How Is Cannabis Taxed And Where Does All The Money Go?

Posted by E1011 Labs on

In the last decade since Colorado and Washington State made the historic decisions to legalize recreational marijuana, the cannabis industry has grown at an exponential rate. Last year alone, the industry pulled in a whopping 21 billion dollars in sales.  

Cannabis legalization does a lot for the community. It allows patients much easier access to their medicine, and it keeps our community members out of prison for simply enjoying a plant. But, it’s no secret that for some legislators and politicians, the most compelling aspect of cannabis legalization is securing a new source of taxable revenue for their state. With sales numbers like the legal industry is boasting, it’s understandable that the government wants in. 

But how much are the taxes for the cannabis industry, and what exactly does the state do with the money they make from taxing cannabis products?   

Why Are There So Many Taxes In The Cannabis Industry? 

State governments levy several different taxes on the cannabis industry, which can quickly add up. 

First, before cultivating or distributing any legal cannabis product, cultivators and distributors must first acquire the necessary licenses, which can cost thousands of dollars. Then, there’s an excise tax imposed on cannabis products in addition to the regular sales tax on retailers. 

Do The Taxes For Cannabis Vary By State? 

On the West Coast, it can feel like cannabis is completely legal. However, the federal government still upholds cannabis prohibition laws. As a result, there is no national guidance on cannabis tax structures, and so they vary from state to state. 

Tax Breakdown By State:

Here’s how each state with legal weed taxes cannabis

  • Arizona: Sales began in January of this year and are taxed 16% at the point of sale.

  • California: The Golden State imposes a cultivation tax of $9.65 per ounce of flower, an excise tax of 15% of retail sales, and an additional state retail tax of $7.25. 

  • Colorado: One of the first states to legalize recreational marijuana, Colorado has an excise tax and a retail tax of 15%. Local municipalities can implement additional taxes up to 8%. 

  • Illinois: After passing H.B. 1438, sales began in January of last year. Illinois has an interesting tax scale based partially on THC percentages. There’s a standard 7% tax on sales to dispensaries, plus an additional 10% tax on products with less than 35% THC, a 20% tax on infused products, and a 25% tax on products with greater than 35% THC. 

  • Maine: The state of Maine has an excise tax of $335 per pound of cannabis flower and a retail sales tax of 10%.

  • Massachusetts: Sales began in 2018 and are subject to a 10.75% excise tax on retail sales in addition to the standard sales tax rate of 6.25%. Local municipalities have the option to tax up to an additional 3%. 

  • Michigan: Cannabis in Michigan has a 10% retail excise tax in addition to the standard 6% state sales tax.

  • Nevada: Legal cannabis sales began taking place in Nevada in 2017 and are subject to a 15% wholesale excise tax, a 10% retail tax, and the standard 6.85% sales tax. 

  • Oregon: The beaver state imposes a simple 17% retail sales tax.

  • Washington: In Washington, there’s a 37% tax on retail sales of cannabis in addition to the standard 6.5% sales tax. 

What Do The Taxes On Cannabis Pay For? 

Much like how states have the freedom to decide how they will implement taxes on the cannabis industry, they also have the discretion to choose where that money goes. For example, in some states, like Maine, tax revenue generated from cannabis sales goes into a general fund. Other states use the money to help fund social programs used to help citizens suffering from drug and alcohol addiction, as is the case in Washington and California. 

To find out exactly what your state spends the money it generates from cannabis taxes, click here.

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