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
Alaska $23,864,759
California $778,200,000*
Colorado $387,480,110
Illinois $52,783,471
Massachusetts $81,734,083
Nevada $105,180,947
Oregon $133,150,349
Washington $469,200,000

* At the time of this writing, California hasn't published Q4 2020 data, so this only includes Q1–Q3.

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)
Alaska 2017 $55,184,464
California 2018 $1,739,600,000
Colorado 2014 $1,595,446,952
Illinois 2020 $52,783,471
Massachusetts 2019 $103,792,627
Nevada 2018 $274,125,703
Oregon 2016 $408,365,906
Washington 2015 $1,810,010,000

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
2017 $1,749,497
2018 $10,801,357
2019 $19,082,542
2020 $24,213,296

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
2018 $397,300,000
2019 $636,900,000
2020* $778,200,000

*Note: At the time of this writing, California has not yet released Q4 2020 data, so this number only includes Q1–Q3.

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
2014 $67,594,323
2015 $130,411,173
2016 $193,604,810
2017 $247,368,473
2018 $266,529,637
2019 $302,458,426
2020 $387,480,110

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
2020 $52,783,471

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
2019 $22,058,544
2020 $81,734,083

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
2018 $69,759,783
2019 $99,184,973
2020 $105,180,947

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
2016 $20,652,983
2017 $70,263,897
2018 $82,203,729
2019 $102,094,948
2020 $133,150,349

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
2015 $64,630,000
2016 $186,000,000
2017 $315,200,000
2018 $362,000,000
2019 $390,400,000
2020 $469,200,000

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
Alabama* Illegal
Alaska Recreational legalized
Arizona Recreational legalized
Arkansas* Medical only
California Recreational legalized
Colorado Recreational legalized
Connecticut Medical only
Delaware Medical only
District of Columbia*** Recreational legalized
Florida* Medical only
Georgia Medical CBD oil only
Hawaii Medical only
Idaho* Illegal
Illinois Recreational legalized
Indiana* Medical CBD oil only
Iowa* Medical CBD oil only
Kansas* Illegal
Kentucky* Medical CBD oil only
Louisiana* Medical only
Maine Recreational legalized
Maryland Medical only
Massachusetts Recreational legalized
Michigan Recreational legalized
Minnesota Medical only
Mississippi Medical only
Missouri Medical only
Montana** Recreational legalized
Nebraska Illegal
Nevada Recreational legalized
New Hampshire Medical only
New Jersey** Recreational legalized
New Mexico Medical only
New York Medical only
North Carolina Illegal
North Dakota Medical only
Ohio Medical only
Oklahoma* Medical only
Oregon Recreational legalized
Pennsylvania* Medical only
Rhode Island Medical only
South Carolina* Illegal
South Dakota** Recreational legalized
Tennessee* Illegal
Texas* Medical CBD oil only
Utah* Medical only
Vermont Recreational legalized
Virginia Medical CBD oil only
Washington Recreational legalized
West Virginia* Medical only
Wisconsin* Medical CBD oil only
Wyoming* Illegal

* Criminal prosecution is still possible in these states.
** These states recently legalized recreational marijuana and may not yet have a functional market.
*** Possession, growth, and use of marijuana is legal in D.C. are legal, but the sale of cannabis is not, so there is no tax data to present.

Sources