Cannabis Had Highest Tax Revenue in Colorado and Washington Over Alcohol, Cigarettes

A new report from the Tax Policy Center shows that Colorado cannabis tax earnings were seven times higher than alcohol, and Washington earned $559 million from cannabis-related taxes. Although these two states had the highest tax revenue from the plant, they were not the only ones where marijuana sales outpaced other prevalent taxable vices. Data from this new report on cannabis tax revenues indicate that cannabis markets continue to expand across the United States, regularly outpacing alcohol and cigarette tax revenues. 

Experts believe that the high tax revenues from cannabis sales may not last forever, but the public health impacts could positively affect state populations. How are states using that tax money? And what does the future look like for states that collect taxes on legal marijuana?

Cannabis Tax Elevates State Revenue

Nineteen states currently have cannabis tax legislation in place, helping to increase funding for state programs and reducing the number of black market sales. Despite the elevated state tax earnings from marijuana sales, cannabis legalization is slow-moving in over half of the United States. Because of a lack of federal regulation, it is up to each state to decide on a tax structure and how those taxes will be allocated, unlike alcohol and cigarettes. 

Alcohol, cigarette, and gas taxes also contribute to state funds, but federal agencies regulate them. Due to a lack of regulation, different states enforce different marijuana taxes, and some leverage multiple taxes on medical or recreational products. 

Currently, there are three different marijuana tax structures in use in the U.S. Some choose to tax based on a percentage of the price of the plant, while others tax based on weight or potency.  Many states have that money allocated by state law for specific programs. Others simply add it to the rest of tax revenues to fund operations, public health programs, and other state initiatives.

Effects of Increased Cannabis Sales

The results from the study highlight several important topics that come up in conversations regarding marijuana legalization. Not only do legalized states make significant revenue from cannabis sales, but the data also points toward the decreased consumption of substances, including alcohol and cigarettes.

Another study out of Florida made some interesting findings about the effects of medical marijuana. According to medical marijuana patients, they are far less likely to use opioids for pain management. Other respondents indicated that medical cannabis relieved symptoms of other diseases like PTSD, chronic pain, and anxiety.

However, states with legalization have also seen an increase in car accidents. Canada was the second country to legalize marijuana fully, and this trend is also apparent across the border. Car insurance rates in Canada have increased due to legalization and a lack of understanding of how driving under the influence should affect the rates of medical marijuana patients. Evidence suggests that as law enforcement evolves to account for marijuana users driving under the influence, car insurance rates will level out.

Looking Forward

So what does the trend look like for states moving toward the legalization of marijuana? Colorado and Washington are great examples because of their high earnings, and they are home to two of the most mature cannabis markets in the United States. These two states demonstrate that states can make a large percentage of their total revenues from legal marijuana taxes. 

And while prices of the plant by weight are trending down, there is evidence that cannabis use should increase over time, laying to rest the deadly and costly effects of alcohol and cigarette use.