Cannabis Tax Revenue: Where Does it Go?

Adult-Use vs Medical Tax Revenue

The taxes revenue procedures vary from state. There are two main types of cannabis markets in the United States: medical and recreational. In medical marijuana states, only patients with a valid medical card can purchase cannabis products. In contrast, recreational marijuana states allow anyone over 21 to purchase and use cannabis products.

Sales Tax

Sales tax is collected on cannabis sales in states that have legalized recreational marijuana. Some states operate a percentage of price sales tax, while others use a weight-based system similar to cigarettes. Illinois is the only state that charges rates based on THC potency.

Cultivation Tax

This tax is applied during the cultivation phase of cannabis production. The tax rate varies by state, but it’s typically a fixed amount per ounce. The cultivation tax is applied to all harvested cannabis entering the legal market.

Excise Tax

The excise tax is a special type of tax applied to specific products or activities. In the cannabis industry, the excise tax is applied to cannabis products sold for recreational use. The tax rate varies by state, but it’s typically around 15%.

Cannabis Tax Revenue by State

California

California is one of the most progressive states when it comes to cannabis laws. The state has legalized recreational marijuana, and there is no sales tax on medical marijuana products. 

California collected over $1 billion in tax from marijuana sales in 2020. Local law requires that cannabis tax revenue goes to youth and prevention programs, remediation, research, and part of the general fund goes to the police.

Colorado

To buy recreational cannabis in Colorado, you must be at least 21 years old and present valid government-issued identification. You must be at least 18 if you want to apply for a medical marijuana card. 

Colorado collected $387 million in tax. 90% of this money is sent to the state government. Of this 90%, 15.56% of that goes to their general fund, 12.59% goes to the state public school fund, and 71.85% goes to the marijuana tax cash fund. The remaining 10% is sent to local governments.

Massachusetts

Individuals over the age of 21 can legally purchase and use recreational cannabis/marijuana in Massachusetts. People do not need to be a resident of Massachusetts to purchase marijuana. Still, they will be required to show a government-issued ID. 

Massachusetts collected $81 million in tax. Sales tax is distributed to the general fund, the School Building Authority, and the Massachusetts Bay Transportation Authority. The excise tax support programs like the Alcoholism Administration and the Cannabis Control Commission.

Nevada

With the vivid nightlife in Las Vegas, the Nevada market is quickly growing. A person who is 21 years old or older may possess up to one ounce of marijuana or 1/8 ounce of cannabis concentrate. 

Nevada collected $105 million tax. The retail tax is sent to the state rainy day fund. The wholesale tax is split between the rainy day fund and cover expenses.

How Does Tax Revenue Affect Different Cannabis Products?

Delta-8

Delta-8 THC comes from the hemp plant and does not contain more than .3% THC, so it is not subject to the tax laws as high THC cannabis. However, the DOJ has classed Delta 8 as a controlled substance. This means deductibles can only be claimed for Delta-8 products for inventory costs.

CBD and Hemp-Based products

Hemp-based products are not subject to state excise tax in any state. The only taxes that may apply are the sales and cultivation taxes.

Final Thoughts

A deeper understanding of taxes, finances, and accounting increases your chances of having a successful and profitable cannabis business. If you’re just getting into the industry, contact us today for a free 30-minute consultation to discuss your business’s accounting, bookkeeping, and financial procedures.