 39 out of the 50 US states plus the District of Columbia. 21 out of the 39 states also allow the sale and purchase of recreational marijuana.
The country has experienced a rapid wave of cannabis legalization and as of 2023, the cannabis industry across the states has become a multi-billion dollar business earning the states and local governments hundreds of millions in revenue.
According to estimates, retail marijuana sales in the country could hit $33.6 billion before the end of 2023.
You may be wondering how much of that amount goes into the tax coffers. Let’s find out.
Revenue Raised by State and Local Governments
Marijuana legalization didn’t happen overnight. Different states legalized the plant and its products at different times, and some of these states, like Washington and Colorado, have collected marijuana tax since 2014.
Colorado raised $267 million in taxes in 2018, with Washington almost doubling that amount that same year by collecting $439 million. The state of California wasn’t far behind as it raised $354 million in 2018, with Alaska collecting $15 million.
A lot has changed ever since. In the 2022 fiscal year, Alaska’s revenue had grown to $28.9 million, with California collecting $774.4 million.
The rate of state tax as of 2022 ranged from 10% in Nevada and Michigan, to as high as 37% in Washington.
Minnesota, which did not have a cannabis tax in 2022 has now passed a bill to legalize recreational sales, setting the sales tax rate at 6.875%. As Veriheal puts it, Minnesota’s long-standing medical marijuana program is considered costly by patients. Even so, the state doesn’t tax medical cannabis.
Different Types of Marijuana Taxes
If you’re wondering how marijuana is taxed by state and local governments, here is how they do it.
These types of taxes are levied on the weight of the cannabis product and can be taxed on different parts of the plant. However, how each state with this type of tax calculates its rates vary.
Similar to a general sales tax, the percentage-of-price tax is calculated out of the retail price. Basically, the consumer bears the cost of the tax on their final purchase, which is then remitted to the state by the retailer. Currently, the percentage-of-price tax is the most favored type of cannabis taxation.
Similar to state alcohol taxes, the potency-based cannabis tax is calculated against the level of tetrahydrocannabinol (THC) present in the marijuana product. As such, the higher the THC content, the higher the tax rate. THC is a compound with mind-altering effects.
Overview of Marijuana Tax Rates by State
Let’s look at some of the states that tax marijuana and their recent marijuana tax rates.
|State||Tax Rates||Total |
|Alaska||$50 per ounce of flower and $15 per ounce for the rest of the plant. Local govt can levy excise tax.||28.9||2016|
|Arizona||16% excise tax on consumer-paid cannabis remitted by retailers.||132.8||2021|
|California||15% excise tax on consumer-paid cannabis remitted by retailers.||774.4||2018|
|Colorado||15% excise tax on consumer-paid cannabis remitted by retailers.|
15% weight tax on cultivator’s crop.
|Illinois||7% excise tax cultivator gross receipts. 10% tax on products below 35% THC. 25% tax on products above 35% THC.||466.8||2020|
|Maine||10% excise tax on consumer-paid cannabis remitted by retailers. $335-per-pound tax on flower, $94 on trim, $1.50 on seedling, and $0.35 on seed.||18.2||2018|
|Massachusetts||10.75% excise tax on consumer-paid cannabis remitted by retailers. Local govt can levy excise tax up to 3%||156.7||2018|
|Michigan||10% excise tax on consumer-paid cannabis remitted by retailers.||163.5||2019|
|Nevada||10% excise tax. 15% excise tax on wholesale sales.||152.3||2017|
|Oregon||17% excise tax on consumer-paid cannabis remitted by retailers.|
Local govt can levy excise tax up to 3%
|Washington||37% excise tax on consumer-paid cannabis remitted by retailers.||517.0||2014|
Source: State government websites.
Understanding and abiding by cannabis regulations can be overwhelming without including taxation guidelines. There are plenty of gray areas as well that businesses operating in legal cannabis frameworks need to look out for. Hopefully, our breakdown of the cannabis tax landscape will come in handy.
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