Crazy Cannabis Tax: How Much Are You Really Paying?

Where can you buy the cheapest legal bud in the nation? That question is as complex as the tax laws themselves.

Previous to Colorado recreationally legalizing marijuana, there was much speculation as to the consequences of allowing a previously banned drug to suddenly become legal. Nevertheless, the Centennial State voted recreational marijuana into legality, a fate now followed by three other states and the District of Columbia.

Since recreational legalization, seemingly ideal consequences are occurring. Overall crime rates and traffic fatalities in Colorado and other recreationally legal states are down since legalization, tax revenue in those states is way up, and the existence of black market marijuana is shrinking — albeit slowly.

Black market decreases in areas of recreational legalization have been below experts’ predictions since legalization. This, in conjunction with the stabilization of the recreational marijuana industry allowing for decreased production cost, is the two driving forces behind numerous individual states legislation that would further decrease the price of pot. Currently, all states with recreational marijuana tax the cannabis consumers over 25% per transaction. In multiple recreationally legal states, this will soon no longer be the case.

Tax law and code typically responds retroactively to industry changes. In such a culturally taboo and at the same time industrially infant industry such as recreational marijuana, there’s plenty of examples of some seriously crazy cannabis tax code.

What does this mean for you? It means still a wide, sweeping variety of price for the same amount of recreational marijuana from state to state, and even city to city. Furthermore, it could mean the tax figures quoted here could soon be higher than actual market prices. For the time being, however, what follows is a comprehensive look at the differences in current recreational marijuana taxes state by state.

Rec. Marijuana Tax Rates: A State by State Look

Alaska

In the spirit of crazy cannabis tax codes, we might as well start with what could turn out to be the craziest.

Ballot Measure 2, passed in November of 2014, legalized the possession of recreational marijuana beginning Feb. 21, 2015.The measure set a hard $50 per oz tax on recreational marijuana across the board. At current market prices in Alaska, that’s about 20% excise tax. There are still currently no licensed recreational dispensaries in Alaska, the process of regulating the new marijuana industry has taken a year to hash out (pun intended). Because of late legislation currently under review, Alaska could see that excise tax number rise to ~25% by the time the industry is fully rolled out in late 2016. The Alaska Marijuana Control Board (MCB) only began accepting new business applications in February of this year and are required by law to begin reviewing those applications May 24, 2016.

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One day previous, on May 23, 2016, the state is set to launch a first-of-its-kind ‘seed to sale’ state tracking system for marijuana products. A similar program was proposed in Colorado but was never implemented, citing the possibility of wide-ranging errors and mismanagement as a cause. The continued funding of this program indicates little chance of a future decrease in the tax rate in Alaska.

Colorado

The Centennial State was the first in the nation to vote in favor of recreational marijuana sales by approving Amendment 64 in November 2012. One year later, the current tax provisions for recreational marijuana sales were enacted by voting in favor of Proposition AA. On Jan. 1, 2014, the first recreational marijuana dispensaries opened their doors.

Amazingly, Colorado saw far fewer growing pains in marijuana tax code than would be assumed with such a volatile, unknown, and simultaneously booming industry.

Statewide, marijuana products are taxed at a rate of 10%. This rate will be decreased via enacted legislation in July of 2017 to 8% – equaling the state alcohol sales tax rate. The state imposes an additional 15% excise tax rate, 3% state sales tax rate, and up to 3.5% local tax rate (Denver), totaling a 29% marijuana tax. This is the second largest tax rate on recreational marijuana in the US. Even with the impending 2% decrease, the state will remain the 2nd most-taxed marijuana state in the country at 27%, ironically behind 2nd-to-legalize Washington state.

Excise Sales Tax in states with legal and medical marijuana sales. Courtesy: Tax Foundation

District of Columbia

The short: No marijuana tax! The long: That’s not as great as it sounds. D.C. is still a ways from rolling out a working recreational cannabis tax revenue regulation system, despite voting in favor of legalization effective Feb. 26, 2015. The measure allowing for legalization was Initiative 71, approved in November 2014. In December 2014 Maryland Congressman Andy Harris (R) inserted a provision into a federal funding bill enacted early 2015 that does not allow D.C. to fund any ‘possession, use, or distribution of a Schedule I substance.’ Marijuana is still currently listed as a Schedule I narcotic.

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Marijuana is recreationally legal in D.C., but there’s no federally legal way of regulating it. So, for now, that means a 0% marijuana tax on recreational products. A District of Columbia Council has proposed a bill making its way through legislation that would tax marijuana at 15%. If approved, this would see D.C. remain as the lowest recreational marijuana tax rate in the nation, in effect eliminating black market concerns while simultaneously allowing for proper regulation.

Oregon

Beginning January 12, 2016, the Beaver State enacted a temporary 25% excise tax on marijuana products, statewide. States still in process of full recreational legalization see this rate as close to ideal. Alaska is anticipated to tax cannabis customers at 25% once all regarding legislation has gone through. Vermont, which currently has a legislative proposal for recreational legalization in the works that was encouraged by Governor Peter Shumlin in his 2016 State of the State address, would also tax cannabis customers at a rate of 25%.

Until late 2017, Oregon will possess the lowest recreational marijuana tax rate in the country.

Oregon, however, does not see the tax rate as ideal. The enacting of legislation later this year will decrease the state excise tax to only 17%. A rate behind only the proposed 15% tax rate in the District of Columbia for lowest. Until legislation in D.C. is set to go through in late 2017, Oregon will possess the lowest recreational marijuana tax rate in the country. Lawmakers in the state say the 25% tax rate allows for still too much opportunity for the black market to undercut prices. The lower rate proposed seeks to alleviate this.

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Washington

Oregon’s neighbors to the north are undeterred by the concern expressed by the state directly south. Washington state boasts the highest recreational marijuana tax rate at 37%! With the national concern of an existing black market still undercutting the legal one, it may seem odd that Washington stands firm on such a high tax rate.

The answer may lie, as it often does, in the history of how Washington got here.

When first rolled out in July, 2014, Washington’s recreational marijuana industry taxed not only customer, but also producers, processors, and retailers. Each step of the retail sales process (producer>processor, processor>retailer, retailer>customer) was taxed 25%. That’s a 25% tax on the producer, a 25% tax on the processor & retailer, and a 25% tax on the customer at the point of purchase. That may seem excessive, but Washington also employs a 104% tax on cigarettes, so high tax rates are fairly commonplace.