Legalizing marijuana for adults has provided states a new revenue stream to bolster budgets and fund important services and programs. As of February 2021, states reported a combined total of $7.1 billion in tax revenue from legal, adult-use marijuana sales.
Since 2012, 15 states have enacted laws legalizing, taxing, and regulating cannabis for adults 21 and older. Five of the laws passed in 2020, and in four of those states, licensing has not yet begun. This document reviews each state’s tax rate, population, and state tax revenue for adult-use cannabis. It does not include medical cannabis tax revenue.
Colorado (pop. 5.8 million) | Current tax rate: 15% wholesale, 15% special retail
Colorado voters approved an initiative to regulate marijuana for adults in November 2012, and on January 1, 2014, the state became the first with legal adult-use sales. Colorado already had a developed medical cannabis regulatory system, and many businesses were able to transition to having both a medical and an adult-use counter. Colorado has a robust medical program, with about 1.6% of the population enrolled. Colorado’s 15% wholesale excise tax and its 15% special retail tax do not apply to those sales. (The special retail tax rate was 10% until the legislature and governor increased it in July 2017. Also, until July 2017, a 2.9% standard statewide sales tax was levied on marijuana sales. Currently, the standard sales tax is only applied to marijuana accessories (e.g. pipes) and is not included in the totals below.)
Note: The below figures do not count local sales taxes.
|Year||State Tax Revenue from Adult-Use Sales1|
Washington (pop. 7.6 million) | Tax rate: 37% at retail since July 2015; 6.5% sales tax
Washington’s voters also approved an adult-use measure in November 2012, and its first stores opened in July 2014. At the time, the state had an unregulated, arguably illegal medical marijuana dispensary system, which was separate from the regulated adult-use program. This resulted in a slower ramp-up than in Colorado. 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.
Note: The below figures do not include local taxes. From July 2014 through September 2020, they totaled an estimated $156.4 million.2
|Year||State Tax Revenue from Adult-Use Sales3|
|June – Dec. 2014||$22,399,058|
Oregon (pop. 4.2 million) | Tax rate: 17% at retail
Oregon voters approved an initiative regulating marijuana for adult use in November 2014, and the state’s first adult-use stores opened in October 2016. In addition, the legislature allowed medical cannabis dispensaries to sell a limited amount of marijuana (five grams) to adults from October 2015 until December 31, 2016. Those sales were taxed at 25% beginning January 4, 2016. The state’s medical patients (about 0.95% of Oregon’s population and dropping) can buy cannabis tax-free from adult-use stores.
Note: The below figures do not include the 3% tax some localities impose. From February 2017 through December 2020, the local taxes collected totaled $67,151,400.4
|Year||State Tax Revenue from Adult-Use Sales5|
|Feb. – Dec. 2016||$60,154,432|
Alaska (pop. 0.7 million) | Tax rate: $50/ounce at wholesale
Alaska voters approved an initiative to regulate marijuana for adult use in November 2014, and the first adult-use stores opened in October 2016.
A number of factors initially resulted in slower revenue generation than in some other states. The state’s medical marijuana program did not have dispensaries, meaning there were no cannabis businesses that could transition to adult-use cultivators and retailers. As a result of a limited supply, many stores closed for large stretches of January 2017 or operated with reduced hours.6
Note: The below figures do not include additional tax some localities impose.
|Year||State Tax Revenue from Adult-Use Sales7|
|Oct. – Dec. 2016||$232,696|
|Jan. – Nov. 2020||$24,968,742|
Nevada (pop. 3.1 million) | Tax rate: 15% wholesale, 10% special retail
Nevada voters approved an initiative regulating marijuana for adult use in November 2016. The first adult-use stores were expected to be licensed in 2018, but the legislature and governor allowed medical cannabis dispensaries to sell to adults beginning on July 1, 2017.
Note: The below figures do not count standard state and local sales taxes.
|Year||State Tax Revenue from Adult-Use Sales8|
|July – Dec. 2017||$30,376,795|
|Jan. – Sept. 2020||$86,374,589|
California (pop. 39.5 million) | Tax rate: $9.25 per ounce for flowers or $2.75 on leaves/trim; 15% excise tax; 7.25% standard sales tax
California voters approved an initiative regulating marijuana for adults’ use in November 2016. The state’s first adult-use stores began to open in January 2018, but transition from the state’s unregulated, grey market medical marijuana providers to a licensed and regulated system has been more gradual than some anticipated. In addition, localities have been slow to establish regulations, which has delayed the transition and reduced revenue.
Note: The below figures do not include local sales and special taxes.
|Year||State Tax Revenue from Adult-Use Sales9|
|Jan. – Sept. 2020||$778,400,000|
Massachusetts (pop. 6.9 million) | Tax rate: 10.75% excise tax on sales; 6.25% standard sales tax
Massachusetts voters approved an initiative regulating marijuana for adults’ use in November 2016. Many expected sales to begin in the summer of 2018, but the first adult-use stores did not open until November 2018.
Note: Massachusetts allows cities and towns to impose an additional sales tax up to 3%. Figures below do not include those totals.
|Year||State Tax Revenue from Adult-Use Sales10|
|Nov. – Dec. 2018||$2,798,319|
Michigan (pop. 10 million) | Tax rate: 10% excise tax on sales; 6% standard sales tax
Michigan voters approved an initiative to legalize and regulate marijuana for adults’ use in November 2018. Sales began in December 2019, but localities have been slow to opt in and establish regulations, which delays the transition from the illicit market. Detroit opted in on November 24, 2020.
|Year||State Tax Revenue from Adult-Use Sales11|
Illinois (pop. 12.7 million) | Tax rate: 7% at wholesale; from 10-25% at retail, depending on potency; 6.25% standard sales tax
On June 25, 2019, Gov. J.B. Pritzker signed HB 1438 into law, legalizing and regulating marijuana for adults’ use. Sales from existing medical cannabis businesses began on January 1, 2020.
|Year||State Tax Revenue from Adult-Use Sales12|
Maine (pop. 1.3 million) | Tax rate: Wholesale tax of $335 per pound with lower rates for trim and seedlings; 10% sales tax
Maine voters approved an initiative regulating marijuana for adults’ use in November 2016, but sales did not begin until October 9, 2020.
|Year||State Tax Revenue from Adult-Use Sales13|
|Oct. 2020 - Dec. 2020||$427,853|
Vermont (pop. 620,000) | Tax rate: 14% excise tax on sales; 6% standard sales tax
On October 7, 2020, Gov. Phil Scott (R) allowed S. 54 to go into law without his signature. The law will legalize, regulate, and tax cannabis sales for adults’ use. The legislature and governor had legalized personal possession and cultivation only in 2018. Regulated sales are scheduled to begin on May 1, 2022.
Arizona (pop. 7.3 million) | Tax rate: 16% excise tax on sales; 5.6% standard transaction privilege tax
Arizona voters approved an initiative regulating marijuana for adults’ use on November 3, 2020. Sales have not begun yet.
Montana (pop. 1.1 million) | Tax rate: 20% excise tax on sales
Montana voters approved an initiative regulating marijuana for adults’ use on November 3, 2020. Sales have not begun yet.
New Jersey (pop. 8.9 million) | Tax rate: 6.625% standard sales tax; 1-2% local option taxes; excise fee on cultivation anticipated
On November 3, 2020, more than two-thirds of New Jersey voters approved a constitutional amendment directing the legislature and the Cannabis Regulatory Commission to regulate cannabis for adults’ use. Sales have not begun as of this writing.
In December 2020, the legislature approved twin bills to implement the amendment. However, as of February 14, 2021, Gov. Phil Murphy has not agreed to sign the bills (A. 21 and S. 21) due to concerns about penalties (or lack thereof) for minors possessing cannabis. Negotiations continue on that aspect of the bills, but there is no indication the tax and fee provisions of the bills will change.
In addition to the standard sales taxes and local cannabis taxes, A. 21 and S. 21 impose excise fees on sales from cultivators, which regulators can adjust each year. The cultivation excise fees would start at one-third of one percent of average retail sales prices. Beginning nine months after adult-use sales begin, and every year thereafter, the Cannabis Regulatory Commission could revise the fees, with fees increasing as the average retail price of cannabis drops. The Commission could levy excise fees at the following rates:
South Dakota (pop. 884,000) | Tax rate: 15% excise tax on sales; 4.5% standard sales tax
South Dakota voters approved an initiative regulating marijuana for adults’ use on November 3, 2020. Sales have not begun yet.
After South Dakota voters approved the constitutional amendment, Highway Patrol Superintendent Rick Miller and Pennington County Sheriff Kevin Thom sought to overturn the measure in court on behalf of Gov. Kristi Noem. They argued the voter-enacted law should be thrown out under the single subject rule and claimed it was a revision not an amendment to the constitution. A circuit court judge sided with the challenge. Proponents believe the judge is mistaken and the law should remain in force and will appeal to the Supreme Court.
3 Monthly excise tax data: https://www.502data.com/ (for data prior to 2017)
Monthly sales tax data and excise tax estimates based on sales volume provided here: https://dor.wa.gov/about/statistics-reports/recreational-and-medical-marijuana-taxes
6 Laurel Andrews, “Legal weed is hard to come by in Alaska,” Alaska Dispatch News, January 5, 2017.
10 Note: This estimate is calculated by applying the 17% tax to the cumulative sales data provided at this link: https://opendata.mass-cannabis-control.com/stories/s/Sales-and-Product-Distribution/xwwk-y3zr
12 See the “Cannabis” tab of the reports linked on this webpage: https://www2.illinois.gov/rev/research/taxstats/CollectionsComptroller/Pages/default.aspx