There are now eighteen states (plus the District of Columbia) that have legal recreational marijuana. With weed sales reaching $25 billion in 2021 and that number only expected to grow, the sales tax revenue from the product is starting to make a bigger difference in the communities that choose to allow marijuana-related businesses. When each state legalized recreational cannabis, it formed a plan for how to use the tax revenue it would generate, though some states had more specific guidelines than others. So how is that money being spent?
Alaska taxes its marijuana at several different stages, including taking a cut when cultivators sell raw products and when retail stores sell it directly to customers. Different types of marijuana are also taxed differently. Those are really adding up, going from about $10.8 million in revenue in 2018 to $24.2 million by 2020.
All that money gets broken down into three sections: 25% for the general government fund; 25% for drug treatment and education; and 50% for programs meant to reduce the state’s recidivism rate. However, that money has been moved around, paying for other programs separate from what it had been originally earmarked to target. In Fiscal Year 2022, the Department of Corrections got $11.5 million in marijuana tax money, the Department of Public Safety got $2 million, and the Department of Health and Social Services got $18.2 million.
Arizona’s cannabis industry raked in over $1 billion in its first year, accounting for about $200 million in taxes in 2021. That comes from a transaction privilege tax and an excise tax of 16%. The earnings are well above the projected $135 million voters were told to expect when they legalized recreational marijuana in November of 2020.
That same legalization bill, Prop 207, established the Justice Reinvestment Fund. The rest of the money is divided up between community colleges, municipal police departments, fire districts, the Attorney General’s Office, and the Highway User Fund.
California sends its marijuana tax money to a general fund and allows communities to determine projects that benefit their specific localities. For instance, Santa Cruz County created a program to help mothers and their babies in need, including trained nurses to monitor not only physical wellbeing, but also mental health. Monterey County used the money to build a warming shelter. Oakland gave out loans for low-income entrepreneurs through a social equity program created with the help of marijuana tax revenue.
When voters approved Proposition 64, they thought the Golden State would rake in $1 billion in state revenue. So far, marijuana sales have only reached about a quarter of their projected gusto, but the Proposition had already lined out ideas for how to spend it.
“The revenues will provide funds to invest in public health programs that educate youth to prevent and treat serious substance abuse, train local law enforcement to enforce the new law with a focus on DUI enforcement, invest in communities to reduce the illicit market and create job opportunities, and provide for environmental cleanup and restoration of public lands damaged by illegal marijuana cultivation,” the Adult Use of Marijuana Act states.
Colorado has a unique system for its marijuana tax revenue. Most goes to the Marijuana Tax Cash Fund. In that fund, the state legislature demands the money must be used the year after it is collected and must go to programs relating to healthcare, health education, substance abuse prevention and treatment programs, and law enforcement. Money from the excise tax on marijuana goes to a pool called the Building Excellent Schools Today Fund.
Connecticut’s recreational marijuana laws are still extremely new, but the state has a plan for how to spend its tax revenue once it starts raking it in. Beginning July 1st of 2023, 25% of the state’s marijuana excise tax will go to its new Prevention and Recovery Services Fund. From July 1st 2023 to June 30th of 2026, 60% of the money goes to the Social Equity and Innovation Fund. That increases to 65% on July 1st of 2026, then 75% on July 1st, 2028.
Connecticut will have several taxes on its marijuana. If the tax is based on THC, it’s $0.00625 per milligram of flower or $0.0275 for edibles and $0.009 for other cannabis products. The standard sales tax is 6.35% and municipalities have the opportunity to add another 3% tax of their own. If they do choose to add that tax, the money generated must go specifically to re-entry services, mental health and addiction services, youth services, and street improvements close by dispensaries.
Illinois is aiming for social equity in its use of tax dollars generated through marijuana sales. 20% of the revenue goes to mental health services. 25% goes to a fund known as the Recover, Reinvest, and Renew Program, which aims to help disadvantaged communities through investment in local organizations.
What those programs look like in practice may vary greatly. For instance, the state created a street intervention program to reduce violence and gave it $3.5 million in marijuana sales tax revenue. Another state-funded program helps people with marijuana convictions that are no longer considered crimes get their records expunged.
The breakdown of sales tax revenue from marijuana in Maine is an easy one. 12% of it goes to the Adult Use Marijuana Public Health and Safety Fund, and the rest goes to the state’s General Fund.
Maine taxes its marijuana products at 10% in retail stores for the sales tax, and local governments aren’t allowed to add onto that. The excise taxes are based on weight.
Massachusetts has a fairly high tax rate at a 20% total, including sales tax, excise, and a 3% local option. The state has been raking in over $100 million between its sales and excise taxes on cannabis. The sales tax revenue goes to the General Fund and the MBTA and School Building Authority Funds. Excise tax revenue can go to either the Cannabis Control Commission, or five other designations. Those can include economic equity programs for communities harmed by the War on Drugs, or to behavioral health programs, public safety, and/or municipal police training.
Michigan has been raking in over $100 million in tax dollars from cannabis sales. Some goes to local municipalities; the rest is divided up between the School Aid Fund and the Michigan Transportation Fund. Any remaining dollars goes to paying for the program itself, getting doled out to administrative costs.
Montana has a 20% tax on recreational cannabis and a 4% tax on medical marijuana. The money is divided up in extremely specific ways. The first order of business in Montana is to provide $6 million to the Healing and Ending Addiction through Recovery and Treatment Program.
The rest is split based on percentages of the remaining total. 20% goes to the Department of Wildlife, Fish and Parks for wildlife habitat funding; another 4% goes to the state park account, 4% for trails and recreational facilities, and 4% to the nongame wildlife account. Whichever is less between 3% of the total revenue or $200,000 is paid out to veterans and their surviving spouses. $150,000 goes to the Board of Crime Control. Any money left over goes to the General Fund.
Nevada has been raking in money from marijuana sales, totaling at over $100 million in profit across the state. 10% of that is supposed to go to education through the state’s Distributive School Account, but the effects get diluted as that money is split up to school districts in every county in the state. Other monies from weed in Nevada have gone to help the homeless, and some went to fill the state’s emergency fund.
Regulators in New Jersey are still accepting input on how the money gained from marijuana sales should be spent. Some advocates suggested creating grants to help people trying to enter the industry. The Governor wants to focus on restorative justice. The law that legalized recreational marijuana did require 70% of revenue to go toward economic assistance for areas disproportionately impacted by the War on Drugs, but so far there isn’t much of a road map on how that will look.
The Governor of New Mexico has been clear about plans for how to spend the projected $300 million in sales tax revenue she thinks the state will produce next year. Plenty will go to municipal governments, but there are bills in the works to help with community reinvestment. Some have suggested programs to help with housing, food insecurity, and economic development could be top of the list.
New York has a 9% cannabis sales tax and up to a 4% local sales tax. Distributors get a $0.005 tax on each milligram of THC in marijuana flower, a $0.008/mg tax for concentrates, and a $0.03/mg one for edibles.
Sales of marijuana haven’t started yet in New York, but once they do, the places the money will go are clear-cut: 40% goes to community reinvestment, 20% is for public schools, and the remaining 40% heads to drug treatment and public health programs.
When Oregon legalized recreational marijuana, it planned to use that tax money to pay for drug treatment programs. The problem was, communities had been promised a certain amount of money they were no longer going to see. That money would be used for law enforcement agencies, parks, libraries, infrastructure, and general funds. Instead, it’s being used for drug treatment.
Other monies from marijuana taxes go to public schools, law enforcement, and mental health programs.
Though sales won’t start up in Virginia until January of 2024, the state has already laid out how it’ll spend the money it generates by making cannabis available to consumers.
Virginia’s marijuana tax revenue will go first to paying for the program that regulates its legalization. After that, a whopping 40% goes to pre-K education meant specifically for at-risk children. 30% is for the Cannabis Equity Reinvestment Fund, which hopes to help communities affected by the War on Drugs. 25% is earmarked for substance abuse treatment and prevention of addiction. 5% will be for public health programs.
Recreational marijuana sales began just days ago in Vermont. That state will be taxing its marijuana at 20% between a 14% excise tax and a 6% sales tax. Municipalities don’t have the chance to add on their own fees. Some of that sales tax revenue would go to a grant program for after-school care and learning or development programs in under-served areas. Up to 30% of the revenue will go to substance abuse and addiction prevention programs.
Washington State has been making a killing in marijuana sales. Revenue from that product now accounts for an incredible 2% of the entire operating budget of the state. That’s divided up among healthcare, research and testing, licensing and enforcement, education and prevention, local governments, and the state’s general fund. Some of those programs are revolutionary – one, for instance, provides health insurance for low-income families.