New Analysis Shows Tax Revenue From Cannabis In The Billions

A recently published study shows the significant potential legalization has in terms of tax revenue from cannabis sales.
New Analysis Shows Tax Revenue From Cannabis May Be In The Billions

States that have legalized adult-use marijuana sales have seen billions of dollars in fresh tax revenue from cannabis, according to a new study.

The recently published research, which comes courtesy of the Marijuana Policy Project, found that, as of this month, “states reported a combined total of $7.9 billion in tax revenue from legal, adult-use marijuana sales,” while “cities and towns have also generated hundreds of thousands of dollars in new revenue from local adult-use cannabis taxes.”

That reported figure includes the states of Colorado and Washington, where voters passed legalization measures in 2012 and where sales began in 2014.

In Colorado, according to the study, there is a 15 percent tax on wholesale and a 15 percent tax rate on special retail (neither of which apply to sales of medical cannabis in the state). Since 2014, Colorado’s estimated tax revenue from cannabis sales is $1,557,878,973, with “$404.5 million of the total revenue generated from cannabis taxes has been dedicated to improving Colorado’s public school system.” The estimated tax revenue does not include “local sales tax revenues, which have been significant,” according to the study. In Denver, for example, $210.6 million in local tax revenue has been generated as of last month.

In Washington, where there is a 37% imposed on retail since July 2015 and a 6.5% sales tax, estimated state tax revenue from cannabis sales rounds out at $2,568,728,290, and that total does not include the estimated $167 million generated between July 2014 and March 2021.

“Until July 2015, taxes were quite high — 25% at three points of transfer — making it hard to compete with illegal sales. In addition to changing the tax rate to 37% in 2015, the legislature created a medical endorsement program to which adult-use stores could apply to join,” the report detailed. “In the 2019 and 2020 fiscal years, state officials reported that revenue from the 37% cannabis retail tax outpaced alcohol tax revenue, despite the fact that many more adults consume alcohol than cannabis.4 For every $1 billion in revenue collected from the cannabis sales tax, nearly $600 million is funneled into public health initiatives, including a fund that provides health insurance for low-income families.”

Oregon’s first adult-use marijuana sales began in 2016, but the state has already generated $540,071,765 since then. In Alaska, state tax revenue from marijuana is estimated at $78,218,573 since 2016, with the record year coming in 2020, when tax revenue topped $27 million.

“Eighteen states have enacted laws legalizing, taxing, and regulating cannabis for adults 21 and older. Eight of the laws passed in 2020 or 2021, and in seven of those states, licensing and tax collections have not yet begun,” the report said, noting that it reviewed “each state’s adult-use cannabis tax structure, population, and revenue from legalization.” 

“It does not include medical cannabis tax revenue, application and licensing fees paid by cannabis businesses, additional income taxes generated by workers in the cannabis industry, or corporate taxes paid to the federal government,” it said.

Tax Revenue From Cannabis Sales Predicted By Legalization Advocates

The findings of this study from the Marijuana Policy Project will come as no surprise to legalization advocates, who have long trumpeted adult-use and medical marijuana as a boon to local economies. 

An economic analysis released last year found that in Texas, where recreational marijuana remains illegal, legalization could generate more than a half-billion dollars per year in new state tax revenue.

“A regulated cannabis market would be an economic boon for the Lone Star State,” said the report, which came from Vicente Sederberg LLP. “Hundreds of millions of dollars in new tax revenue and tens of thousands of new jobs would be especially helpful in overcoming the losses stemming from the COVID-19 pandemic. Texas is leaving an enormous amount of money on the table by keeping cannabis illegal.”

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