Across the United States, a growing number of states have legalized marijuana for medicinal or recreational use. Marijuana tax revenue can provide a big boost to these jurisdictions.
In fact, some of the early legalizing states have already earned more than $1 billion in tax funds.
The money from recreational marijuana can go a long way towards helping states accomplish important objectives for their citizens. States use the funds to provide substance abuse treatment programs, bolster educational offerings, develop transportation networks, and improve public safety.
Let's take a closer look at the cannabis tax revenue that states are generating as well as the ways in which they're putting this money to use.
Marijuana tax revenue by state in 2020
The table below shows the revenue collected in states with operational marijuana programs in 2020. Total tax collected varies depending on state population, how long the program has been established, and the method of taxation.
California, for example, represents the largest market for recreational marijuana, with approximately $3.1 billion of legal sales in 2019.
However, recreational marijuana was legalized more recently than in neighboring locales and in 2018 the illegal market still accounted for approximately 80% of recreational marijuana purchases.
As this distribution shifts over time, revenue collection is expected to increase.
|State||2020 marijuana tax revenue|
A number of states have legalized recreational marijuana but have a less-than-fully operational market. The table below shows the estimated revenue expected in four of these jurisdictions.
|State||Estimated annual marijuana tax revenue|
|Maine||$10.7 million after the first year.|
|Michigan||$125 million by 2022 when market is fully operational.|
|Montana||Over $40 million after market is established in 2022.|
|Vermont||$20 to $75 million after market is established in 2022.|
Total tax collections by state
Colorado and Washington were leaders in the recreational marijuana movement, acting as early as 2012 to move towards legalization. As a result, it comes as no surprise that they've generated more revenue from marijuana taxes than other states, some of which have had an operational market for two years or less.
Still, the tables below show the tremendous potential for states to generate significant revenue over time. In fact, the Tax Foundation estimates the market for legal marijuana could be worth as much as $30 billion by 2023.
With states facing budget shortfalls resulting from COVID-19, revenue from recreational marijuana could be a much-needed lifeline in locations that pursue legalization or facilitate the expansion of current markets.
|State||First year of tax collection||Total revenue collected (as of end of 2020)|
Now let's take a look at how cannabis tax revenue has grown over the years for each state -- as well as how those states are using that money.
Alaska's marijuana tax revenue
|Year||Alaska state marijuana tax revenue|
How does Alaska tax marijuana?
Alaska taxes cultivators per ounce and type: $50 per ounce for mature flowers, $25 per ounce for immature flowers, and $1 for each clone.
How does Alaska spend marijuana tax revenue?
- 25% to the general fund.
- 50% to the Department of Public Safety, Health and Social Services, and Department of Corrections.
- 25% to the Marijuana Education Fund.
California's marijuana tax revenue
|Year||California state marijuana tax revenue|
How does California tax marijuana?
California taxes are as follows: $9.65 per ounce for flower, $2.87 per ounce for leaves, and $1.35 per ounce for fresh plant.
How does California spend marijuana tax revenue?
- First, the revenue covers regulatory and research costs.
- Then, 60% goes to anti-drug programs targeting kids;
- 20% goes to environmental programs; and
- 20% goes to public safety.
Colorado's marijuana tax revenue
|Year||Colorado state marijuana tax revenue|
How does Colorado tax marijuana?
Colorado has a 15% wholesale excise tax on marijuana as well as a 15% retail excise tax. Recreational marijuana is exempted from general sales tax.
How does Colorado spend marijuana tax revenue?
- 10% goes to local governments.
- 90% goes to the state government.
- 15.56% of the state revenue goes to the general fund.
- 12.59% goes to the state public school fund.
- 71.85% goes to the marijuana tax cash fund.
The cannabis tax revenue from the wholesale tax goes to the Building Excellent Schools Today (BEST) fund. The first $40 million is earmarked for constructing new schools.
Illinois's marijuana tax revenue
|Year||Illinois's marijuana tax revenue|
How does Illinois tax marijuana?
Illinois charges 7% of cannabis products' value in wholesale taxes. It also levies the following retail taxes:
- 10% of value for cannabis products with 35% THC or less,
- 25% of value for cannabis products with more than 35% THC, and
- 20% of value for infused cannabis products that can't be smoked.
General sales tax also applies.
How does Illinois spend marijuana tax revenue?
- 35% to the general fund.
- 25% to the Illinois Recover, Reinvest and Renew Program.
- 20% to mental health and substance abuse.
- 10% to pay state bills.
- 8% to local government.
- 2% to public education.
Maine's marijuana tax revenue
Maine has no operational cannabis market at the beginning of 2021, but it's estimated that taxes will raise $10.7 million after the first full year of operation.
How will Maine tax marijuana?
Here's how Maine will tax marijuana cultivators in the fully operational market:
- $335 per pound of flower.
- $94 per pound of trim.
- $1.50 per seedling or immature plant.
- $0.30 per seed.
Consumers will also pay a 10% sales tax.
How will Maine spend marijuana tax revenue?
- 12% to Adult Use Marijuana Public Health and Safety Fund.
- 88% to the general fund.
Massachusetts's marijuana tax revenue
|Year||Massachusetts state marijuana tax revenue|
How does Massachusetts tax marijuana?
In Massachusetts, retail cannabis customers pay a retail excise tax of 10% plus a general sales tax of 6.25%.
How does Massachusetts spend marijuana tax revenue?
Sales tax revenue goes to the general fund, the Massachusetts Bay Transportation Authority, and the School Building Authority.
The excise tax support programs like the Alcoholism Administration and the Cannabis Control Commission.
Michigan's marijuana tax revenue
Michigan legalized recreational marijuana in 2018 and its first dispensaries opened in December 2019.
A ballot proposal to Michigan's legislature estimates the tax revenue for the first fiscal year (2020–2021) could total over $130 million when accounting for both excise and sales tax. By the time the market is fully established in 2022, the proposal estimates an excise tax revenue of $125 million.
How does Michigan tax marijuana?
Consumers currently pay a 10% excise tax and 6% sales tax.
How will Michigan spend marijuana tax revenue?
In the first two years of legalization, $20 million in revenue will go to medical marijuana research. The rest will be split between cities, townships, villages, counties, the state’s School Aid Fund, and the Michigan Transportation Fund.
Nevada's marijuana tax revenue
|Year||Nevada state marijuana tax revenue|
How does Nevada tax marijuana?
Nevada taxes weed at the retail (10% of purchase) and wholesale (15% of fair market value) levels.
How does Nevada spend marijuana tax revenue?
Income from the retail tax goes to the state's rainy day fund. Revenue from the wholesale tax goes to cover expenses and boost the rainy fund as well.
Oregon's marijuana tax revenue
|Year||Oregon state marijuana tax revenue|
How does Oregon tax marijuana?
Oregon retailers charge a 17% state retail tax on marijuana products.
How does Oregon spend marijuana tax revenue?
- 40% to the state school fund.
- 20% to mental health, alcoholism, and drug services.
- 15% to the Oregon state police.
- 5% to the Oregon Health Authority for drug treatment and prevention.
- 20% to cities and counties.
Vermont's marijuana tax revenue
Vermont legalized recreational marijuana in 2018, though taxes have only more recently been passed. The Vermont market should be fully functional by 2022.
How does Vermont tax marijuana?
The state of Vermont imposes a 14% excise tax on marijuana at the point of sale. There's also a 6% general sales tax.
A research report published by the RAND Corporation suggests that aggressive taxation could produce between $20 and $75 million in annual revenue for the state.
How will Vermont spend marijuana tax revenue?
Bill S.54 states that "revenue from the sales and use tax imposed . . . on retail sales of cannabis or cannabis products in this State shall be used to fund a grant program to start or expand afterschool and summer learning programs, with a focus on increasing access in underserved areas of the State."
Washington's marijuana tax revenue
|Year||Washington state marijuana tax revenue|
How does Washington tax marijuana?
Washington charges a 37% retail tax on marijuana.
How does Washington spend marijuana tax revenue?
It goes to a variety of places. Here are a few of the places that money went in 2020:
- The state health authority for a healthy youth survey.
- The University of Washington for marijuana-related educational programs.
- The state's health professions account.
- Various state departments for research related to pesticides, licensing, accreditation, and testing.
The status of marijuana legalization around the United States
All of this tax revenue may play a part in legalization discussions. But some states haven't been swayed. Here are the states where cannabis is legal, illegal, criminalized, or somewhere in the middle:
|State||Marijuana legalization status|
|District of Columbia***||Recreational legalized|
|Georgia||Medical CBD oil only|
|Indiana*||Medical CBD oil only|
|Iowa*||Medical CBD oil only|
|Kentucky*||Medical CBD oil only|
|New Hampshire||Medical only|
|New Jersey**||Recreational legalized|
|New Mexico||Medical only|
|New York||Medical only|
|North Dakota||Medical only|
|Rhode Island||Medical only|
|South Dakota**||Recreational legalized|
|Texas*||Medical CBD oil only|
|Virginia||Medical CBD oil only|
|West Virginia*||Medical only|
|Wisconsin*||Medical CBD oil only|
- Alaska Department of Revenue (2020). "Marijuana Tax Annual Report Data."
- California Department of Tax and Fee Administration (2020). "Cannabis Tax Revenues."
- Caulkins, et al. (2015). RAND Corporation. "Considering Marijuana Legalization: Insights for Vermont and Other Jurisdictions."
- Colorado Department of Revenue (2021). "Marijuana Tax Reports."
- General Assembly of the State of Vermont (2020). "No. 164. An act regulating to the regulation of Cannabis."
- Legislative Council Staff (2019). "Memorandum: Marijuana Tax Revenue in the State Budget."
- Illinois Revenue (2021). "Annual Reports."
- Massachusetts CTHRU (2021). "Total Tax Revenue Collections."
- Oregon Department of Revenue (2021). "Oregon Marijuana Tax Statistics: Accounting Information."
- Oregon Department of Revenue (2021). "Oregon Marijuana Tax: Distribution Information."
- State of Nevada Department of Taxation (2021). "Marijuana Statistics and Reports."
- Washington State Liquor and Cannabis Board (2020). "Annual Report."
- Washington State Legislature (2020). "Dedicated marijuana account—Appropriations."