There are many benefits to cannabis legalization, and as more and more places end prohibition – including all of Canada and one state after another in the U.S. – one of the most discussed positives has included the massive tax revenues. This has a lot of people wondering, how much is marijuana taxed?
The answer is a bit trickier than simply quoting a number. To understand how much marijuana is taxed, we have to look at a case by case, region by region basis.
How Much Marijuana Is Taxed Based On Location
As there is no federal tax on marijuana in the U.S. – you can’t tax what isn’t legal – the tax rate is set by states that have chosen to end prohibition. Some states that have gone legal are still sorting out their taxation plans, so let’s take a look at the situation in states that have it more or less figured out, then Canada:
As the first U.S. state to legalize it, Colorado served as a testing ground for taxation – and the test paid off big with revenues clocking in above $1 billion. Colorado taxes medicinal and recreational cannabis differently. Recreational gets hit by a 2.9% state sales tax, a 10% state marijuana sales tax, and any local taxes. Medicinal has the first and the last, but doesn’t get the 10% state tax. That 10% rate is expected to go down to 8% in the near future.
Oregon has a simpler system. Initially the tax was a flat 25%, but that was reduced to 17% in January 2017, with local governments allowed to impose further taxes up to 3%.
After initially screwing up their tax system based primarily on poor planning and wording of the law – which resulted in a high, complicated tax structure – Washington improved its tax system by imposing a 37% rate. This is still somewhat higher than other states, which has made for increased prices.
While this state hasn’t started legal sales yet, they have formed a rather straightforward tax plan -- $50 per ounce, plain and simple. This translates into a tax rate of about 21%.
Still wrangling exactly what its tax system will look like, currently California leverages a 15% tax on recreational marijuana with local governments imposing as much as a further 15%. For the moment, medicinal marijuana is untaxed, but in January of 2018 it will get a 15% tax. What’s more, cultivators will begin having to pay $9.25 per dry ounce of flowers and $2.75 per dry ounce of leaves.
Right now Canada is still trying to sort out what it’s tax plan will be. The trick there is that the recreational price is only marginally lower than the black market price, so overambitious taxation would make legal cannabis uncompetitive. We’ll just have to wait and see what they come up with.