Recreational Weed States of America

June
21, 2019

6 min read

Opinions expressed by Entrepreneur contributors are their own.

Everyone assumes that cannabis legalization will prove a lucrative source of new revenue for states, but how much have recreational weed states made from cannabis taxes thus far?

While 11 states have legalized the sale of recreational weed, not all of them have functioning legal markets — and the tax revenues they collect are proportionate to the actual market. Let’s break down how much states with legal recreational weed have collected so far.

Massachusetts falls far short of anticipated revenue.

Total Tax Revenue: $5.2 million

Legalized: 2016 (sales began 2018)

Massachusetts is very far short of the $63 million in revenue it anticipated by now. The commonwealth (as people in Massachusetts like to call their state) has reportedly collected just $5.2 million since legalization, according to data from Statista. 

Massachusetts had projected $63 million in cannabis tax revenue between June 2018 and now. The $57 million shortfall is due to bans on dispensaries in more than 50 percent of Massachusetts municipalities and a slow state licensing process for dispensaries in more welcoming communities.

Massachusetts has legalized cannabis but is reluctant to let anybody actually sell cannabis, so there is not much so far to tax.

Related: Sluggish Bureaucracy Is Blamed for Disappointing Marijuana Tax Revenues in Massachusetts

Revenue jumps in Alaska

Total Tax Revenue: $12 million ($10.8 million in 2018)

Legalized: 2014 (sales began 2016)

Alaska reports $10.8 million from legal recreational weed in 2018, up from $1.7 million in 2017, for a combined total of $12.5 million. Just to put that in perspective, Alaska with a population of about 737,000 collected twice as much last year as Massachusetts with a population of 6.9 million.

By law, half of cannabis revenues are for the Recidivism Reduction Fund, which funds substance abuse, behavioral health and domestic violence programs for people newly released from prison. Two out of three convicts in Alaska eventually return to prison for new violations, with most of those violations occurring with six months of their initial release, per state statistics.

Nevada exceeds recreational weed tax goals.

Legalized: 2016 (sales began 2017)

Total Tax Revenue: $210 million ($70 million in 2018)

Nevada has been the swiftest state to implement recreational weed states. In 2017, the first year of sales, the Silver State exceeded predictions by 140 percent to collect more than $68 million in recreational cannabis taxes.

In 2018, the state surpassed the previous year’s figures with close to $70 million in excise tax revenue. In 2019, Nevada has already amassed $72 million in recreational weed tax revenue per state records. Overall state cannabis revenues exceed $210 million.

Nevada levies a  15 percent tax on wholesale transactions (a portion of which is designated for schools) and 10 percent on retail sales.

Oregon weed tax revenue climbs.

Legalized: 2015 (sales began 2015)

Total Tax Revenue: $211 million ($82 million in 2018)

Oregon, the fourth state to legalize recreational sales, collected a respectable $20 million within the first year of legal cannabis in 2016. Revenue surged to $70 million in 2017 and topped $82 million in 2018. According to Oregon statistics:

• 40 percent of tax revenue goes towards the state school fund.

• 20 percent is allocated to mental health, alcoholism and drug services.

• 15 percent goes to the police.

• 5 percent is appropriated for drug treatment and prevention.

• 20 percent goes towards local government.

In total, Oregon has collected $211 million in revenue since legalization.

California revenues aren’t even close to weed tax predictions.

Legalized: 2016 (sales began 2018)

Total Tax Revenue: $345 million

Among all the states with recreational weed, predictions were set highest for California. In 2018, California collected $345 million in cannabis taxes according to state figures, only about a third of the $1 billion expected.

California, like Massachusetts, has been very slow to license legitimate dispensaries and lots of towns around the state have local bans in place. In addition, its long established black market continues to thrive. Legitimate dispensaries have struggled to get off the ground and consumers either do not have convenient access to recreational weed or balk at what it costs.

Related: Licensing Snafu Could Cost California Cannabis Growers Thousands in Lost Revenue, Possible Shutdowns

Washington state revenues are booming.

Legalized: 2012 (sales began 2013)

Total Tax Revenue: $586 million ($120 million in 2018)

Washington state collected a healthy $120 million in cannabis taxes in the fiscal year that ended June 30, 2019, bringing to $586 million the total revenues collected since legalization, according to the most recent figures.

The bulk of this revenue comes from a 37 percent retail tax. Compared to other recreational weed states like Colorado, which allocates much of its revenue to state schools, the largest recipient of tax dollars in Washington is the state healthcare system.

Much of the remaining tax dollars go towards the State’s General Fund (31 percent, according to state statistics) and substance abuse treatment (over 10 percent).

Colorado leads recreational weed states in revenue.

Legalized: 2012 (sales began 2014)

Total Tax Revenue: $1 billion ($267 million in 2018)

According to the most recent figures from the Colorado Department of Revenue, the state has collected over $1 billion in tax revenue since the legalization of recreational weed in 2014, the most cumulatively of any state.

The state collected $267 million in tax revenue in 2018 and an additional $112 million in 2019 to date.

Amendment 64, the original legislation that legalized cannabis in Colorado, specified that the first $40 million in revenue must go towards building new Colorado schools. Beyond that, municipalities divide their income between law enforcement, regulation and general funds, which can go towards any basic government function.

Other legalization efforts roll out slowly.

Vermont, Maine and Washington D.C. have all legalized recreational weed but have not commenced regulated retail sales and have not collected any revenues.

Michigan, which has a well established medical marijuana program, has legalized recreational sales and cannabis dispensaries are on track to open in 2020.

Recreational weed states exceed tax expectations.

In almost all cases, states with recreational weed collect significantly more tax revenue than expected. Notable exceptions are California and Massachusetts, which share certain of the same legislative features. In both of these recreational weed states’ legislation:

• Municipalities may choose to outlaw retail cannabis, and many have. These bans can have drastic effects on a state’s overall cannabis tax revenue, as well as create “pot deserts” for potential customers.

• Tax rates set by municipalities can be too high for legal product to compete with black market alternatives.

In addition to boosting employment through cannabis jobs, tax revenue is yet another reason for states to legalize cannabis. As more programs find their footing, expect recreational weed states to reap the rewards of a legal market.