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State recreational marijuana taxes are one of the hottest policy issues in the U.S. Currently, 19 states (Alaska, Arizona, California, Colorado, Connecticut, Illinois, Maine, Massachusetts, Michigan, Montana, Nevada, New Jersey, New Mexico, New York, Oregon, Rhode Island, Vermont, Virginia, and Washington) have implemented legislation to legalize and tax recreational marijuana sales.
This election season is full of ballot measures that put legislation directly in the hands of voters. And marijuana is a particularly popular issue on the ballot; voters will have the option to legalize recreational marijuana sales in five states:
The past year saw several states launch legal cannabis markets, with more poised to do so in the year to come. Montana’s legal recreational marijuana market launched on January 1, 2022, with $22.6 million in sales during the first month. Vermont began sales in March and both New Jersey and New Mexico began sales in April.
Virginia, New York, and Rhode Island have passed legislation to facilitate a legal recreational marijuana market but have yet to start sales. Each state expects to have legal cannabis markets operational within the next year. Governor Cuomo (D) signed New York’s cannabis legislation into law in March of 2021, which combines a retail sales excise tax with a potency tax. New York’s cumbersome regulatory process for approving and establishing marketplace transactions may push the first legal sales back to 2023.
Virginia is scheduled to start legal sales on July 1, 2023, with a 21 percent excise tax. Rhode Island legalized cannabis and passed a 10 percent excise tax on retail purchases, with local governments able to levy an additional 3 percent excise tax on retail sales. Legal sales are expected to begin on December 1, 2022.
The following map highlights the states that levy recreational marijuana taxes, have passed legislation to tax marijuana, or have recreational marijuana on the ballot this year.
Marijuana markets operate under a unique legal framework. Federally, marijuana is classified as a Schedule I substance under the Controlled Substances Act, making the drug illegal to consume, grow, or dispense. Individual states that have legalized consumption and distribution don’t actively enforce the federal restrictions.
This turns each state market into a silo. Marijuana products cannot cross state borders, so the entire process (from seed to smoke) must occur within state borders. This unusual situation, along with the novelty of legalization, has resulted in a wide variety of tax designs.
| State | Tax Rate |
|---|---|
| Alaska | $50/oz. mature flowers; |
| $25/oz. immature flowers; | |
| $15/oz. trim, $1 per clone | |
| Ariz. | 16% excise tax (retail price) |
| Calif. | 15% excise tax (levied on wholesale at average market rate); |
| $9.65/oz. flowers & $2.87/oz. leaves cultivation tax; | |
| $1.35/oz fresh cannabis plant | |
| Colo. | 15% excise tax (levied on wholesale at average market rate); |
| 15% excise tax (retail price) | |
| 3% excise tax (retail price) | |
| Conn. | $0.00625 per milligram of THC in plant material |
| $0.0275 per milligram of THC in edibles | |
| $0.09 per milligram of THC in non-edible products | |
| Ill. | 7% excise tax of value at wholesale level; |
| 10% tax on cannabis flower or products with less than 35% THC; | |
| 20% tax on products infused with cannabis, such as edible products; | |
| 25% tax on any product with a THC concentration higher than 35% | |
| Maine | 10% excise tax (retail price); |
| $335/lb. flower; | |
| $94/lb. trim; | |
| $1.5 per immature plant or seedling; | |
| $0.3 per seed | |
| Mass. | 10.75% excise tax (retail price) |
| Mich. | 10% excise tax (retail price) |
| Mont. | 20% excise tax (retail price) |
| Nev. | 15% excise tax (fair market value at wholesale); |
| 10% excise tax (retail price) | |
| N.J. | Up to $10 per ounce, if the average retail price of an ounce of usable cannabis was $350 or more; |
| up to $30 per ounce, if the average retail price of an ounce of usable cannabis was less than $350 but at least $250; | |
| up to $40 per ounce, if the average retail price of an ounce of usable cannabis was less than $250 but at least $200; | |
| up to $60 per ounce, if the average retail price of an ounce of usable cannabis was less than $200 | |
| N.M | 12% excise tax (retail price) |
| N.Y. (a) | $0.005 per milligram of THC in flower |
| $0.008 per milligram of THC in concentrates | |
| $0.03 per milligram of THC in edibles | |
| 9% excise tax (retail price) | |
| Ore. | 17% excise tax (retail price) |
| R.I. (a) | 10% excise tax (retail price) |
| Va. (a) | 21% excise tax (retail price) |
| Vt. | 14% excise tax (retail price) |
| Wash. | 37% excise tax (retail price) |
|
(a) As of July 2022, retail sale of recreational marijuana has not yet started. Note: District of Columbia voters approved legalization and purchase of marijuana in 2014 but federal law prohibits any action to implement it. In 2018, the New Hampshire legislature voted to legalize the possession and growing of marijuana, but sales are not permitted. Alabama, Georgia, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Minnesota, Nebraska, North Carolina, South Carolina, Oklahoma, Rhode Island, and Tennessee impose a controlled substance tax on the purchase of illegal products. Several states impose local taxes as well as general sales taxes on marijuana products. Those are not included here. Sources: State statutes; Bloomberg Tax. |
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The multitude of approaches makes any apples-to-apples rate comparison difficult. New York and Connecticut are the first states to implement a potency-based tax per milligram of THC. But most states levy an ad valorem tax on the retail sales price of cannabis sales—ranging from 10 percent in Rhode Island and Michigan up to 37 percent in Washington.
There are still many unknowns regarding the taxation of recreational marijuana, but as legal markets proliferate and more research is done on the externalities of consumption, more data will be available. The design of cannabis taxes will also become more important as federal legislation potentially changes the market through additional federal taxes and the introduction of interstate commerce.
Green Rush: Principles for Taxing Cannabis