Taxes and fees are revenue-raising devices to fund government; therefore, one key aspect of cannabis taxation is to collect revenues off the privilege to...
Financial benefits of legal cannabis taxation at the state and local level

Taxes and fees are revenue-raising devices to fund government; therefore, one key aspect of cannabis taxation is to collect revenues off the privilege to sell and consume marijuana. Legalization of marijuana has allowed state and local governments to do just that.

As of 2018, twenty-nine states and the District of Columbia have legalized medical marijuana, nine states and the District of Columbia have legalized recreational marijuana, and thirteen states have merely decriminalized the use of marijuana. Polls consistently show the majority of Americans support using tax revenue collected from marijuana sales to fund local programs that are currently underfunded or not currently funded at all. The massive fiscal injection to state and local programs that were slashed due to budget cuts has led to more and more states placing legalization initiatives on upcoming ballots for the 2018 and 2020 election cycles.

Although over half of states have some version of a program in place to facilitate the production, sale, and use of recreational and/or medicinal marijuana, these activities remain a crime under federal law. Dispensaries are not violating state law by selling marijuana, however they are in still violation of federal law.  This same principal applies to individuals who uses marijuana both recreationally and medically. Thus, states with recreational and medicinal marijuana programs have had to construct their own legal, regulatory, and tax frameworks that allow cannabis businesses to cultivate, process, and sell marijuana.

Researchers at Colorado State University-Pueblo have discovered that the legalization of marijuana has had a positive impact on the economy due to revenue generated through taxes and fees collected both the state and local level. Marijuana purchases are subject to two-levels of taxation: (1) fees paid by businesses to sell cannabis and (2) the applicable state and local sales tax passed onto consumers. Both of these are major revenue streams for the state. Businesses running medical marijuana dispensaries, for example, are subject to a $7,000 to $15,000 application fee, $5,200 to $13,200 registration fee, and a $5,800 to $13,800 license renewal fee.The state made $7,340,000 from application fees in the first year alone, exceeding the government’s cost to regulate the industry. The additional generated revenue accrues to the state’s general fund that can the be used to revitalize programs that have underfunded or unfunded due to budgetary cutbacks.

While revenue can be in the tens or even hundreds of millions of dollars, it may take some time for state or local governments to start profiting off the industry. In Colorado, the tax revenues initially fell short of projections that accompanied the legalization campaign, but eventually the state collected marijuana tax revenues greatly exceeding the original estimate of $70 million per year. After an initially slow start, there was an impressive year-over-year growth starting in 2015 with collections in retail marijuana tax revenue growing to $113 million, demonstrating that a legalization-and-tax regime could raise millions (if not billions) of dollars per year in marijuana tax revenue.

In addition to revenue raised by taxes and fees, state and local governments have increased their revenue stream by spending less enforcing cannabis-related crimes. In California, the fiscal impact of legalization is projected to produce net reduced costs of $100 million annually to state and local governments related to enforcing non-violent marijuana-related offenses, handling the related criminal cases in the court system, and incarcerating and supervising certain marijuana offenders. The state plans to use most of these funds to combat addiction, requiring the funds to be spent for specific purposes such as substance use disorder education, prevention, and treatment.

Brett Pojunis avatar

Brett Pojunis Chairman and CEO

Brett H. Pojunis is the Chairman and CEO of MJ Venture Partners, Inc. (MJVP) and an active member of the board of directors of Player’s Network, Inc. (PNTV). PNTV is a publicly traded diversified holding company operating primarily in marijuana and media. PNTV is traded on the OTCQB exchange and has been a fully reporting publicly traded company since 1998.

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